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Price action forexForex Trading Strategy: The Ultimate Guide (2018 Update) Do you want to master Forex trading? Well it all starts with having the right strategy! Trading Forex using price action is simple, stress free, and highly effective. In this guide I will share my advanced Forex trading strategy with you. You will learn to use powerful price action techniques in a stress free and simple Forex trading strategy. Don’t have time to read this article right now? I will send you a ebook version that you can read offline whenever you want. Just let me know what email to send it to. Almost there! Create an account by completing the form below. Forex Price Action Strategy. The Story of Price. Price Action Setups. Chapter 1: My Price Action Trading Strategy. My Forex trading strategy is based completely on price action, no indicators, no confusing techniques, just pure price action! What is Price Action Trading? All price movement in Forex comes from bulls (buyers) and bears (sellers).

When GBPUSD moves up it’s because there are more bulls than bears and vice versa. The Forex market (and any market for that matter) is in a constant state of struggle between bulls and bears. Price action trading is about analysing who currently controls price, bulls or bears and if they are likely to stay in control. If your analysis shows that bulls are in control and that they are likely to stay in control, then you can buy (long). If it shows that bears are in control and that they are likely to stay in control, then you can sell (short). How do you analyse who’s in control of price? By using two simple price action techniques. Support and Resistance Areas. These are buy and sell areas you can easily identify and place on your chart. Once price hits these areas you know it is likely to stall or reverse completely. This allows you to buy or sell at the right time.

Advanced candlestick analysis. This is not that basic doji equals reversal stuff you may have seen elsewhere. Advanced candlestick analysis goes much deeper than that so that you have a full understanding of what a chart is telling you. Once you understand this, one glance at a chart will tell you who’s in control of price (bulls or bears) and if you should buy or sell. These two techniques make up the core of my price action trading strategy. In fact, those are the only techniques I use to find and trade high probability setups. My trading strategy differs from most courses you will come across as it is based entirely on Price Action… There are NO indicators. There are NO confusing techniques. There is NO stress. It’s simply about reading price and making smart trading decisions. Forex Price Action Strategy.

My Forex price action strategy was born in 2005 and has been constantly improved over the last 12 years – this strategy has seen it all. It has survived major market changes from the financial crisis in 2008 to the Swiss Franc disaster in 2014, to Brexit in 2016. It really has seen it all. My price action strategy works in all market conditions . From trending markets to low volatility, to ranging, to high volatility, it has weathered it all with consistent profits. Indicator based strategies work well in specific market conditions. If you have a strategy that works in low volatility markets, it will fail in high volatility, ranging, or trending market conditions. Price action adapts, indicators don’t! Price action doesn’t only adapt to changing market conditions though, it adapts to different pairs, different time frames and, crucially, to different traders. Above all, Price Action keeps your trading simple . In fact, my Forex trading strategy is so simple that you can trade it from your smartphone. I use this strategy to trade on the go – as of 2017 I take over 70% of my trades from my smartphone. My Forex trading strategy was created with simplicity in mind. The most common downfall of today’s traders is over complicating their strategy. We have all seen charts that look like this. How can you trade comfortably using a chart like this? How can you trade efficiently using a chart like this? How can you trade from your smartphone using a chart like this?

You can’t, it is too messy. The core rule of my price action strategy is to keep trading simple. Because the Forex trading strategies that work best are simple . The only thing I place on my charts is support and resistance areas . I use these support and resistance areas in conjunction with candlestick analysis to trade Forex. So what does a clean Forex chart look like? Much better than the monstrosity above! This chart is uncluttered, easy to understand and to navigate, with nothing to distract you from analysing price action. This style of trading is quick, efficient, stress-free, and you can do it from anywhere, including your smartphone. So if you want a simple Forex strategy, keep reading. Chapter 2: Support & Resistance Areas.

Support and resistance areas show you where to buy and sell, they are a vital part of every traders toolkit, and it is essential that you learn how to place them . What is Support and Resistance? Placing support and resistance areas is the most important skill you can master in trading. And placing them is easy. Support and resistance areas divide your chart up into buy and sell areas. An area that sits above current price is a sell area, any area below current price is a buy area. The terms buyers and bulls are interchangeable. Support is a buy area as buyers are found at support. Resistance = Sell Area. The terms sellers and bears are interchangeable. Resistance is a sell area as sellers are found at resistance. On the GBPUSD chart below, you can see price is approaching the blue shaded area at 1.3500. This is a strong resistance (sell) area. When price approaches a sell area large amounts of sell orders are triggered countering buy orders.

