Price action trading comprises the process of building all trading choices from a simple price chart. This entails no indicators with the inherent latency they bring (they can be used as confluence but not a primary decision factor when trading this way).
Any market we analyse will bring forth information around the changes in price over a given period of time in the anatomy of technical charts is how we trade from this information.. Technical rraders believe that price action charts display all factors of any market for any given timeframe.
Price charts show the mass market psychology in action and the feelings regarding this instrument of all traders who are trading it.
Any economical information that contributes to price motion on the market is first converted into a thought in the mind of traders and speculators.
Traders ask these questions and more:
- Could this information affect the market?
- What happens if I miss the move?
- What happens if I lose?
Fear and greed move the markets. This feeling is then converted into an impulse from the trader to enter trades thru price action analysis and the cycle continues. There are of course many other factors contributing but it is the way these are interpreted by humans that drives the markets.
Price action setups include some of the following:
- Pin bar/hammer/hanging man
- Outside bar or engulfing bar
- Inside day/inside bar
- Abandoned Baby
- Morning Doji Star
- Three Inside Up
- Three White Soldiers
- Doji Star
- Dragonfly Doji
- Morning Star
- Piercing Line
And the list goes on......
So how is price action used on the forex market?
Price action trading on forex is popular due to the liquidity on offer and leverage available to traders. People new to the market should study hard and learn how to demo trade a few simple but effective price action patterns like the one's listed above. Demo trading price action setups in conjunction with support and resistance can help traders develop the skills needed to trade Forex.