I’m sure everybody heard this term “price action”, as applicable Forex or any other trading instrument. It is used to describe movement of the market and covers number of important elements. Making new highs or lows, congestions, reversals, breakouts and chart formations are included in “price action”. Basically chart without indicators and oscillators shows only “price action”. There is a debate going on among technicians if volume analysis is included in this term. Some claim that, since it requires additional window in the chart, it is not. Others argue that one could use concept like candle volume, where volume is reflected in price through the width of candle, thus eliminate the need for extra window pane and making volume an integral part of price action. For my purposes it is a secondary consideration, since volume figures are not readily available for Forex trading. I’ll discuss it at another time.
These days trading seems to more and more complex. People are developing automated trading systems and robots, incorporating algorithms into their methods. Even those who don’t go that far very often rely on oscillators like MACD, CCI, RSI, Bollinger Bands, Gator, Force, Stochastics or any other of the hundreds if not thousands of tools available through charting software of trading platforms. Just choosing one for use can be overwhelming, let alone learning to use it properly. New ones are made available daily, making it even more difficult.
For some all this is becoming too complex and they like to stay, or return to, price action analysis and trading. The simplest form of this is using highs and lows as cornerstones of decision making process. They dictate entries, provide stops and suggests targets. For example, if price is moving lower, turn to above latest minor high could be used as a long entry, on a premise that the trend is changing. In this case, the low established just prior to the move above the high could be used as stop loss. I take these kind of trades all the time, only try to keep my stops even smaller. Here is a typical chart for this kind of set up.
Cross is EUR-NZD using 4H chart. I even removed moving averages, for now. Should the price turned around now, my entry would be at 2.0932, targeting 2.1220, or so, previous prominent resistance. Price action gives a stop loss under 2.0560, latest low. If the price moves there before taking out the buy order, everything is adjusted. My blog is full of trades like this. I like setting targets for my trades, swing trading. This gives me an idea about approximate length of commitment, as well as helps me utilize money more efficiently. Draw down is, should the reversal be for real and put some serious move, I only participate in a small portion of this swing.
Simple price action strategy can help to stay in the move for a longer time, trying to capture bigger percentage of the distance covered. As the price develops on the chart of choice, making new higher highs, and trade is gaining momentum, stop can be moved to new lows created under the highs. This should keep us in the trade longer, hopefully resulting in bigger gains. We don’t know when a set up like this gives a limited opportunity, something I typically seek, or an all out reversal. However, the longer the preceding trend, the higher the probability for a more significant move in opposite direction. Also, if the price already tried to reverse and failed, enhances the chances of the next one being successfull, as is the case with this EUR-NZD intermediate chart.
The down trend here has been prolonged. In fact this chart doesn’t even cover it entirely. One failed reversal is visible here, while another one happened sooner. Two failed reversals don’t guarantee success for next one, but it improves the odds. I want to take this trade, without an objective and use the principle described above to try to ride it us high as possible, when it happens. It will likely be a long term trade with many update, but it should illustrate the concept in real life. And this chart also.
Sell off in GBP-JPY has not been as long as in last example, but it already moved above 1500 pips. This chart also already had one failed reversal, that’s why I bring it up here. Besides, I like trading the beast Suggested entry here is 151.27 with no target. Price action will determine how far this trade goes. I expect numerous updates, first for entries and then for stop placement on both these charts. They will be mentioned frequently in weeks to come.
Trades using highs/lows can be used on any time frame. For the purpose of this blog longer charts are more suitable. Even if don’t have time to place an update, like on Friday, it probably won’t matter for set up like this. Short time frames would have to be updated frequently. something I can’t do. This particular approach is not infallible, trades are often stopped out on spikes and not every reversal results in a sustained move. However, the idea is simple to implement and understand. That alone makes it worth mentioning. Anybody who likes to be “always in” should find this concept interesting because it allows trader to be in position at all times. I don’t trade like that, but some people love it. They go through a lot of smaller losses and try to capture huge moves. This is one of the ways to do it.
Mike K.
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[...] Price action Forex trading. | fxmadness.com fxmadness.com/2009/09/19/general/price-action-forex-trading – view page – cached I’m sure everybody heard this term price action, as applicable Forex or any other trading instrument. It is used to describe movement of the market and — From the page [...]
This is good Mike. There is a question of correctly identufying tops/bottom. Since there is no fast definition, some of them are difficult. I will follow this with interest.
Yes, there is some element of judgment, but most of the time, it is easily visible. These trades will be updated many times and it will be explained on live examples.
What do you mean by “always in”. Does it mean that you have a trade at all times. It doesn’t look that you trade like this, being so picky with entrences.
[...] received surprisingly large number of emails following the price action post from yesterday. Thank you. In order to not become repetitious, most of the questions will be [...]
[...] update needs to be made trades featured in Price action Forex trading. As mentioned before, new category “Price action trade” was created, which will track [...]
[...] lines liked what they saw. Another mover today has been Kiwi. This makes me readjust entry to the price action trade [...]
491XK9 I want to say – thank you for this!
[...] adjustment was made to a buy order in EUR-NZD. This pair has been featured in a Price action Forex trading post. Idea is to use only high-lows for trade and its management once it is under way. Market will [...]
[...] to update the Price action trades. Yes, one of the orders has been triggered and a trade is under way right now. EUR-NZD had one more [...]
I bookmarked this link. Thank you for good job!,
[...] Nice little trade. This is not something I can say about EUR-NZD, originally described in the Forex price action. Buy order had been filled few days ago, only to be stopped out [...]
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admin wrote an interesting post today on7. Day Trading and Investing: Charting Patterns Lesson 1 of b Forex/ b b… /…
[...] there ensures profit. As a reminder, this trade has no objective set, it will remain live until price action determines it by moving under most recent minor low using 4H chart. I can only hope it is going to [...]
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