When it comes to various trading strategies, successful Forex traders often point out that it is impossible to trade without combining both fundamental and technical analysis within a trading strategy you are using. Yes, that might be the safest approach to trading Forex, but there are plenty of solid trading strategies which do not have both of those elements.
Nobody is denying the importance of fundamental analysis, and it is without a doubt one of the best possible tools for predicting the future market movement. But today we are taking a closer look at the price action Forex strategy. Unlike the regular trading strategies, this one touches upon technical analysis but detailed inspection of price movement is the key element.
Price Action Strategy: the Basics
Price action Forex trading strategy is commonly used among both individual traders and large investment companies. It involves speculation and it can be applied to trading pretty much anything you can find in the market today, including currency pairs, commodities, and bonds. Traders who decide to trade with this strategy are encouraged to make decisions on their own and predict the possible outcome using the information they have available in front of them.
Since Forex strategy price action is loosely based on technical analysis, there are many tools that you can use in order to predict a movement. You can watch the charts, trend lines, resistance levels, or anything else which might provide you with an insight. The choice is yours to make but the goal is always the same – making a good assessment of the market situation. Price action trading will give you more flexibility and individuality when it comes to trading. There is no need to blindly follow a set of rules and you are free to act on your own thoughts on a market situation that you see in front of you.
Understanding the price action is what makes this trading strategy really appealing. Traders are individual and each of them will come to a different conclusion while watching the charts. You are encouraged to be unique and price action trading includes your own thoughts and feelings about the direction in which a price might go.
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How to use price action trading
Since the aim is to recognize a trading pattern and act upon it, you also need to have a tiny set of rules that only involve when to enter and when to exit a trade, as well as some safety measures such as a position of a stop loss order. This type of trading is recommended to short-term traders but medium-term traders can make it work for them as well. Long-term traders are advised to avoid it. The foundation of a price action FX strategy is identifying the possible trading opportunity. Then you will proceed to predicting the outcome and apply a number of orders you think would be applicable to that particular situation.
Traders are distinctive from each other and it is unlikely that two of them will be making the exact same moves while using price action Forex trading strategy. Due to the freedom this type of trading offers to its users, it is one of the most well liked strategies in the market today. Yes, you might be using the tools which are characteristic to technical analysis, but you are setting your own rules and taking the steps you think are the most beneficial.
Those who use Forex price action trading strategies are convinced that there is no clear pattern when it comes to the market movement and that the best approach you can choose is the combination of solid data provided by a tool for technical analysis and what your own gut feeling has to say. The outcome is completely up to you and you are not limited by any set of rules.
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Price Action forex Strategy: Conclusion
Price action Forex trading might be seen as the best of both worlds – you are doing an analysis of a smaller time spread, examining the history of a trend as well as the most recent movement, and then making a final decision on your own. Due to its workability, it is becoming a favorite among individual traders.
Of course, this type of trading might put you at more risk since you are not bound by any rules and you might make a wrong assessment. It is important to gain a substantial amount of trading experience before you consider using the price action trading strategy. Jumping right in it is not for complete beginners and you simply have to have the market knowledge in order to be right in your predictions.