Today we have a simple question: What The Heck is Price Action Trading? Well price action trading is making trading decisions based purely on price data on the forex chart. With price action trading you don’t need fancy indicators to cause you grief as has been advertised by so called forex trading experts. It’is just you and the price data on the charts. The forex data on the charts is just movement of currency prices covering a particular period of time. It reflects forex trader’s trading actions during a specific time frame which reflects price action analysis.
It makes absolutely no sense to splash a zillion price indicators on your price charts. Indicators such as MACD, RSI, e.t.c will only send you on a wild goose chase. Price action trading gives you clean, reliable signals to help you develop a profitable high probability trading system. Collectively, these signals, popularly known as price action trading strategies, help make sense out of price movement on the forex market, and they help predict the market’s future movement with a fair degree of accuracy, to give a high probability trading strategy.
Difference Between Clean Price Action Chart and Indicator-Cluttered Chart
Next we’re going to differentiate between a clean price action chart and a nasty looking indicator-chart
Clean Price Chart
This image shows a clean price action chart – no no clutter, just clean price data.
Indicator-Cluttered Price Action Chart
This is a clear example of an indicator – cluttered forex price chart with enough indicators to make you pull your hair out. The indicators are just taken attention away from the price action, which of course will make your decision on making trades more difficult.
Something You Need To Consider
There is something you need to consider concerning these two examples. The messy indicators draw so much attention to themselves, that they push the price action part to the bottom of the chart. And when you have a scenario like this, you experience nothing but chaos. Chaos in the sense that you produce needless variables that are already captured in the price action . So rather than clutter the charts with indicators go with stress-free price action trading.
How To Identify A Forex Market’s Trend
As a forex trader, one aspect of trading you need to know like the back of your hand is knowing how to identify a market’s trend as opposed to a consolidated market. You have to absolutely have to know this if you want to strike gold as a forex trader. You need to learn how tp identify price dynamics such as how to identify Higher Highs and Higher Lows in (HH and HL) in an uptrend and Lower Highs and Lower Lows(LH , LL) in a downtrend. The images below illustrated the above trends.
How To Identify Higher Highs and Higher Lows in In An Uptrend
The forex market is considered to be in an uptrend if it’s making Higher Highs and Higher Lows(HH,HL) as you can see in the above graphic. As the pattern climbs up, you get an HH, but when it takes a slight dip HL develops. This rise and dip fluctuation continues until it hit the wall and turns to head towards the bottom. When the uptrend forms it suggests it’s time to buy. So look out for this pattern.
How To Pick Out Lower Highs and Lower Lows In Forex Market Trend
As you probably know by now, LH and LL suggests the beginning of a downtrend. The downtrend starts just as the uptrend ends at the very top of the chart. And just like the uptrend pattern you’ll see a rise and dip pattern-with a rise suggesting an LH(Lower High) and a dip suggesting LL(Lower Low).When the downtrend forms suggests its time to sell. So be on the look out for that possibility.
Look for Confluent Points In Forex Market
Once you’ve gotten rid of the indicator clutter on your screen, look out for confluent points on your chart from which to trade. Now what are confluent points? Well, confluent points are levels where trade signals appear along the same key levels. Confluence levels are quite useful as they make for greater accuracy and translate into substantial profits.
As you can see from the graphic, the the bar has been nicely formed from a solid horizontal confluence level. All the variables on the chart come about as a result of movement by participators on the market which are visible to the naked eye on the chart. So just save yourself the trouble of analyzing a zillion economic indicators, and just analyze the price data on the chart, After all, the economic variables represent the happenings on the chart.
If you strayed in on this post and you seem lost as to what the forex trade is all about, relocate to my Why Forex Trade Is So Popular post.
That’s a wrap for “What The Heck is Price Action Trading?” Price action analysis is the way to go as far as forex trading success is concerned. You only need to analyze the price data in front of you instead of a zillion price indicators. So do yourself a favor and clean all that clutter from your screen. Next time we’ll touch on simple price trading set ups.
Till then take care.
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