This usually results in price stalling or even turning around completely for a reversal. Why does this happen though? It’s simple, the market movers like banks and hedge funds place their orders at areas of support and resistance. Why Do Market Movers Place Their Orders At SR? Good traders don’t randomly place entry orders and hope that they get lucky. They place their entry orders at significant price levels. Significant levels come in many forms. Yearly, monthly, weekly highs or lows. Rounded numbers such at 1.0000 and 1.0500 (also called psychological levels) All time highs or lows. Areas in which price has stalled or reversed more than once. In the GBPUSD chart example above, we can see that price has stalled at the 1.3070 twice (green highlights). The next time it approaches the level it pulls back again and then again two more times (yellow highlights). Because market movers place their buy orders at the 1.3070 and when price hits the area the buys trigger causing a reversal. This happens all the time on every Forex pair and in every financial market for that matter. This is how markets work, buy and sell orders are grouped together in the same general area and when they are hit we see the impact on price.

Placing Support and Resistance Areas. There are a lot of indicators out there that claim to give you great support and resistance areas. I have tried them all and I do not find them reliable. Support and resistance placements still need to be done by a person. These are my support and resistance areas, but if you want to trade more pairs you will need to place them yourself. A good Forex trading strategy requires some work! But don’t worry, it is easy, all you are doing is placing horizontal lines when you spot an area with two or more bounces. I am going to break it down into a step by step process for you though. But first, we need to define some rules for support and resistance areas. Three Rules to Support and Resistance.

There are three key rules you need to keep in mind when placing support and resistance areas. Place areas on the body of a candle, the body is more important than the wick. The more recent the bounce the more important. Prioritise recent bounces over older bounces. You need at least two connecting bounces to place a support and resistance area. There are a few exceptions to this, the most common one being for points which are yearly or all-time highslows. When you spot a year or all-time highlow you can place an area there even if it has only once bounce. Step By Step Guide to Placing Support and Resistance. Step 1: Select a daily chart and zoom out until you see around one year of data. Don’t worry if you see a little more or less than one year, it’s not a big deal. Step 2: Identify the highest and lowest bounces in the last year and place an area at each. Remember, place your areas at the bodies, not the wicks and as these are yearly highs and lows placing them based on a single bounce is enough. Step 3: Place support and resistance areas between the first two by connecting areas which have two or more bounces. You will generally find that there are 5-8 support and resistance areas on most charts.

If you have more than 8 you probably placed too many. Chapter 3: Advanced Candlestick Analysis. Most new traders learn a little bit about candlestick analysis. But most of what they learn is completely useless! Well the standard approach to candlestick analysis is basic pattern recognition, which fails to work in real trading. I delve much deeper than that, I look at the story behind the candle and in this chapter I will show you how to do that too. You can’t skip straight to advanced candlestick analysis without knowing some basics first. If you don’t know the basics, that’s fine, I got you covered! The Truth About Candlestick Analysis. When Forex traders first start out they usually learn about candlesticks. But what they learn is usually useless. They normally see a list of “candle patterns” like the one below.

Each pattern has a set in stone definition and that is the only meaning it can have. This is not candlestick analysis, it is pattern recognition. And for a price action trader, it is useless. Actually, it is worse than useless. Thinking about candles as just patterns is counterproductive. It makes you a worse trader, it leads you to make massive mistakes. Giving a pattern a set definition leads to tunnel vision. When you see that specific pattern, you assume that something will happen. But that is not how candlesticks work. All candlesticks need to be assessed based on the candlesticks around them, and many other factors. Below is a candlestick pattern commonly called a “spinning top”. Normally people say that a spinning top means a reversal is imminent, which can be true. However, this same pattern can also mean that a continuation is imminent. It can mean that price is temporarily stalling. It can mean a lot of different things. Thinking of candles as simple patterns is the wrong way to do things.

You need to look beyond the pattern and read the story of price. Every single candle on your chart is telling you a story. When you combine those candles together, you get the story of price. The foundation of my Forex trading strategy is reading and understanding the story of price. Reading and understanding the story of price is vital in Forex. It is vital because it allows you to answer one of the most important questions in trading… Who is in control of price? This question has three possible answers: buyers, sellers, or neither. Being able to accurately answer this question is vital. If you are about to enter a short trade and you ask yourself. “Who is in control of price?

” and your answer is “buyers”, well perhaps selling is not a great idea. Let’s break down the story of price. If you look at the three highlighted candles below, it is easy to conclude that sellers are in control of price. The candles all closed lower than they opened, they all created new lows beyond the previous candles low and they all had small upper wicks in comparison to the candle body. The small upper wicks indicate that buyers were unable to push price up by much. But what does the highlighted candle in the next chart tell us? It has a short upper wick, a small body, and a long lower wick. This is what I call an indecision candle. What’s an Indecision Candle? Indecision candles occur when neither buyers or sellers can gain and maintain control of price.

