Written by: PaxForex analytics dept - Friday, 30 October 2015 0 comments
Price action is a form of technical analysis that focuses solely on past prices that have traded in the market. As a trader, you will never truly know what will happen in the future. Any indicator or indication of what may happen in the future is just a possibility. And even then, it could be a remote possibility at best because that indicator you are using - well, it’s really just a fancy way of looking at previous price action.
Price action is simply another term for the movement of a security. And price action trading is a trading strategy that is neither technical analysis nor fundamental analysis. Rather, price action traders observe recent price movements for technical indicators and then place their trades based on their individual decision making. Only the identification of the trade condition is based on established analysis criteria, the decision to buy, sell or hold is subjective.
The key to becoming a good price action trader is to learn how to read, study and analyze the price movement charts. This is the main bit in price action trading. Looking at currency charts you will notice certain huge trends. In some cases the trends go on for months,
others weeks or even longer in some cases. The trick here is to identify such trends as well as high odds in chart patterns. In order to gain big from such trends, all you have to do is follow them.
Most people tend to think that forex trading is all about complicated strategies that require a whole lot of math and the likes. Price action trading takes a simplistic mode. Therefore, it is important to start off any of its strategy with a simplistic state of mind. Secondly, make sure to use the chart information appropriately. Look out for signals of high odds. The only time you will be required to use indicators is to confirm your trade, once in a while.
Having many messy looking indicators strewn about your charts can cause stress and increased blood pressure, and this is very dangerous mental and physical state to put yourself in when analyzing the markets. Emotions and stress are the enemies of trading success, so the more you can do to reduce / eliminate them the better and trading with price action is a huge step in a right direction. Price action trading will not only simplify your trading method, but also your mind and the mental aspect of trading which is a crucial part of becoming a successful forex trader.