If you are a forex trader looking about for forex trading systems, you certainly will be spoilt for choices. There are a wide variety of picks, ranging from ultra-complex ones to basic forex trading systems. But always bear in mind that simpler the forex trading system, better is its functionality in forex trading.
Price Action Analysis
As the name clearly suggests, price action analysis denotes that your analysis of the forex market is completely centered upon the price movements of the market. Other forex traders make use of additional indicators to analyze the market, and most of the time, they use multiple indicators at one time. So when compared to their chart, your forex trading chart looks neater and cleaner because there are no indicators to clutter it up.
Convenient Forex Trading
No matter which economic variable you consider, it will certainly induce a price movement which is visibly apparent on a market’s price chart. Then it does not make a difference if the filtering of the variable is being done mechanically by humans or automatically by computers.
It definitely is much easier to focus on just one price indicator and use price action analysis to base your trading decisions than having to evaluate hundreds of different indicators. This level of convenience and ease in using it, combined with its high effectiveness makes price action analysis quite popular amongst the forex traders.
Points to Note When Using Price Action Indicator
Price action analysis is quite versatile and can be applied in all of the financial markets as it basically utilizes the fundamental price data. But the forex market is where this indicator can be put to its best use as the extreme liquidity provided by the forex market makes it quite easy to enter and exit trades.
The forex market trends and high volatility help better directional trading, bringing out the best of price action trading in the process.
The most important thing to do when applying price action indicator is to keep just the price charts in a prominent color and strip away every other distracting indicator from your forex chart.
How to Recognize a Price Action Trading Signal?
You are now already familiar with the importance and effectiveness of using price action indicator. But if you have decided to apply this to your forex chart, then it becomes extremely important to recognize a price action trading signal when it forms.
So, let us now see how to recognize a price action trading signal and analyze it to catch and entry into the trading from a raw price chart. There are a few unique methods to apply when you trade with price action. One effective method is known as the Inside Bar entry method.
Inside Bar Entry Method
This method is effective because it takes into account a couple of price action entry triggers that are very precise. These triggers can help you enter the trade with confidence as there is a high probability of success.
Basically, when using the inside bar entry method, we are actually supposed to search for repetitive price patterns that have the capability of predicting the future trends of the forex trading market. There are certain important places where you can look for inside bar entry like following a reversal bar, before and following a trend line breakout etc.
The inside bar strategy when combined with a trending market can be used as an effective price action setup.
Tips to Define Market Trends by Price Action Analysis
If you have been trading forex for some time now, you probably are aware that there are a lot of different indicators that can be used to predict the market trend. But it is a known fact that you only need to study the daily charts and get a price action analysis to correctly foretell the direction that the markets are going to take.
To make it simple, you only need to look out for patterns of lower highs (LH) and lower lows (LL) to foretell a down trend and patterns of higher highs (HH) and higher lows (HL) to foretell an uptrend.
When Does Price Action Signal Work Best?
In order to reap the best benefits from price action trading you must learn to use it at the opportune moment. It is better to look out for important signals in the market before making use of price action trading.
Essentially, you must try to match certain price action signals with definite market conditions. Though there are many different factors that can be matched together, it is a good idea to match price action setups with support levels of the market or with resistance levels.
Price action signals constitute an important factor while trading forex and can be utilized to cultivate a lucrative forex trading system that has high predictability as well.