They are common, but if used in the right way, they can be very powerful. Take a look at this bullish trend (yellow highlight), it is a strong trend, there are several bullish candles heading towards an area of resistance. The big bullish candles tell us that during the highlighted period buyers were in complete control of price. When price hits resistance we get an indecision candle forming (green highlight). Let’s break this candle down into a story so you understand why it indicates indecision. Large Upper Wick (Blue Highlight) A large upper wick shows that buyers tried to continue the bullish trend but failed. Sellers took control of price and pushed it down. Small Bearish Body (Green Highlight) The small bearish body shows that sellers were able to close lower than the open. This is significant because in the three candles before this price consistently closed higher than open. This shows us that buyers are losing power. Small Lower Wick (Red Highlight) The small lower wick shows us that sellers were not able to gain much ground either. This tells us that sellers are not strong enough to turn price around completely. However, they are strong enough to stall further buyer movement. All together this indecision candle forming right after strong bullish candles suggests that power has shifted from a decidedly bullish (buyer) market to an undecided market. While sellers are not in control, neither are buyers.

But there is one more thing we need to look at… … The indecision candle is forming on top of a resistance area. Let’s looks at this chart again. If you remember, in the previous chapter we talked about resistance being a sell area and support being a buy area. So the image above shows us three strong bullish candles heading into a resistance area. And then… Price stalls and we get indecision forming on top of that area. This tells us that the sell area is working. When price pushed into that area sell orders triggered and buyers could no longer continue up. That is the story of price for this chart. And this story gives us a nice little price action trade setup. Chapter 4: Setups With My Forex Trading Strategy. Price action allows you to take many different types of trades, reversals, continuations, range, swing, breakout and scalp trades to name a few. In my free Forex trading strategy I will focus on one type of setup, the easiest to spot and trade, reversal . How to Spot a Reversal Trade. Reversals occur quite often, but if you do not know what to look for, you cannot trade them. Reversals are one of the strongest price action setups, and one of the easiest to trade. And because they occur so often, you can trade this setup exclusively and be a profitable trader.

In fact, for years Forex trading strategy focussed on reversals only. However, these days I trade more price action setups. Reversal trades come in three parts: The preceding trend. The Indecision candle(s). The reversal trend. Let’s break down each of these parts. A preceding trend is a strong move by the bearsbulls heading into an area of supportresistance. In the example above, the preceding trend is a very strong bearish move, indicating that there are a lot of bears in the market and very few bulls. If bulls were strong then price would not be trending down. The preceding trend shows us that bears (sellers) have strong control of price and they are pushing price down into a support area. The opposite applies for a bullish preceding trend which would show bulls (buyers) trending towards resistance, as you see below. A preceding trend can be formed by as little as one candle. If the candle is strong and covers a lot of price distance, I categorise it as a preceding trend for the purposes of reversal trading. The example below shows a single candle preceding tend. Preceding trends are pretty simple.

As long as you see a strong move heading into an area of support or resistance, you can consider it a preceding trend. The Indecision Candle(s) A reversal setup will have one to three indecision candles. The indecision candles need to form on or near to the support and resistance area. If indecision does not form on or near to the area of support and resistance, it is not a valid reversal setup. Why does it need to be on a support and resistance area? An indecision candle in a bullish preceding trend indicates that buyers are possibly losing control, and sellers may be gaining control. In a bearish preceding trend it indicates that sellers are losing control and buyers may be gaining control. However, an indecision candle does not indicate that price will reverse with any degree of certainty. An indecision candle indicates only one thing… Indecision! You cannot take a trade based solely on indecision. The image below shows indecision forming between support and resistance. If you were to enter reversal trades based solely on indecision, it wouldn’t work out too well…

What about when a bullish preceding trend heads into an area of resistance (sell area) or a bearish trend into support (buy area) and indecision forms? Well, then we get the makings of a high probability reversal setup. But we cannot enter just yet, we need confirmation, which comes in at part three of a reversal setup. The reversal trend is the third and most important part of a reversal setup. This is where we make our profit! After a preceding trend stalls at support, and indecision forms, you often see a reversal trend. The image below shows a bearish reversal trend forming after indecision on resistance. In this case we saw a transition of power from a bullish preceding trend to a bearish reversal trend separated by a stall on resistance. Where do you enter the trade though? Let’s discuss that in the next chapter. Chapter 5: Trading Reversal Trades With My Strategy. You know what a reversal trade looks like.

You know that you need to enter after indecision and before the reversal trend. In this chapter I will show you how to use my Forex trading strategy to trade reversals profitably. Don’t worry, entering reversal trades at the right time is a lot easier than you may think. My Forex trading strategy was built on reversal trading. It has now expanded beyond just reversals, but reversal trading is where it all started. Over the years I have refined reversal trade entries into a simple step-by-step process. Entering trades does not need to be difficult – remember, my goal is to keep everything simple. Getting in at the Right Time. In the previous chapter I explained that a reversal comes in three parts. The preceding trend. The Indecision candle(s). The reversal trend. You need to enter the reversal trade after part two (indecision) closes, but before part three (reversal trend) completely takes off. Obviously if you enter after the reversal trend takes off, it is too late. You also need to make sure you do not enter too early as you could be entering a false setup.

