If you are just starting out in the world of forex trading, you have probably seen all those fancy systems, with 14 indicators, 9 moving averages and lots of signals on the chart, those look really confusing right? Sometimes they produce results, most of the time, they don’t. You may have heard of price action trading, or you may not, but, trading forex using price action analysis is the king of all trading systems, everyone wishes they knew how to, most don’t know how to.
What is Price Action Trading?
In my opinion, price action trading is trading forex, or any other instrument for that matter, using raw price as your indicator. You make use of candle stick patterns, single candle sticks and over all price layout on the charts. This means you will be using no “lagging” indicators, apart from a moving average to help identify dynamic support and resistance levels in trending markets.
Whilst economic data, and other global news events are the forces that drive the market, we don’t need to take those into consideration what price action trading. It’s pretty simple really, news moves the market, and price action reflects this. We then analyse the price action and can get an idea of where the market is going to go.
Since the markets price action reflects all the other variables that might move the market, it makes sense to trade using price action, and ignore other indicators that lag, like MACD, RSI, Stochastic’s and others, which in my opinion, are a waste of time. The signals that these indicators give, actually get their data from price action, so, why not cut out the middle man, and learn to trade price action yourself?
Clean Price Action Charts vs Messy Indicator Riddled Charts
Below, I have shown two charts, the type of charts I like to trade, and messy charts, full of indicators. You can choose which you think looks easiest to trade, but, when you get the hang of price action trading, you will never want to use indicators again!
Clean, Price Action Chart
Messy, Indicator Filled Chart
I would like to point out firstly, that with the indicator filled chart, you actually have to give up quite a lot of your charting area for indicators, making it that bit harder to actually see the price action.
If you take a look at both charts above, I am sure you will agree that the price action chart, the one with no indicators is actually far easier to read, and see what price is doing. When a trader adds more indicators to his/her chart, all they are really doing is adding more variables to the decision making process, making it harder again to even place a trade.
How do You Trade Using Price Action?
Trading using price action setups is actually very simple, you just need to know what to look for, and I hope, throughout my blog posts here, I can teach you what you need to be looking for.
Due to the way the market is constantly repeating itself, there are a number of price patterns that are constantly shown on the charts, and it is these patterns we are looking to take advantage of. These price patterns in the market mark reversal points, or continuations of a trend, and can be very profitable if traded properly.
The first thing you need to do to get on your way to becoming a price action trader is to remove all those indicators from you charts, you just want a bare chart, maybe a moving average if it helps you see the trend better. You then need to read up on candle stick patterns (Article coming soon) and how to trade them (Article coming soon).
So, I hope this article will help you see what price action trading is, and why it can be so profitable, and easy to trade, once you have your strategy perfected. No matter what system you end up using, price action will play a vital role in it, and understanding the underlying price, will overall make you a better trader. If you are interested in learning more about price action trading, stay tuned.