Use Forex Price Action to improve your trading

One of the common mistakes most beginners in trading make is that they often jump to using indicators and testing various trading systems or building their own in hopes to find that one trading strategy that could give them an edge in the markets. This approach is entirely wrong. Imaging test driving a Ferrari without knowing how and when to switch gears?

Forex Price action forms one of the basic building blocks in forex trading. Besides understanding the factors that moves the prices; fundamentals such as economic news releases; CPI, GDP, Unemployment numbers to name a few, price action is essential to the technical trader. One of the beauties of forex price action is that it compliments any trading system and can improve the effectiveness.

What is forex price action anyway?

Forex price action is defined as the study of understanding the moves made in the market. There are many forms of forex price action and definition of forex price action may vary from one trader to another. However, forex price action can be broadly classified into the following categories:

·        Candlestick patterns (ex: Bullish/bearish engulfing; doji, etc)

·        Chart patterns (ex: head and shoulders, double top, etc)

·        Support and Resistance (ex: horizontal support/resistance, trend lines)

Combining these aspects of forex price action can therefore help improve any trading system. For example, if a trader was using a moving average cross over trading strategy, then taking a long trade when there is a bullish engulfing candlestick pattern can provide greater probability for success than trading the moving average crossovers blindly. Likewise, if a bullish crossover happened into a resistance zone, the astute trader would know to stay on the sidelines and wait for either a bearish cross over from the resistance zone or to wait for a bearish crossover back to the resistance level in order for it to become support.

As obvious from the above example, price action trading when combined with any trading strategy can greatly help traders to cut their losses while letting the winners run.

Applying price action techniques

The price action techniques can also be applied to expert advisors as well. Especially in cases when they are available in a semi-automatic mode. The ForexFalcon EA for example can run in a fully automatic mode or a semi-automatic mode where the trader can enter a trade manually. By applying price action techniques, traders can further benefit from the already strong signals that the ForexFalcon EA generates. This means that when a buy signal is shown by the ForexFalcon EA, traders can wait for a price action confirmation. Whether it is trading from a support level or taking a trade only after a bullish engulfing candlestick is formed on the chart. By using this approach, traders can minimize their drawdowns while leaving a potential to make even bigger profits, thus improving the results of the ForexFalcon EA. Irrespective of the price action approach, the semi automatic mode of the ForexFalcon EA can be used to trade high probability trade signals. Click here to learn more about the ForexFalcon EA and how it can be used to grow your forex account equity by 7% per month or 125% annually as well as the money back guarantee.

 

Author's Note

One of the beauties of forex price action is that it compliments any trading system and can improve the effectiveness.