In the image below you see a preceding trend heading into support, indecision, and a failed reversal trend. If you entered too early, you would have failed this trade. Failed trades happen, there is nothing you can do about them. But getting in at the right time lowers your percentage of failed trades. Many people wait for a candle close to get in, but I have tested this thoroughly and waiting for closes gets you in too late. In the image below you can see the first candle in the reversal trend closing far from support. This means you miss out on a lot of potential profit, which is obviously not good. The key to reversal trading, or any trading for that matter is getting in at the right time . So, how do you do that?

How to Enter Reversal Trade. I have tested countless entry methods in the last 15 years. In that time I have found three awesome entry strategies: entering on new highlow, retrace entries, and distance entries. In my free strategy I will teach you the easiest, entering on new highslows. When indecision forms on an area of support or resistance, you can use the high or low of the indecision candle as an entry trigger and as a stop loss. In the image above indecision has formed on resistance after a bullish preceding trend, so we want to enter a short reversal trade. We set our entry a few pips below the low of the indecision candle, and our stop loss a few pips above the highest point of the candle. In trading, highs and lows are very important. If a new low is created from resistance it indicates sellers have taken control of price, which means we want to be short. Our stop loss sits above the high as a break of that high would indicate buyers have regained control of price. For long trades you set your entry a few pips above the high of indecision, and a few pips below the low. This is the most simple form of trade entry, but also one of the most effective. Now that you know how to enter, you need to know where to set your target. Where to Set Your Target. Targets are also very easy, you need to make sure your target comes before major barriers like the next area of support or resistance.

So, if you enter a long reversal from support, make sure that your target is before the next resistance area. The minimum risk to reward ratio I use is 1:1.5 R. This means that my target has to be a minimum of 1.5 times the size of my stop. If my stop is 100 pips, the minimum size of my target is 150 pips (1.5 x 100). If my stop is 75 pips, the minimum size of my target is 112.5 pips (1.5 x 75). If there is a major barrier like the next support and resistance area in the way of my minimum target I skip the trade. In the image above the support area is before my minimum target of 1.5 R is met so I skip the trade. What Pairs and Timeframes With The Forex Trading Strategy? The last thing you need to know is the pairs and timeframes. This strategy works on every single Forex pair, and it also works in other markets like cryptocurrencies, options, futures, stocks and everything. I trade around 10 pairs regularly. However, I often have extra pairs on my list that I monitor. If you want to see what I am currently watching check out my weekly analysis on YouTube. As for time frames, I currently trade these.

Many people do not have access to the 6, 8 and 12 hour time frames because their broker doesn’t support it. The general rule in trading is the more time frames you trade the more trades you find. If your broker does not support 6, 8 and 12 hour time frames you need to find a broker who does, or simply use a charting platform separate to your broker. While this strategy can be traded with just the 4 hour and daily time frames, there is absolutely no sense in sacrificing potential trades because your broker is too outdated to provide new time frames. Chapter 6: Learn More About My Forex Trading Strategy. If you want to get my latest analysis, or want to learn more price action setups, I got you covered. Every Monday I do weekly analysis using my price action strategy. You can check it out on my YouTube channel. If you want a more in-depth guide to my Forex trading strategy you can check out Forex Mastermind. In my course, I expand on this strategy, and I also share different price action strategies. Learn My Forex Scalping Strategy. While the strategy above is an awesome day trading strategy and even a swing trading strategy, for scalping you will need a different approach.

In this article, I share my Forex Scalping Strategy. The Forex Trader’s Guide to Price Action. by James Stanley , Currency Strategist. Price action and Macro. Your Forecast Is Headed to Your Inbox. But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly. You are subscribed to James Stanley. You can manage you subscriptions by following the link in the footer of each email you will receive. An error occurred submitting your form.

Please try again later. Over the past few months, we’ve published multiple articles on the topic of Price Action, which is the study of one of the most pure indicators available to traders: Price. With knowledge of price action, traders can perform a wide range of technical analysis functions without the necessity of any indicators. Perhaps more importantly, price action can assist traders with the management of risk; whether that management is setting up good risk-reward ratios on potential setups, or effectively managing positions after the trade is opened. This article is a capstone of all of price action studies that we’ve published thus far; teaching traders to analyze and grade trends, enter trades in 6 different ways with various setups, and manage risk while looking at support andor resistance. Before we get into the individual elements of price action, there are a few important points to establish. The first area of analysis that traders will often want to focus on is diagnosing the trend (or lack thereof), to see where any perceivable biases may exist or how sentiment is playing out at the time. In Price Action Introduction we looked at how traders can notice higher-highs and higher-lows in currency pairs to denote up-trends; or lower-lows, and lower-highs to qualify down-trends. The chart below will illustrate in more detail: Created by J. Stanley. After the trend has been analyzed, and the Price Action trader has an idea for sentiment on the chart, and trend in the currency pair – it’s time to look for trades. There are quite a few different ways of doing so, and we’ve published quite a few resources on the topic. In Price Action Pin Bars , we examined one of the more popular candlestick setups available, which traders will commonly call a ‘Pin Bar.’ The Pin Bar is highlighted by the elongated wick that ‘sticks out’ from price action. The picture below will show a pin bar in greater detail: Created by J. Stanley. We took this a step further in How to Trade Fake Pin Bars , as we looked at how traders can trade candles that show long wicks that don’t quite ‘stick out’ from price action.

