Trading the Forex with Price Action

Why is price action the best way to trade the Forex?

If you are new to the Forex markets you may have already been enticed into using fancy indicators, filling your charts full of colourful lines and curves. Price action trading is completely different, it strips back our charts to the bare basics. Price action charts look clean, easy to read and enable consistent technical analysis of the Forex markets.

 

So what is price action?

Price action enables traders to see all the information presented in a simple and easy to read format using candle sticks. These candle sticks can inform us about the opening price, the closing price, the high and the low of a 'candle', for each specified time interval.

Therefore, price action is a very simple yet extremely powerful technical tool.
The candle sticks have two main structural qualities:
1. The body of the candle - this is the coloured rectangular part of the candle stick.
2. The wicks of the candle - these are the thin pointy parts found at the top and bottom. These are very important as they show us where price has been rejected from. Longer wicks indicates bigger rejection.

Wicks act to help us mark our key horizontal support and resistance levels.

Below is an example of a bullish candle, where price has risen above the opening price. I use white to indicate a bullish candle but you can choose any colour you like.

Next is an example of a bearish candle, where price has fallen from its original opening price. I use the colour black to indicate a bearish candle.

The size of the candle stick can also provide us with valuable information. The simple rule here is the larger the candle the more momentum it possess and so in turn smaller candles indicate weak momentum.

Price action is like learning a new language but once studied it really does give us all the information we need to get a grip on where price has been and where price has been rejected. Thus, support and resistance levels can be marked using the price action on the charts.

Once you begin to follow price action, you learn to spot certain patterns forming. These patterns have a habit of repeating themselves.

Why do these patterns repeat themselves?

Simple, the market is run by humans and as humans we love to repeat ourselves when presented with similar circumstances. It’s just a basic instinct that we all possess.

Understanding this concept means we can use human habits to find trades that have a high chance of coming off.

This has to be taken with a pinch of salt though - although price can repeat itself we should be under no illusion that it's fool proof.

For example, say two trades that looked exactly the same formed one after the other on two different Forex pairs.  Can we expect both of them to have the same outcome - No!

The reality is that the Forex is its own master and can do what it likes when it likes and this is something we must understand. Yes we can use the price action to trade the Forex but the key is to learn how to take high probability price action setups consistently, to gain our edge over the market.

Author.
My name is Jeremy Poor, I am a professional Forex trader and my aim is to help aspiring traders to learn all about trading the Forex using Price Action  and where to look and hunt for the best trades. With lots Forex articles, videos and a dedicated  price action forum to look at, its a great place to learn how to become consistently profitable at trading the Forex.

If you want to learn more about trading the forex check out dontlettheforexdriveyouupthewall.com