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Price Action Strategies in Forex
Written by: PaxForex analytics dept - Monday, 06 November 2017 0 comments
The concept of price action trading embodies the analysis of basic price movement as a methodology for financial speculation, as used by many retail traders and often institutionally where algorithmic trading is not employed. Since it ignores the fundamental factors of a security and looks primarily at the security’s price history — although sometimes it considers values derived from that price history — it is a form of technical analysis.
Price action trading strategies are a method of trading that uses an analysis of price movement to form the basis of a trading method. This style of trading works on everything from a 1hr intraday chart all the way to the monthly chart. Since all the moves we see on a chart is the movement of price (even indicators need price to move first), it makes sense that beginners to advanced traders alike, learn how to use price action as setups for their strategies not only in Forex, but Futures, Stocks, and commodities.
Price action traders believe that the trading chart is combination of the many beliefs and emotions that other traders have in regards to a certain trading instrument. They believe that all price movement occurs due to the psychology of the crowd, and that the dominate crowd belief will push the market. When reading a price chart, price action traders will look for various trading patterns that are
formed by the movement of price. These price patterns will then lead them to make decisions based on the context the pattern is found in.
By combining the technical analysis tools with the recent price history to identify trade opportunities based on the trader’s own interpretation, price action trading has a lot of support in the trading community. Advantages include self-defined strategies offering flexibility to traders, applicability to multiple asset classes, easy use with any trading software, applications and trading portals and the possibility of easy backtesting of any identified strategy on past data. Most importantly, the traders feel in-charge, as the strategy allows them to decide on their actions, instead of blindly following a set of rules.
Price action trading requires a bit of questioning and understanding of the market sentiment. Unlike technical trading systems involving indicators, price action trading can be a smarter way to trade the markets. Of course, patience, skill and practice are essential, but once a trader gets accustomed to these, price action trading is probably the only thing they will need to trade the markets. It can be practically applied to any trading strategy, from break outs, to moving average cross-overs to oscillators.