This is where trend analysis can greatly assist in the setting of initial risk (stops and limits). The following picture will show how a trader might want to play a ‘Fake Pin Bar.’ Created by J. Stanley. Periods of congestion or consolidation can also be used by traders utilizing price action. In Trading Double-Spikes , we looked at the ‘double bottom’ or ‘double top’ formation that is popular across markets. We looked at two different ways of playing Double-Spikes, both of which we’ve outlined in the following 2 charts. We looked at the Double-Spike breakout for instances in which traders are anticipating that the support (or resistance) that has twice rebuked price may get broken with strength. The Double-Spike breakout is plotted below: Created by J. Stanley. And for situations in which traders are anticipating support or resistance continuing to be respected, the Double-Spike Fade may be more accommodating: Created by J. Stanley. On the topic of congestion, another very popular setup that we discussed was Trading Price Action Triangles . While there are different types of triangles, most traders look to trade these periods by anticipating a breakout. Below is the ‘Descending Triangle,’ in which price has respected a horizontal support level while offering a down-ward sloping trend-line. Related is the ascending triangle that is highlighted with an upward sloping trend-line. In both instances, traders are often looking to play breakouts of the horizontal support or resistance level (this horizontal line is support for descending triangles, and resistance for ascending triangles). Created by J. Stanley.

If no horizontal support or resistance exists, traders may be looking at a ‘symmetrical triangle,’ which adds an element of complication since there are no horizontal levels with which to look to play breakouts. The following illustration shows a symmetrical triangle setup, along with how a trader may look to trade it: Created by J. Stanley. And for periods in which the market is ranging the article How to Analyze and Trade Ranges with Price Action went over the topic in detail. Created by J. Stanley. In Price Action Swings we identified ‘swing-highs’ and ‘swing-lows’ with which traders could use to identify comfortable areas of setting stops or limits. Created by J. Stanley. And of course, in an up-trend: Created by J. Stanley. We took this a step further in the article How to Identify Positive Risk-Reward Ratios with Price Action , so that traders can analyze the relevant swings to decide whether or not the potential trade (given its management parameters) would be warranted. Created by J. Stanley. And of course, once we are in the trade, managing profits is a topic of key consideration. We looked at exactly that in Trading Trends by Trailing Stops with Price Swings . The following picture will illustrate this concept further: Created by J. Stanley. --- Written by James B. Stanley. You can follow James on Twitter @JStanleyFX.

To join James Stanley’s distribution list, please click here . DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. An Introduction to Price Action Trading Strategies. Price action describes the characteristics of a security’s price movements. This movement is quite often analyzed with respect to price changes in the recent past. In simple terms, price action is a trading technique that allows a trader to read the market and make subjective trading decisions based on the recent and actual price movements, rather than relying solely on technical indicators. Since it ignores the fundamental analysis factors and focuses more on recent and past price movement, the price action trading strategy is dependent on technical analysis tools. Many day traders focus on price action trading strategies to quickly generate a profit over a short time frame. For example, they may look for a simple breakout from the session's high, enter into a long position, and use strict money management strategies to generate a profit. If you're interested in day trading, Investopedia's Become a Day Trader Course provides a comprehensive review of the subject from an experienced Wall Street trader.

You'll learn proven trading strategies, risk management techniques, and much more in over five hours of on-demand video, exercises, and interactive content. Tools Used for Price Action Trading. Since price action trading relates to recent historical data and past price movements, all technical analysis tools like charts, trend lines, price bands, high and low swings, technical levels (of support, resistance and consolidation), etc. are taken into account as per the trader’s choice and strategy fit. The tools and patterns observed by the trader can be simple price bars, price bands, break-outs, trend-lines, or complex combinations involving candlesticks, volatility, channels, etc. Psychological and behavioral interpretations and subsequent actions, as decided by the trader, also make up an important aspect of price action trades. For e. g., no matter what happens, if a stock hovering at 580 crosses the personally-set psychological level of 600, then the trader may assume a further upward move to take a long position. Other traders may have an opposite view – once 600 is hit, he or she assumes a price reversal and hence takes a short position. No two traders will interpret a certain price action in the same way, as each will have his or her own interpretation, defined rules and different behavioral understanding of it. On the other hand, a technical analysis scenario (like 15 DMA crossing over 50 DMA) will yield similar behavior and action (long position) from multiple traders. In essence, price action trading is a systematic trading practice, aided by technical analysis tools and recent price history, where traders are free to take their own decisions within a given scenario to take trading positions, as per their subjective, behavioral and psychological state. Who Uses Price Action Trading? Since price action trading is an approach to price predictions and speculation, it is used by retail traders, speculators, arbitrageurs and even trading firms who employ traders. It can be used on a wide range of securities including equities, bonds, forex, commodities, derivatives, etc. Price Action Trading Steps. Most experienced traders following price action trading keep multiple options for recognizing trading patterns, entry and exit levels, stop-losses and related observations. Having just one strategy on one (or multiple) stocks may not offer sufficient trading opportunities.

