Tag: price action trading

  • Forex Strategy That Works For You

    Forex Strategy That Works For You

    Forex Strategy That Works For You
    Having discipline is a key feature of forex trading. How can you have discipline when you are in a trade? One way is to have a trading strategy that works for you. The key part is the profit. 

    By Guy Avtalyon

    It will require some time to find a forex strategy that works for you especially. Every forex trader has a unique style, risk tolerance, amount of money available, and trading goals. So, your forex trading strategy that works for you not necessarily will work for other traders. But some forex trading strategies can be suitable for everyone. 

    First of all, let’s explain what a forex trading strategy is.

    What is a forex trading strategy?

    It is a technique that a forex trader uses to discover when to buy or sell a currency pair. There are numerous forex strategies that traders can practice. For example, technical analysis and fundamental analysis. A forex trading strategy that works should provide you to analyze the market and execute trades with clear risk management systems.

    A Forex strategy that works

    Forex strategies are divided into several organizational structures which is a great help to traders to find a forex trading strategy that works for each trader the best. The main point is to locate the most suitable strategy. 

    So, we can divide forex trading strategies into main categories: Price action trading that includes Trend trading, Scalp trading, Position trading, Range trading, Day trading, Swing Trading, and Carry trading.

    Forex trading demands to put together various factors to form a particular forex trading strategy that works for you. There are innumerable strategies that traders can use. What really matters is to understand and feel comfy with the strategy you create and use. Each forex trader has individual intentions and sources. That fact must be taken into factor when you want to pick or create a forex strategy that works for you particularly. 

    You can use three criteria to analyze distinct strategies based on their convenience. To find a forex strategy that works you have to determine what time resource is required. Further, what are the frequency of trading chances? And last but not the least, what is the ideal distance to a target.

    To compare the forex strategies based on these three criteria, you have to know how efficient they are based on other traders’ experiences. It is always smart to check how a particular forex strategy works for others. 

    How to find a forex strategy that works?

    The crucial is the risk-reward ratio. So, based on historical data and traders’ experience position trading will provide you the highest risk-reward ratio. 

    Further, you have to examine how much time you’ll need to invest to monitor your trades. For example, scalp trading is a high-frequency strategy so it will require most of your time.

    In order to help you to find a forex strategy that works for you, we’ll explain how each of them works.

    What is price action trading?

    Price action trading means studying historical prices to create technical trading strategies. The advantage of this strategy is that you can use it as a stand-alone. However, you can use it in combination with an indicator. Fundamentals are rarely applied, but sometimes it is smart to include economic circumstances as a supporting part.

    The price action strategy actually covers several other strategies. 

    For example, the length of trade. The strategy gives you an opportunity to use multiple time frames in trading. It is suitable for long, medium, and short-term tradings. 

    What is most important with this strategy and the most convenient you can use it without any indicators, complex techniques. It can be used based on simple price action.

    Few more words about price action strategy

    All price action in forex trading comes from buyers (that are bulls) and sellers (that are bears). When the GBP/USD currency pair goes up it’s due to more bulls than bears. Of course, when this pair is going down it is vice versa. So, you may conclude, and you’ll be right, that we have a permanent fight between bulls and bears in the forex market.

    This forex trading strategy is all about examining who controls price, bulls, or bears and who’ll control the price. 

    When bulls are in control and you have proof they will continue that, it is the right time to go long, meaning you can buy. The opposite is when the bears are in control of price. That means it’s time to short, meaning you can sell.

    But how to examine who is in control?

    This forex strategy that works always is quite simple to use. The essential is to use just two price action methods or techniques.

    One is support and resistance zones. The buy and sell zones are easy to identify and add them to your charts. When the price hits these zones there are two possible directions: the price will halt or reverse. So you’ll know that is the right time to buy or sell.

    The price action forex strategy that works in all conditions

    It doesn’t matter if it is trending, low volatility, high volatility forex market, this strategy will work anyway, and generate profit. It is different from strategies based on indicators that are suitable for particular market conditions. For example, if you use an indicator strategy that is good for the high volatility market, it will slip in other market conditions. It is due to indicators’ inability to adjust for different market conditions. One indicator is good for one market condition. 

