Price action trading, whether in Forex, Futures, Stocks or any other instrument, is simply reading what price is telling you and then taking action if your trading plan covers what is occurring.
Learn a few price action setups, master them, repeat them consistently and you may just end up on the right side of the winning/losing fence.
But first…let me say this about trading indicators:
Trading indicators on a chart are not a bad thing if you are using them in more or less a general way and not as a prime method of deciding on a trade setup.
For that, you can use simple price action trading strategies like the one I am going to explain that just occurred in the Forex pair AUDCAD.
Can You Make Money In Forex Using Price Action Trading?
That question comes up a lot as if price action is some mysterious force that inhabits our charts. Understand that if you use an indicator, it is going to need the action of price to calculate what it spits out on your charts.
Think of trading indicators as derivatives of price action and you can understand why going right to the source, the clues left behind by price movement and structure, makes a lot of sense.
It won’t make you rich though. It can, but unless you have consistency in risk, method and can battle the demons of fear and greed, you will end up like most. Losing.
Can You Swing Trade Forex With Price Action?
You most certainly can and depending on your style, it can even be a “set and forget” type of trade which is not a bad thing. The more we stare at charts, especially while carrying a position, the more apt we are to do something stupid that falls outside of our trading plan.
Truth be told, swing trading, given the HFT’s on the lower time frames and big money position players on the higher time frames, looking for one clean swing in the market is not a bad play!
Price Action Reversal Patterns Played Out In This Trade
Remember I mentioned that swing trading is probably the best for most traders? This trade in the AUDCAD currency pair is a swing trade strategy and as I said earlier, a swing trade for me is playing for one nice swing in the market and getting out when the tables are turning.
Another thing, this trade was not just one thing. Trading Forex with confluence and price action analysis is where I think the money is to be made. I will explain that as I go through the chart.
AUDCAD Forex Swing Trading Using Price Action And Confluence
In the daily chart below, you can see the current up move took out what could have been possible resistance (PR). The highlighted candles show strong momentum into highs where price resisted further movement to the upside.
Trading Price Action In Forex
What price reject again? Well, we never really know what price will do so we should have some type of trading strategy for several outcomes.
On lower charts for day traders, you could see why traders would jump on the big green candles but without experience, they can’t say whether it is simply a blow-off or true momentum.
We can see price race into the zone and pause. Some would consider that to be a lack of strength but a consolidation at highs after a move like this is not a bad thing. In fact, depending how long the consolidation takes place the higher probability of a break upwards.
I mentioned trading price action with confluence and for me, the momentum into highs was part 1 of the confluence I needed.
Part 2 is the yellow highlighted candle. You can dial into a smaller time frame to get a better view of the price action but since I trade generally end of day, I was just looking at that candle.
What I see is a price action reversal pattern not with just the candle but the confluence of a strong momentum move into highs which will sucker in traders looking to go long. They were rejected soundly and a break of the low of that candle is the price action entry.
Was It A Set And Forget Trading Strategy?
It was in terms of setting the entry and protective stop order and letting the trade trigger. Let’s take a look at the four hour chart for a better view and you can see what actions I took.
4 Hour AUDCAD Forex Chart
Trading alerts are great and I set an order to take out partial position at 1X risk plus a little lunch money. In doing so, risk is reduced and I will get at least a partial trade. I was alerted to the profit taking which made me look at the chart and I still saw momentum. Took more risk off by adjusting my stop.
A smaller candles starts to form, which is to be expected after a move like this but as a swing trader, I want the one clean and easy swing.
Dialing into a smaller time frame so I can see the trails that price action left behind, I could see a range forming and place my stop a few pips above it.
Trailing stop hit for 117 pips giving me an average pain free trade of 94 pips. Would I really want to sit through what you can now see on the chart?
What Will Price Action Show Next?
I am out of the trade and price may just drop with momentum again but that’s fine. I was playing a reversal in a current uptrend so I expect smaller profits. If another trade setups up using price action in this Forex pair will I take it?
Depends on the context. I think you can see though how simple price action trading principles can assist you in banking profits.
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