Price action trading strategies

In this article we are going to discuss on how to make use of the price action strategy to trade forex.

What is price action.

Price action can be define as the study of price movement and behaviour in the market. Price action is analyzed with respect to price changes in the recent past.

Price action allows traders to read what movement is going on in the market based on recent or past movement in the market,instead of relying more on indicators. Price action focuses on how price moves across a period of time.

Traders who make use of price action tends to focus more on data and past price movements, all the possible technical indicators, such as charts, price bands, trend lines, high and low swings (swing low and swing high), technical levels such as support, resistance and consolidation.

This inteprets that every price action traders tends to take trading decisions according to their psychological state, analysis and presumptions.

Strategies used in price action:

Breakdown

Breakout

Consolidation

Support and Resistance

Order Block

Resistance

Reversal

Fakeout and many more.

What can trading pair can price action be traded on:

Price action can be used to trade all forex pairs,commodities,bonds and many more.

What time frame is best to trade using price action:

The strategy price action works on all time frames. You can trade on all time frame, from the 1min to the 1Y timeframe and more.

How to make use of the Price action strategy to trade:

Making use of the price action strategy to trade is easy and wide also, but the most important strategy would be explained here.

Trendline

Trendline is another aspect which price action traders make use of when trading. Example of this:

What this image above entails is how a trend line is used to predict price movement.

Looking at the image above,the market moved in a uptrend giving us an info that the market condition is bullish, we then draw our trend line when the market created a low at that first arrow above, after drawing the trend line,we waited for the market to test that trend line again the second time in form of another low, as seen in the image above the market did that the second time. Now we have to wait for the market to test that trend line the third time and that would be our entry. As seen in the image above, the market tested the trend line for the third time and that is a confirmation that the market is actually going to be bullish.

Once you have placed your entry, you place your stop loss and also your take profits. For a sell you follow the same procedure,you go vice versa.

Support and Resistance

Support and resistance is what most price action traders make use to trade the market.

support is an area or level on a price chart that shows buyer's willingness to buy while resistance is an area or level on a price chart that shows seller's willingness to sell.

Support and Resistance can be found on all time frames from the 1min,5min,15min,1H,4H,D and Yearly. It is very simple and an effective strategy to use.

Looking at this image above,the market is on a support level, meaning we are looking to go bullish which means buy. As you can see from the chart above, the horizontal line below the price represents the price floor. You can see by the green arrows underneath the vertical line that the price has touched this level three times in the past. This is where support comes in, we would actually wait for the market to hit the support line twice, then the third time would be our entry, where we would go bullish.

Resistance is just the vice versa of support.

Looking at this image above,the market is on a resistance level, meaning we are looking to go bearish which means sell. As you can see from the chart above, the horizontal line above the price represents the price floor. You can see by the green arrows above the vertical line that the price has touched this level three times in the past. This is where resistance comes in, we would actually wait for the market to hit the resistance line twice, then the third time would be our entry, where we would go bearish.

Disadvantage of price action:

Traders using price action may interpret the same chart or price history differently, and this can lead to different decisions. Also note that past price action movement is not always a valid prediction of future outcomes. Just make sure as a trader you are always sure with your technical analysis.

NOTE

Price action involves a lot of strategies, we have pointed out two that seems more important as a strategy. Price action has the tendency to always give traders massive profit if you know what you are doing. It is advisable to test,analyze and retest your strategy again when trading. Consistency is all you need as a trader.

Komolafe Peter Adedayo

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