    Price action is what can be adjusted to the time frames, different currency pairs, market conditions, and moreover, and to many traders though. The point of this forex trading strategy is that it literally works for everyone because it keeps the trading simple.

    What is the purpose of price action strategy 

    The best forex strategies use price action. As we mentioned above it is also known as technical analysis. Speaking about technical currency trading strategies, we can recognize two main techniques: follow the trend and counter-trend trading. Both are aimed to profit by identifying and utilizing price patterns.

    To profit from price patterns, the most powerful approach is to identify support and resistance. In other words, both show the market tends to bounce back from prior lows and highs. Support means the market tends to increase from an earlier confirmed low. Resistance is the market that tends to fall from an earlier confirmed high. This happens because traders want to predict the next prices against current highs and lows.

    What happens when the market approaches recent lows? 

    It is obvious that buyers will seek what they see as cheap and buy. On the other hand, when the market nears the recent highs, the sellers will lock in a profit since it is a great opportunity to sell at expensive prices. So, recent highs and lows are measures to evaluate the current price. 

    Also, support and resistance levels. Both happen because traders predict specific price action at these points and play according to their expectations. This has a great impact on the market because their actions can cause the market to go in their direction.

    But keep in mind some rules. 

    First, support and resistance levels aren’t fixed rules. They are a consequence of the action of traders.
    When traders follow the trend they actually want to profit from support and resistance break-downs.
    Counter-trending is the opposite of trend following. The traders that use this technique will sell when a new high is touched, and buy when a new low is reached.

    The main goal in forex trading is the same as it is in any other trading: eliminate the losses and have more winning trades. You can have it if you use the forex trading strategy that works. It is essential to find the one that suits you the best. That means you have to develop a set of rules and follow them if they work. If not, simply change them. However, the best practice is to follow some proven strategy. Especially if you are planning to enter forex trading and you don’t have enough knowledge and experience. Relying on strategies that are not proven and tested might lead you to enormous losses and failures. So, the best chance for you is to find the right forex trading strategy that works and use it.

    Stay tuned, we will write more about forex trading and powerful forex trading strategies and techniques.

  • Price Action Strategies For Profitable Trading

    Price Action Strategies For Profitable Trading

    Price Action Strategies
    Experienced traders use price action strategies in trading to make more profitable trades. Price action strategies are one of the most used in current financial markets.

    Price action strategies in trading are present for quite some time. They are here for good reason. That’s why these strategies are frequently used in the financial market. Price action strategies are used by both long-term and short-term traders. The point is that analyzing the price of a security is maybe the simplest but at the same time the most powerful approach to getting an edge over the market. And that is crucial for any trader. Having an edge means that you’ll not be found out by the market. 

    Okay, you might think you are a great trader because you had several winnings. Do you really think that having luck is the most important part of trading?

    Anyone can do the same if the lucky is a matter of importance.

    Relying on luck is the danger because the wheel of fortune is turning around. And eventually, your winning trades will become great losses. All the profits you made during your winning streak will vanish like a soap bubble. That’s because you don’t have an edge. Actually, in this case, your edge is with the market which is too risky because at some point that edge will play out in favor of the market securing that trader loss. 

    If you don’t have an edge and the edge is in the favor of the market, it is a matter of time until the edge starts to play out and you’ll become a loser. 

    Think about this as a casino, for example. All tools and machines in the casino have odds adjusted in favor of the casino. In any case, the casino is the winner. Yes, from time to time someone will make a lot of money, but there are many losing players, more than winning. So, the casino will be the winner in any case.

    That is the casino’s edge. The exact comes with your trading if you are only considering your next trade and never think about trading inside the market’s overall edge.

    Stay focused on the price action

    Price action is a trading method that enables a trader to understand the market and make trading decisions based on current and real price actions. So, in price action strategies you are not relying only on technical indicators. As you can see, the action price strategies are dependent on technical analysis. Some traders use price action strategies to generate a profit in a short time. 

    If you want to be a price action trader, you must be focused on price action. This sounds like nonsense, you may think. But if you want to evaluate deeper, you will find the majority of traders think the price action strategies are the same as pattern trading. And that is a great mistake. 