Most scenarios involve a two-step process: 1) Identifying a scenario: Like a stock price getting into a bullbear phase, channel range, breakout, etc. 2) Within the scenario, identifying trading opportunities: Like once a stock is in bull run, is it likely to (a) overshoot or (b) retreat. This is a completely subjective choice and can vary from one trader to the other, even given the same identical scenario. Here are a few examples: 1) A stock reaches its high as per the trader’s view and then retreats to a slightly lower level (scenario met). The trader can then decide whether he or she thinks it will form a double top to go higher, or drop further following a mean reversion. 2) The trader sets a floor and ceiling for a particular stock price based on the assumption of low volatility and no breakouts. If the stock price lies in this range (scenario met), the trader can take positions assuming the set floorceiling acting as supportresistance levels, or take an alternate view that the stock will breakout in either direction. 3) A defined breakout scenario being met and then trading opportunity existing in terms of breakout continuation (going further in the same direction) or breakout pull-back (returning to the past level) As can be seen, price action trading is closely assisted by technical analysis tools, but the final trading call is dependent on the individual trader, offering him or her flexibility instead of enforcing a strict set of rules to be followed. The Popularity of Price Action Trading. Price action trading is better suited for short-to-medium term limited profit trades, instead of long term investments. Most traders believe that the market follows a random pattern and there is no clear systematic way to define a strategy that will always work.

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. A lot of theories and strategies are available on price action trading claiming high success rates, but traders should be aware of survivorship bias, as only success stories make news. Trading does have the potential for making handsome profits. It is up to the individual trader to clearly understand, test, select, decide and act on what meets his requirements for the best possible profit opportunities. 4 Simple Ways to Become a Better Price Action Trader. by James Stanley , Currency Strategist. Price action and Macro. Your Forecast Is Headed to Your Inbox.

But don't just read our analysis - put it to the rest. Your forecast comes with a free demo account from our provider, IG, so you can try out trading with zero risk. Your demo is preloaded with ?10,000 virtual funds , which you can use to trade over 10,000 live global markets. We'll email you login details shortly. You are subscribed to James Stanley. You can manage you subscriptions by following the link in the footer of each email you will receive. An error occurred submitting your form. Please try again later. Price Action Article Summary: Price Action is a form of technical analysis that focuses solely on past prices that have traded in the market This article contains a simple, and complex method for new traders to begin learning price action This study can be furthered in the live sessions on DailyFX in which Analysts and Instructors explain price action in real market conditions. One of my favorite phrases to use in webinars is as follows: ‘Price Action is my favorite indicator, because it’s the only one that will never tell me a lie.’ And this is true; albeit maybe a little ‘opaque’ for new traders, or even experienced traders that haven’t yet found the study of price action.

The study of price action entails reading past prices, to build an approach or plan for the future. Surely, most traders that end up ‘making it’ as a trader will find this specific study of technical analysis eventually; but it’s usually only after multiple disappointments and failed attempts at building indicator-based strategies that zig when the market actually ‘zags.’ So, please allow me to elaborate on my earlier statement. Price action will never lie to us, as traders, because it never purports to tell us what WILL happen; but rather it only tells us what HAS happened. There is a chasm of disconnect between these two premises. 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’re using - well, it’s really just a fancy way of looking at previous price action. So, regardless of the strategy - those same boring concepts of risk, trade, and money management are of the upmost importance to the trader. But after that - traders can focus on getting the probabilities on their side as much as possible through analysis, and this is where price action can really shine. Because, once again - this is a ‘clean’ way of looking at past prices, without the obfuscation of a mathematical formula that may be obscuring what’s happened in the recent past. Below are four simple ways that traders can become better at reading, reacting, and analyzing price action. Method 1 - The Price Action Primer.

If you’ve been to DailyFX over the past couple of years, you may have encountered a previous article on price action . We talk about this A LOT because of all the aforementioned reasons, and quite simply - it works. Not that it works in telling us the future, but it works in allowing us to see the past as efficiently and honestly as possible. Method 2: Grade Trends by Focusing on Swings. One of the first pillars of technical analysis centers on that age-old saying of ‘the trend is your friend.’ And the reason for this goes right back to one of those very first things we touched on at the beginning of this article: The future really is unpredictable. But trends take place for reasons, right? Maybe it was a QE announcement, or a Debt Crisis - whatever the reason, trends exist much like the tide of the ocean exists. And just like swimmers in the ocean, traders are often best served by going with the flow. Because, if we look at trading as pessimistically as we can, and we assume that any individual trade is akin to flipping a coin, then we have a 5050 chance of price moving up or down, right? Well, if that bias continues, and further - if we are trading in the direction of that bias, it stands to reason that we can begin moving our chances or probabilities of success slightly better than a 5050 split. Perhaps it’s small, perhaps as small as 5149 in our favor, or 5248 - but the logic is the same. If what has happened continues happening, I may stand a better-than-fair chance at success. If we add in strong money management, well - now we have an entire strategy! Traders can read and gauge trends using solely price action.

