The Forex Trader’s Guide to Price Action
By James Stanley, Forex Trading Instructor
Over the past few months, we’ve published multiple articles on the topic of Price Action, which is the study of one of the most pure indicators available to traders: Price.
With knowledge of price action, traders can perform a wide range of technical analysis functions without the necessity of any indicators. Perhaps more importantly, price action can assist traders with the management of risk; whether that management is setting up good risk-reward ratios on potential setups, or effectively managing positions after the trade is opened.
This article is a capstone of all of price action studies that we’ve published thus far; teaching traders to analyze and grade trends, enter trades in 6 different ways with various setups, and manage risk while looking at support and/or resistance.
Before we get into the individual elements of price action, there are a few important points to establish.
The first area of analysis that traders will often want to focus on is diagnosing the trend (or lack thereof), to see where any perceivable biases may exist or how sentiment is playing out at the time.
In Price Action Introduction we looked at how traders can notice higher-highs and higher-lows in currency pairs to denote up-trends; or lower-lows, and lower-highs to qualify down-trends. The chart below will illustrate in more detail:Created with Marketscope/Trading Station
After the trend has been analyzed, and the Price Action trader has an idea for sentiment on the chart, and trend in the currency pair – it’s time to look for trades.
There are quite a few different ways of doing so, and we’ve published quite a few resources on the topic.
In Price Action Pin Bars, we examined one of the more popular candlestick setups available, which traders will commonly call a ‘Pin Bar.’ The Pin Bar is highlighted by the elongated wick that ‘sticks out’ from price action. The picture below will show a pin bar in greater detail:
Created with Marketscope/Trading Station
Learn forex trading with a free practice account and trading charts from FXCM.
Continuing on next page –>