Price Action Trading Technique
Fiftieth session of Forex Training
Welcome back to Forex professional training in financial markets.
In this session we will be discussing Price Action Trading Technique.
Price Action
Most of financial institutions, banks and professional traders utilize Price Action method to detect most appropriate Sell or Buy entry price in convenient time.
Buy Zone
Buy Zone is a region in a downtrend where an upturn point is formed and a long or a short upward trend is presumed.
Sell Zone
In an uptrend, Sell zone is an area in which a downturn is formed towards the bottom with a long or a short term momentum.
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Pending Zone
Pending Zone is a region without any valid Buy or Sell signals, thus, traders must wait for an appropriate Buy or Sell zone to appear after a significant news or event.
Traders must consider that proper Buy or Sell zones are not always available, thus, a successful deal requires knowledge, experience and patience.
Price Action Strategy
When a market trend moves towards a direction due to high volume and number of agreeing orders, most of proficient traders close their orders completely or partially on certain spots where market trend would change its direction for a short or long term.
For instance, traders have placed Sell orders on a downtrend and, after some declines, most of the experts closed their Sell orders just before a corrective or reverse points, thus, they could place Buy orders on that certain price.
A proficient trader always waits for reversal points to place a suitable order with a rational profit based on different trend terms.
Applied tools
Implemented tools utilized on Price Action by traders are as follows:
- Levels, support and resistant lines
- Patterns
- Candlesticks
- Indicators
- Strategies, such as Andrew’s Pitchfork
Patterns should be considered thoroughly since they have key effects on a Price Action strategy.
Traders who trade on the basis of Fundamental Analysis would exploit technical analysis to detect suitable entry or close prices.
Obviously, traders who trade based on Technical analysis use the abovementioned tools to figure out the most appropriate entry and close price.
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Timeframes
Traders must set timeframe on a Monthly format, which should be changed to a desired timeframe step by step.
On each timespan, trader must determine significant levels, support/resistance lines, patterns, candles, indicators and strategies.
For instance, if a trader wants to place an order on H1 timeframe, after changing the timeframe to M1, then he/she must decrease timespan step by step toward H1 alongside of utilizing major tools on the desired spot.
H4 is the most applicable timeframe used by professional traders.
Advantages of Price Action
There are several reasons why a trader should use Price Action:
- Most of the traders place an order on the basis of a pattern signal. Sometimes the pattern may be formed partially or generate false and unreliable signals due to invalid spots or unpredicted trends. A Trader can foresee the future market trend by analysing market trend and patterns by utilizing Price Action. For example, a trader can speculate that the trend will proceed to the TP price generated by a certain pattern or trend will reverse its direction as it reaches 40% of the path towards the TP price.
- Trader can determine accurate and correct place of TP price to derive rational profit.
- Trader can specify the exact place of SL price. If a trader determines a wide SL price then it might perish all of the capital. If a short SL price is selected, price may reverse its direction towards the desired TP price after it touches SL price so the order is closed with a loss. SL price can be spotted precisely.
- Trader can develop the efficiency of applied strategy if a start and an end points of a trend can be predicted thoroughly.
- Trader can enhance their Risk and Money management by implementing Price Action. Since traders exploit Leverage provided by brokers, they would place more orders with a higher risk to gain higher amount of profit, however, inappropriate place or time of orders causes a great deal of capital loss. Sometimes a trader may speculate that a trend may change towards the TP price when a market price proceeds towards the SL price, but this will result in “Margin Call”.
- Trader may consider thoroughly both directions of the trend when he/she wants to place an order after utilizing Price Action. For instance, some traders considered that the price of Gold would increase towards 2000 after it had reached the 1300, however, they did not think over a further price decline. Price of Gold decreased towards 900 and most of traders lost their capital. Trader can determine some levels on both sides that if a Market Price breaks each one of those levels then the trader can consider new order regarding recent movement.
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Most suitable time
Saturdays and Sundays are the best time to analyse open orders and suitable spots for new orders.
If a trader wants to place an order on a short timeframe, or a sharp and abrupt price movement occurs, then a trader must update his/her information before the beginning of London session.
Widespread symbols
Trader should select most appropriate and prevalent pairs and commodities like:
- EURUSD
- GBPUSD
- Gold
- Oil
Trader must avoid using unpopular symbols in their analysis such as those symbols that have CHF, TRL.
Financial, Tax, Interest, Importing and Exporting regulations havea significant effect on a market trend and price.
Thus, Fundamental issue has a considerable effect on a market trend rather than Technical subjects, so less important symbols have tiny or no effect on the market trend.
Suitable Platform
FXPro provides the most convenient platform which has a fine platform with a little price noise and long available history of each symbol.
Thus, traders have access to the history of a certain symbol, which is necessary when analysing on the basis of Price Action.
For instance, chart of Oil symbol on FXPro MT4 platform shows history from 2002, thus, trader can analyse market trend in different timeframes.
It is strongly recommended that a trader has 2 platforms concurrently, one for analysing market trend and another one for placing orders.
Trader can analyse more rationally when he/she does not get distracted by their open orders.
Trader must always watch the market trend and analyse the most recent trends, however, it does not mean that by any market fluctuation or movement he/she should close the order.
Most of the time TP price would be reached after some fluctuations.
Importance of Point
The importance of price selected to be used on Price Action analysis has 3 different level: Low, Normal and High. The importance can be specified by different factors:
- Timeframe: The importance of analysed price on M5 and M15 is low, while price in a Weekly and Monthly timeframes has a higher importance on Price Action analysis.
- Confirmation: There may be multiple agreeing signals generated by some patterns or candle, thus that price has a high significance on Price Action analysis. If there is one confirmation on that price, then the importance level of that price may be normal.
- Overlapping: If a price trend and direction is confirmed by another tools on different timeframes, then the importance level of that price would increase.
That concludes this session, until next time and another session take care.