We expand on this topic in our Introduction to Price Action ; but we can simply look to the chart to point out the trend. Up-trends will often be highlighted with higher-highs, and lower-lows. Meanwhile, down-trends will see lower-lows, and lower-highs. And this, in-and-of-itself, is very powerful. but the big question you need to ask yourself is whether it is enough to just simply ‘buy’ when prices have been moving higher, or to ‘sell’ when prices have been moving lower? The answer is a definitive ‘no.’ And the reason is because, once again, we want to try to get the best possible chances of success in the market given the information available to us, and for that we can move on to the next method. Method 3: Use Price Action to Highlight Valuable Support and Resistance. The second primary aspect of technical analysis is Support and Resistance , and this is another message that the study of prices can bring to us. Price Swings can identify support and resistance in the market. Reading ‘swings’ in the market is an easy way to begin doing this. A swing can, quite simply, be classified as an inflection point in the market. We discussed this topic in the article Price Action Swings, and have added an illustration below to highlight this point. The swing in the market is the point at which demand outstripped supply (in the case of a swing low setting support), or supply ran over demand (creating a swing high of resistance before prices moved lower).

Traders can use these progressively higher swing-highs, and higher swing-lows to define an up-trend. Each of these swing-highs offering a point of support with which traders may be able to look to buy into the up-trend ‘cheaply.’ Higher swing-lows define support in an up-trend. They can also use progressively lower-lows, and lower-highs to denominate a down-trend. And, of course, each of these lower ‘swing-highs’ become levels of resistance that traders can use. Lower swing-highs define resistance in a down-trend. We can even rope in some additional Support and Resistance studies in an attempt to find really important levels. Psychological levels , for instance, can be a great way of pointing out swings that might have a little more importance in the market place. Fibonacci can be another fantastic addition to Price Action to point out levels that other traders may be watching for. After traders can identify swings with support and resistance inflections, traders can then begin looking to buy up-trends cheaply, at or near support; while traders can look to sell expensively when prices are at or near resistance. Which brings us to the exact entry of the trade… Method 4: Use Price Action Formations to Trigger into Positions. After the trend has been identified, and after traders have found support and resistance via swings displayed in the marketplace, traders can begin looking for formations to decide when, and how to enter into positions. There are quite a few of these out there, and we’ve talked about numerous such formations over the past few years. Most recently, we highlighted five of the most common bearish reversal patterns in the article, Trading Bearish Reversals .

A Bearish Engulfing Pattern before a massive move lower. And, a favorite of price action traders, the pin bar can offer some excellent entry opportunities. I know that when I was learning price action, much of it, at least initially, felt very esoteric. So, in our constant effort to provide the best possible education for our traders, we offer numerous price-action based webinars every single week. I do a webinar on DailyFX e ach week. During this webinar, I’ll look at various markets to show how traders can integrate this type of knowledge in a dynamic environment, and further - how to strategize with and around it. Have you ever wondered what causes currencies to fluctuate? Check out page 8 of our free beginner FX guide to understand the fundamental drivers that play a major role in determining a currencies value! -- Written by James Stanley. James is available on Twitter @JStanleyFX.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets. Welcome to The Forex Guy's Price Action Trading Blog. Thanks for stopping by, here you find all my knowledge on price action stratgies , swing trading , and breakout trading . oh, and some awesome stuff for Metatrader 4 too! The Big Forex Price Action Strategy Tutorial For Chart Reading Mastery. Updated: August 9, 2018. Are you sick of suffering from crippling anxiety when you’re looking at your charts for something to trade? Do you want to be able to read a price chart fluently, … 4 Crazy Price Action Forex Tips That Will Give Immediate Results! Updated: August 9, 2018.

Do you want to be able to open up any price chart, and forecast near term price action with confidence on your own? Every trader aspires to be an awesome … My 3 Best Forex Trading Strategies For Beginners That Work! Published: September 20, 2017. If you’ve found yourself on this page – I am going to assume you’re very passionate about Forex trading and want to go far with it. The sad truth is … What is Price Action Trading? The Holy Grail For Forex Traders. Updated: August 9, 2018. Price action is the king of the Forex technical world. It offers traders essential knowledge that strengthens any technical strategy, and enhances forecasting ability. Have you ever just wanted to … How To Make Your Own Custom Chart Template For Metatrader 4. Updated: June 28, 2017. Let’s face it, when you initially load up MT4 and open up your first chart – those iconic ‘green & black’ themed colors can make you cringe. Unless of course …

Forex junkie & price action trading specialist! Here I share my knowledge & experinces with technical strategies, focusing on swing trading, and breakout trading. I am also obessed with trading psychology, and my new area of research - data mining & quantitative analysis. Price Action Trading. TABLE OF CONTENTS: Price action trading ( PAT ) is a form of technical analysis which invokes awe and confusion at the same time. If you have been around trading forums a lot, you might have come across a few traders boasting of how they trade purely with price action. Price action trading goes by many names, but the most commonly used phrase referring to price action is “ naked trading ” or “ trading naked ”. So what is price action and why is this form of analysis always looked up to? Read this article further to understand what price action is and how you too can trade with price action. Basics of Price Action Trading.

