When I was in college, the honest truth is I didn’t even know about Forex. I knew nothing about the financial Market. I didn’t pay much interest in that either because like many other people, All i knew was, to become a ‘trader’ you needed a lot of money, university degrees, and an IQ that allowed you to breeze through complicated algebra equations.
When I discovered the Forex market it soon became clear that you don’t need much money to start up, and hey there is even this demo trading feature as well. So, I gave it a go, dived in and began my Forex trading career.
As a new trader you’re faced with an overwhelming amount of information, conflicting opinions, and sometimes just given bad advice. After all the trading methodologies and systems I tried, my journey led me to price action trading.
FIRST OFF, WHAT DO TRADERS MEANS BY ‘PRICE ACTION TRADING’
Price action trading has become a hot topic amongst Forex traders; you could say “Price Action is in a bullish trend.” But what is price action, and what do traders mean when they refer to it?
Price action trading is regarded to be the king of all technical trading methodologies. It’s a type of analysis where you use only the candlestick data on the chart to derive trading decisions from. It’s considered one of the best ways to trade the currency markets. It’s the skill of looking at individual candlesticks to anticipate the most probably direction of a market.
Price action is the ‘core’ of the markets and I am going to share with you some of the advantages you can enjoy by making the switch to price action trading.
YOU DON’T NEED TO USE INDICATORS
One of the most annoying feature of trading systems found on the Internet, is they heavily rely on indicators to derive trading signals. This means loading up your chart with squiggly lines that just create a messy, and confusing trading environment.
One sales tactic used by many Forex markers is that they have developed some ‘magic indicator’ that will make trading so easy for you, that you don’t even have to think. “Buy when the indicator turns green, sell when it goes red.” Sound familiar?
Most of you will know by now there is no automated tool that’s going to do all the work for you, if it sounds too good to be true, it generally is.
The ultimate indicator is price action itself; it’s the ‘here and now.’ Indicators provide lagging, ‘second hand’ information. The frustrating thing about indicators is they won’t signal you into a move until most of it is over.
Indicators are just mathematical algorithms that feed off the price action anyway, so why not cut out the middle man and start trading directly from the price action instead.
PRICE ACTION IS EASY TO LEARN AND UNDERSTAND
If you’re one of those people who thought your trading success heavily depended on whether you studied economics, or some advanced math degree then you’re in for a shock. Some of the best traders out there are probably high school dropouts. You don’t need a high IQ to be a successful trader, which gives everyone an equal opportunity to pursue retail trading.
Advanced strategies based on complex mathematic models, and rely heavy on the indicators are very confusing. They really just aren’t practical. The market doesn’t care how good your trading system is, it’s a battlefield of psychology. You could have the best trading system in the world, but if you’re weak minded, the market will eat you alive.
For this reason, simplicity works best in the market. With a simple strategy you have a better chance of remaining headstrong and are able to make clearer, confident trading decisions. If you’re stressed because your trading system has 10 different variables conflicting with each other, and you need to monitor them all to make a trading call, you’re going to already be on the edge of a psychological meltdown from the stress.
This is where the power of price action trading really comes to light. The simplicity of price action trading makes it a very powerful approach. Learning to read charts is simple and a repetitive process, once you repeat the process enough times you will eventually become a ‘master chart reader.’
Learning price action is one of the best steps you could take, because really most technical trading systems are derived from price action. It does take time to master, but if you have the determination and the passion you will make it.
NO NEED TO BE INVOLVED WITH THE NEWS
News like important economic data releases are the major driving force of price movement, but you don’t need to follow the fundamentals to capitalize on them. You can focus exclusively on price action movements to make your trading decisions. Generally, there is a price action signal that will give you the opportunity to position into a trade before a news event. This can get you in on the move before it happens, avoiding liquidity and slippage issues most news traders face.
News trading is stressful and it really does put you in an unhealthy emotional state which is very dangerous for your trading. I don’t know why anyone would want to pursue news trading.
PRICE ACTION SIGNALS ARE EASY TO SPOT
Price action signals generally come in the form of unique candlestick shapes like: pin bars, outside/inside days and indecision candles. They have very distinct, easy recognizable anatomies, which make spotting a potential trade easier than most systems.
These candlestick signals occur over and over again because the behavior of the market is repetitive. By observing historical price movements we can identify low risk/high probability price action signals that can yield high returns.
“The price action signal played out nicely and gave good return on investment. Very simple, logical, clear cut price action analysis is a very powerful way to trade.”
Using candlestick signals as the framework for your trades, you can define logical entry, exit and stop loss prices, instead of randomly entering the market with stop loss values that have no logical value. That’s of course if you bother to use a stop loss.
Nearly every trader will advantage from gaining a good foundations of price action. It’s a very simple, yet ironically powerful approach to the market used by many traders today. It’s stress free and can be molded to fit any lifestyle. I use Pure price action strategies, I only really have to look at the charts once or twice per day for about 15-20 minutes. Great for those who have a full time job or other commitments.
If there could ever be branded a “holy grail” of technical trading systems, price action wins hands down. Once you make the switch to price action trading, you will wonder how you even traded without it. The day I became a price action trader is the day my trading changed forever and I haven’t looked back since.
HOW DO YOU FIND TODAY’S LESSON? I WOULD LOVE TO HEAR YOUR THOUGHTS. DROP THEM DOWN IN THE COMMENT SECTION BELOW.
Raymond is a professional currency trader with experience of 4 years trading the financial markets. Certified Risk Manager and Contributor at profxtigers.com