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Trading on Price Action

2:43 PM Dec 1, 2019
14724
Forex trading

Today we will talk about price action trading. Did you know this strategy is one of the most popular used in Forex and other financial markets, such as stock market, crypto, and commodities? Moreover, it is obvious even for beginners who just started their trading career. You can meet various trading action patterns, but there's nothing complicated in it, as every indicator is derived from price, so it makes sense to learn this strategy and understand the market. Keep reading if you are interested, as we also cover the main steps for price action trading.

What is Price Action?

From the title, it should already be clear that today we will talk about trading on price action or price movement. This trading method is the most frequently used one in the Forex because the signals generated by the chart itself are the most reliable.

It’s time to take a look at what this trading style is all about. When using price action, you find various candle patterns or models on your chart. You can use those patterns and the main trend of the market to predict the future price movements with a rather high probability.

The hallmark of trading on price action is a clean chart. You will not use indicators here. The only levels you need are the key price levels, such as resistance, support, trend lines, and, possibly, the moving average. The exact list will depend on your chosen strategy.

Main Steps of Price Action Trading

Since we trade on Forex, we can not do without a plan, right? Trading on price action requires accuracy and patience. So, you will need the following:

  1. Clear the charts of any unnecessary indicators, if any.
  2. Switch to a daily timeframe, as the signals on this chart are the most accurate.
  3. Draw the levels you need - support, resistance, channels, etc.
  4. Now wait for the chosen trading setup - catch the moment when candles form the pattern around the set price levels.
  5. Wait until the pattern is fully formed and the chart moves in the direction you need.
  6. Define Take Profit and Stop Loss levels.
  7. Estimate the ratio of risk to profit. The optimal ratio is 1:3.
  8. Open your buy or sell order

Which Patterns to Choose?

There is no correct answer to this question. Each trader chooses the option that suits him best. There is a long list of available patterns:

  • Hammer candle
  • Shooting Star candle
  • Pin bar
  • Inside bar
  • Bearish or bullish engulfing pattern
  • Bearish or bullish Harami
  • Pinocchio bar
  • Head and Shoulders pattern

And that’s not all the models that can provide you a clear signal about the future price movement. No matter which option you choose, it is worth remembering several important points:

  1. If your plan is to become a professional in price action trading, you should try to master one pattern at a time. This is especially true for novice traders. When you just start working on the charts, all the candles may look the same and it will be difficult to recognize the right model on time. When you are looking for one specific pattern, it is much easier for you to notice it.
  2. Many patterns, such as the pin bar, work only around the ​​key price levels. A pin bar formed inside the swing body will not give you a sufficiently clear signal.
  3. Open a trade only when the received signal meets all the aspects included in your trading plan.

Advantages of Trading on Price Action

  • The system works in any market - upward, downward, or sideways.
  • When working directly with the price, you are more responsive to any market changes.
  • Price action signals usually give the most accurate signals, even better than any indicators.
  • You better avoid over-trading as the necessary patterns do not appear often in the market.
  • Price action trading is suitable for any type of trader.

Trading on price action is only suitable for patient traders. I’ll tell you more, waiting can be the most difficult part of this type of trading. However, you should always remember that only a patient trader can become truly successful. You can use price action trading to train such a crucial quality.

There is one more difficulty that you have to face in this type of trading - strong emotions. When trading solely on price action, you make all the decisions by yourself. In case of a failed trade, many traders begin to blame themselves, their broker, or even the whole market. Usually, that’s the moment when most people leave Forex. Prepare yourself for the inevitable losses, tune in to a positive result, and move forward with a clear head no matter what. That’s the only possible way to go through all misfortunes and linger in the market.

And one more thing: trading on price action is impossible without self-confidence. Doubts can make you miss a potentially profitable trade and such trades appear in the market not that often. First, gain some confidence in a demo account before moving on to real trading. Be consistent and eventually you will succeed.

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to reward ratio trading calculator trader’s age emotion control stop-hunting false signal trading session New York session Asian session non-farm payrolls fed rates decision central banks mentor teacher Forex education Forex books candlesticks bonuses tradable bonus no deposit bonus deposit bonus cashback pending orders counter-trend trading risk-to-reward ratio 1-2% rule uptrend downtrend news releases slippage emotional trading stop orders limits orders trailing Stop correlation Correlation Matrix EURUSD EURJPY RSI Overbought/Oversold indicator doji morning start candlestick pattern liquidity London session gap requote US dollar greed excessive trading Expert Advisor trading instrument Twitter Trump euro Canadian dollar Japanese yen Mexican peso currency pairs Fed China economic news currency wars USA interest rates trade agreement H1 H4 D1 sell trade buy trade price level trading system COVID-19 coronavirus lockdown checklist Default mode network Nonfarm Payrolls intraday traders lot size Stop Out margin breakeven pip point entry price chart candles weekly candle daily candle engulfing candle Doji W1 fears money management trading signals Charles Dow Dow theory primary trend Relative Strength Index signals market noise trading volume oversold/overbought corrections candle M30 GBPUSD GBPJPY pending order fundamentals Interbank order Stop order Limit order Standard account Interbank account liquidity provider M5 chart gold XAUUSD Chinese yuan flat US Dollar Fed Interest Rates inflation level XPTUSD platinum XAGUSD silver USDCNY Chinese Yuan instruments swap trading hours Buy Stop Sell Stop Average True Range ATR range sideways range price level trading scripts Excel tables entry point equity balance applications highs and lows RSI Fibonacci terminal server proxy OS Windows XP self-trading Forex advantages gap trading Fibonacci levels USDJPY Buy Limit Cherry Blossom market cycle mark-up mark-down consolidation distribution long positions short positions double bottom triple bottom double top triple top pattern signal presidential cycle Elliott wave Kondratiev wave Forex terminology quote standard lot mini-lot micro-lot cross pairs exotic pairs counter-currency terminology Margin Call long position short position buy sell candlestick chart bar chart line chart range market channel high low ADX OHLC patterns profit level martingale aggressive EAs VPS demo account EA tester trading signal chasing the market clicking the button oil trading lot EUR cent account Forex mentor novice trader emotions control fear psychological level round numbers Key Levels indicator MetaQuotes iOS Android mobile trading mobile terminal VPS server financial portals day trader position closing short timeframe fast trading news site news portal FXStreet Investing.com Forex Factory ForexLive DailyFX CPI PPI economic indicators Non-Farm Payrolls monetary policy FOMC retail sales inflation rates program installation intuition apps ECN brokers market makers financial 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losing streak perfectionism consistent profits starting capital initial investment market psychology japanese candlesticks PAMM trust management money manager holidays market sentiment CHF CAD Great Britain pound Swiss Frank reserve currency averaging morning routine initial capital potential profit reverse pattern rounded bottom rounded top saucer inverse saucer IB Program IB Commission Sharing reversal patterns deposits payment methods payment systems local transactions trader’s block market balance