5 Price Action Trading Tips Every Forex Trader Needs To Know

What is price action trading?

Well, price action, regardless of what you are trading (forex, stocks, commodities, futures) is the art of looking at individual or group of candlesticks to determine where the currency pair will go next.

In other words, what is going to be the direction…will the currency pair go up or down?

 

BENEFITS OF PRICE ACTION TRADING

  • Price action pretty much tells you who is in control. Each candlestick(or a group of candlestick) tells you a story of whether the bears or the bulls are in control.
  • If you are really study price action, you will begin to see the forces of supply and demand being play out on your forex chart.
  • Keeps your forex chart free of clutter and makes it easier for your mind

So with that in mind, here are 5 Price Action Trading Tips to help you with your forex trading.

 

TIP1: YOU MUST IDENTIFY SUPPORT AND RESISTANCE LEVELS ON YOUR CHARTS

Why do you need to identify support and resistance levels on your chart? Here are the most important reasons why:

  • Resistance and support levels are market turning points-price reverses when it hits these levels. If you don’t identify them, you will wonder why price is turning at a particular price level and you may be getting into a trade at the wrong time!
  • Resistance and support levels also cause explosive price moves when these levels are broken so its better to identify and pay attention to see what the market will do around these levels.
  • Resistance and Support Levels are also levels watched by institutional traders and the guys with fat forex trading accounts, that  move the forex market with the sheer money and trading power they have.

The forex chart below may make the points mentioned above much more easier to understand:

Price Action Trading With Support And Resistance Levels

 

TIP 2: YOU MUST ANALYZE SWING POINTS

Swing points refer to those areas on your forex chart where prices may reverse.

How do you find swing points?

Well, here are some:

  • Fibonacci retracement levels like 38.2, 50 % 61.8
  • Support And Resistance Levels
  • Trend lines
  • Price Bouncing off moving averages

Have a look at the chart below to see what I’m talking about:

Price Action Trading With Swing Points

 

TIP 3: YOU MUST IDENTIFY WHEN PRICE FORMS A NARROW TUNNEL

What I mean by narrow tunnel is this: sometimes, you will see on your forex chart that the price is neither going up or down much but is going sideways in a horizontal line.

The candlesticks are often short and are constricted within a narrow tunnel or narrow range.

When you see such a situation happening, its good to pay attention to that.

Why?

Because when price breaks out of this narrow range, it is usually an explosive move either upwards or downwards.

Have a look a the forex chart below to see what I mean:
Price Action Trading Tips

 

TIP 4: IDENTIFY AND FIND REJECTED PRICE LEVELS

What are rejected price levels?  Well, simply put, these are levels where price made a drastic turn!

Rejected price levels are easily spotted with an Hammer or a shooting star candlestick pattern. Watch out for them and pay attention to the levels where price was rejected from.

Look at the forex chart below to see what I mean:

Price Action Trading Tip On Price Rejection Levels

 

TIP 5: WHERE IS PRICE RIGHT NOW IN THE CURRENT TREND?

Would you rather take a trade at the beginning of a trend or at the end of a trend?  If you are say “at the end of the trend”, you can be either a fool (and happy to part with your money) or you are very smart!

Let me explain.

There are only two types of trade you can take at the beginning of a trend or at the end of a trend. But here’s the thing… know also that the beginning of a new trend is the start of another trend.

For example, if you take a long trade at the end on an uptrend, are you are fool or smart person? If you say, “fool”, you are right. Its so damn foolish to get into a long trade when the uprend is just about to end or is losing steam and has no more momentum to keep going up!

But!

On the other hand, if you take a short trade at the end of and uptrend, you are very smart! Because you’ve timed your trade entry right and you will start to make profit immediately as price starts to move down.

So before you get into a trade, you need to ask yourself this question:

Am I trying to get into a trade in a trend that is already had come a long way or the trend is just starting?

You know what the most frustrating thing is?

Its when you get into a trade and price goes nowhere or worse, the trend changes direction right where you enter! To avoid this, pay attention to what part of the trend you are entering the trade from? If its in the beginning, then awesome! If its in the middle, that’s still ok. If its where the trend is losing steam, avoid it.

Here’s what I’m talking about:

Price Action Trading Tips On Trend Trading

If you don’t know how to predict trend changes or trend reversals, this post will help you. Click and Read:

How To Predict Trend Reversals

Please like or share by clicking the buttons below.

 

You can leave a response, or trackback from your own site.

Leave a Reply