    While pattern trading requires just staring at the last candles of the chart and making a trade based on them, for price action trading you’ll need more. Yes, in pattern trading the last one or two candles can be an excellent entry signal, in price action strategies they are just candles among many many other candles on the chart.

    Every successful price action trader knows how to read a price action chart as a whole and knows how to force them to tell the entire price action story. Price action traders have to interpret the real order flow, support and resistance, traders’ behavior and trends through the live price action.

    What is price action trading?

    Price action trading is trading in which traders base their decisions on the price movements of an asset which can be stock, forex, bonds, etc. There is no need to use other indicators, your trade is based on price action solely. Of course, you can use other methods but it will have a very small impact on your decisions.

    The price action traders believe that the only valid source of data flows from the price itself. For example, when the stock prices go up, the price action traders know that investors or other traders are buying. Based on the aggressiveness of that buying, price action traders estimate will the prices continue to rise. These traders don’t care why something occurs. Their all concern is to find the best possible entry point with lower risks but with greater profits. For that to know, they are using real-time data, for example, volume, bids, offers, magnitude and similar. Also, historical charts are very important.

    In trading – what is that?

    First of all, price action trading is the method where you make all your decisions from the so-called “naked” price chart. That means there are no other indicators. All we have is price action. That’s a lot of data because all markets generate data about the price changes over different periods. And that data is displayed on the price chart. What can you read there? For example, everything about the beliefs and behavior of other traders and investors, no matter if they are humans or computers. Data is for a specific time frame and all opinions, beliefs, all financial data, news that affects price change, and behavior are visible on the chart as price action. 

    The most important part, with knowing the price movements, you’ll be able to develop a really profitable trading system. All signals from the price action chart have a general name – price action trading strategies. These strategies can give you a chance to predict future movements with a high level of accuracy so you can make a profitable strategy.

    Price action trading strategies can be used on a broad variety of securities including stocks, bonds, derivatives, forex, commodities, etc.

    Price action strategies

    Trendline strategy

    One of them is the trendline strategy, very simple to use. The main point here is to know how to draw trendlines. This is an important part because only if you do it properly you’ll be able to predict where the price will bounce off the trendlines. Well, you’ll take a trade based on it so be consistent in how you draw trendlines. 

    Breakout strategy

    The other price action strategy is a breakout. For example, a stock price is moving with a specific tendency. When it breaks the tendency, it is a signal for a new trading opportunity. To make this clearer, suppose a stock traded between $9 and $6 for the last two weeks. Suddenly, it moves above $9. So, the stock price changed the tendency. That is the signal for traders that the sideway moves are probably finished and the stock price is possible to go up to $10 or more.
    Of course, you might be faced with a false breakout, but it is also an opportunity to trade in the opposite direction of the breakout.

    Bars formation

    Another price action strategies examine the price bars formation on a specific model of the chart. For example, candlestick charts. If traders use candlestick strategies, for example, the engulfing candle trend strategy. It is important to wait until the up candle engulfs a down candle during an uptrend. That should be your entry point, the moment when an up candle goes above the opening price of the down candle.

    You can use price support and price resistance zones. That could give good trading chances. Support and resistance zones occur where the price has tended to reverse in the past and these points may be relevant in the future.

    Bottom line

    Price action strategies aren’t suitable for long term investments. They are aimed at short-term traders. So many traders don’t think that the markets never operate on consistent patterns. They believe the markets work randomly. The consequence is that they don’t think it isn’t possible to have a strategy that will work in any case. If you combine technical analysis with historical price data, price action strategies will allow you to make profitable trades. 

    These strategies are very popular today due to its advantages. They provide flexible trades, access to many asset classes, use of any software, apps or trading websites. Moreover, traders have a chance to backtest any strategy on historical data. Also, maybe the most important part of price action strategies is that the traders have an opportunity to choose their actions on their own. So, that creative approach to trading is important for many of them. 

    A lot of proponents on price action trading insist on high success rates. Trading has the potential for making great profits. Traders-Paradise suggests testing and acting after that. Just to be ready to meet your best possible profit chances.