Price Action Trading
Price action trading is a technical analysis method that focuses on price movement and chart patterns to predict future market direction. It does not rely on indicators or oscillators.
Steps for Price Action Trading in Forex:
1. Identify a Trend:
Uptrend: Higher highs and higher lows.
Downtrend: Lower highs and lower lows.
2. Wait for a Pullback:
A pullback is a temporary retracement of price within a trend.
Look for a pullback to a support or resistance level.
3. Enter the Trade:
Long (Buy): Enter when price breaks above the pullback resistance.
Short (Sell): Enter when price breaks below the pullback support.
4. Set Stop-Loss and Take-Profit Levels:
Stop-Loss: Place below support for long trades and above resistance for short trades.
Take-Profit: Set at a key resistance or support level.
5. Manage the Trade:
Trailing Stop: Move your stop-loss to breakeven or slightly lower/higher as price moves in your favor.
Position Sizing: Trade only a small portion of your account.
Risk Management: Never risk more than you can afford to lose.
Common Price Action Patterns:
Pin Bar: A long shadow candlestick with a small body.
Bullish/Bearish Engulfing: A candlestick that completely engulfs the previous candlestick.
Inside Bar: A candlestick that has a smaller range than the previous candlestick.
Double/Triple Top/Bottom: A reversal pattern where price reaches a peak/trough and then fails to break it.
Head and Shoulders: A bullish/bearish reversal pattern where price forms a «head» and «shoulders.»
Tips for Success:
Study price action charts regularly to develop an intuition for market behavior.
Practice on a demo account before trading with real money.
Be patient and wait for the right setup.
Use multiple time frames to confirm your trading signals.
Keep your emotions in check and stick to your trading plan.
Seek professional guidance if needed.
Remember, price action trading is a skill that takes time and practice to master. By following these steps and utilizing common price action patterns, you can improve your chances of successful trades in the forex market.