Price action trading is a form of technical analysis devoid of any technical indicators. Price action analysis is built upon the tenet that price reflects everything and therefore price is considered to be the, and only indicator that traders need. In price action trading, price is of utmost importance to the traderanalyst. It is a study of price in relation to the past price (or price history). Therefore, price action is nothing but a study of how price changes. It is common knowledge that any technical indicator, be it moving averages, or oscillators such as Stochastics or RSI, all these indicators tend to use price as the base. For example, a simple moving average is constructed as an average of price over a specified period of time. Therefore, proponents of price action believe that it is better to use price as an indicator itself and trading with price directly rather than having to use any indicators. The chart above is typically reflective of how price action traders trade. As you will notice, there are no indicators on the chart, but rather some trend lines, support and resistance and so on. What are the basic building blocks of price action trading? Price action trading is built upon the analysis of the following: Candlestick patterns Support Resistance levels. Price Action with Candlesticks. The candlestick approach of price action deals with a certain behavior of price depicted in the candlestick charts. Of course, at times the OHLC bar chart is also used. Although both the bar chart and candlestick charts tend to reflect the same sentiment, candlesticks are used as they are easy to recognize.

Some of the common price action candlestick patterns are: Pin bars: Indicates rejection of price or more buyers or sellers ( ? What is PinBar? ) Inside Bar ( ? What is Inside bar? Download InsideBar indicator) BullishBearish engulfing bars: Indicates extreme sentiment in the market ( ? What is Engulfing bars? Download Engulfing indicator) ) BullishBearish harami: indicates market sentiment Doji: Indicates indecision in the markets 2 bar reversal ( ? What is 2bars-reversal? ) There are many more candlestick patterns but the above are some of the important price action patterns that traders often look to and are also easy to identify with. Although the candlesticks come with different names, they basically reflect the market sentiment. The example below shows a bearish engulfing candle . In other words, this two candle price action formation indicates that the sentiment in the market is bearish as price failed to make a higher close and the lower close was much lower than the previous open. As you can see, the following price action trading after the bearish engulfing pattern saw a continued decline in the market. Trading can in fact be done by reading the price candles alone. The following example shows how a long position could be traded by simply looking at and understanding the price action that is unfolding. We first spot a very bullish candle, which clearly engulfs the previous candles bearish price action. So a long position is initiated at the high of this candle.

The next candle closes bullish but leaves a long upper wick, indicating some kind of rejection. The following two candles are lower, but the fact that they have long lower wicks is indicative that there are more buyers and then sellers. So the long position is kept open. After the two bearish candles, we see a series of bullish price action (with subsequent closes higher). It is after the appearance of the doji candle, is when the long position would be reduced. This approach, as you can see requires a bit of skill and understanding of the market s and of course price action itself. If we look to the same chart but with indicators , we can notice how the buy signal has been triggered a bit lately . Combining Price action with support and resistance. Besides analyzing the candlestick patterns in isolation, price action can be more effective when combined with support and resistance. For example, a bullish engulfing candle near a key support level offers a great probability of taking a long position than having to trade merely off the candlestick pattern with no reference to past price. This is where support and resistance can help the traders. If we look at the same chart as show above, but zoom out a bit, notice the region from where price made a bullish sentiment candle?

If we look to the left of the chart, that region was an important support level (or an area where there were more buyers in the past). Therefore to the price action trader, this was a no brainer trade. And it was a low riskhigh probability trade as well. This is something that indicator based technical analysis wouldn’t be able to reflect as accurately as with price action. Besides the support and resistance, price action trading can pretty much be applied to any trading system or markets. By reading the candlesticks, the market sentiment is expressed explicitly on the charts, thus allowing traders to understand the bias in the markets. The following chart shows how price action trading can be applied to a moving average based trading system . The rules of moving average states to buy when price is above its moving average and to sell when price is below its moving average. In the chart below, we notice how the moving average was broken, but after a minor drop, price rallied back.

Without the understanding of supportresistance in this aspect, a trader would have had no clue on how to trade. But look how the perspective changes when we have the support and resistance lines drawn on the chart. A bearish candle at the second retest is indicative that market sentiment will be bearish, which was reiterated by the following bearish candles that were formed. Price Action Trading – A formidable way to trade the markets. As you can see from the above examples, 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. While price action might seem a bit complicated at first, with due practice it can become second nature for the trader to trade with price action.



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