Traders Action Zone Defined And Why You Should Use It

The traders action zone (TAZ) is an important part of any trading strategy.  What it aims to do is to focus the swing trader on a certain part of the chart to look for their setups.

Without a defined location on a chart where you can take action for a trade, you may fall into the trap of emotional trading.  That…must be avoided.

Doesn’t it make more sense to buy a currency pair after a wave of selling has occurred rather than getting caught in the sell-off?

Or doesn’t it make more sense to sell a currency pair after a wave of buying has occurred rather than getting caught in the rally?

I think the answer is obvious and that is why I strongly recommend that every trader set in their trading plan that exact traders action zone where they will enter the market.

How The Traders Action Zone Works

It’s actually quite simple and for this example I am going to use moving averages.  You can use trading chart structures such as support/resistance for you traders action zone but this example makes the concept very clear.

TRADERS ACTION ZONE

You can see on the left edge that price was moving downwards as indicated by the moving average line.  We were in a downtrend and then things begin to change.

1. Our moving averages cross giving us an objective means to determine a trend change
2. Imagine if you were a momentum type of trader and you entered after seeing the thrusting price action.  You were quickly second guessed by the market
3. According to our trade plan, we need to wait until price enters our action zone and then we can look for a trade.

You can see that by waiting for our traders action zone to be hit, we stood aside while momentum traders and possibly breakout traders were stuck getting whipped around by the market.

Our trading plan took into account the TAZ and kept us disciplined and sitting on our hands until our strategy gave us an entry trigger.

Always remember:  Discipline in trading will always be number 1 in terms of importance!

TAZ Ensured We Waited For Mean Reversion and Not Momentum

Since we were trading pullbacks, we want to make sure that price has not extended to far from our averages.  When we do, we often suffer a snap back in price as mean reversion takes over.

Our TAZ put us in position to take action at the right location on the chart.  Yes…location matters in trading.

Because getting into a trade at these kind of location gives you low risk entry and it will be much more easier to manage.

• currency pair that are in uptrend will slow down and pullback(fall down again temporarily) offering cheaper buying opportunity.
• currency pairs that are in a downtrend will slow their downward move and at some stage rally( rise back up temporarily) offering a better selling opportunity.

Now as a swing trader, you have to wait for these pullbacks and rallies to happen to allow you to enter.

If that was not clear enough……

Where do we buy and sell the market for our swing trades?

The Traders Action Zone!

Remember this:

• when selling, wait until price has gone into the traders action zone then go short.
• when buying wait until price has gone into the traders action zone then go long

Trading The First Pullback – How Important Is It?

Now, here are few important points you have to remember:

• The first pullback(or rally) after the first moving average cross-over(change in trend) has more chances of being a successful trade than those pullbacks(or rallies) after it.  One reason why this should be the  pullback or rally you should be getting into is because chances are that this is also where the big players are entering the market. So if you only trade one pattern, this should be it.
• You can also take trades on the 2nd or the 3rd rallies and pullback after the trend change(moving average cross-over) but there is less likely chance of these trades becoming profitable.
• Besides, if you take a trade on the first pullback or rally in the traders action zone, you have a lot more greater move potential to make more profits as you ride out the full trend than if you were to take a trade on the 2nd, 3rd etc…pullback/rally.

You can zero in on the Traders Action Zone by using any of the swing trading strategies listed on my site.  Just remember……test….test….and test again!