Is Price Action the Ultimate Forex Trading Strategy?
Forex trading attracts thousands of investors from all around the world. It is closely tied to many other markets. Forex trading is all about buying one currency and selling another in hopes of making a profit.
Plenty of factors influence your trades, which makes it more important to familiarize yourself with them before putting money at stake. Forex trade has a host of tools that you can apply to aid your decision-making while trading.
Overview of the price action strategy
One of the most important tools is the price action strategy. The currency pair price constantly changes, which makes calling it at exactly the right time practically impossible. Although it might not seem like a great investment opportunity at first glance, certain instruments can help us get an advantage.
How does trading with Price Action work?
Price action trading strategy works on the price movements in the market to predict future prices and make decisions about entering trades. It uses only technical analysis, without any other data or indicators.
Price action strategy is based on the assumption that every pattern repeats itself several times, so it is possible to track these patterns and determine how far they can go. The strategy employs different price points, and each of them has its scale.
One aspect of this type of trading is support and resistance. Whenever the price hits certain thresholds, it will push up or down to prevent it from going any further. Once this happens, the trend changes direction, and you need to exit the trade.
The pros and cons of Price Action Trading
Price action strategy is one of the most effective methods to use to get an edge on the market. However, to achieve success, you need to put in more effort and research.
It has no room for wrong decisions because prices reach any of these levels, and you enter a trade. At that point, it does not matter whether the prices are rising or falling. Therefore, this approach helps gauge market sentiment, and you can use it to generate better trading ideas.
With this approach, you have to wait for the price action to give you enough clues about its next movement so that you can make a better decision. Here is what makes this approach superior to other strategies because it forces traders to be patient and thus, allows them to concentrate well on what’s happening in the market.
Price action strategy does not require complex calculations for generating trading signals or making predictions. Instead, it is an easy-to-understand trading method that requires knowledge of the market trends and prices.
Price trading strategy requires a lot of effort and knowledge that can only come with experience. Here, trading signals are generated based on the price movements. Price action strategy does not offer a guarantee like many other strategies and thus, requires an appropriate amount of risk management.
In price action, a trader looks for support and resistance levels where the prices usually go up or down. Also, various kinds of patterns in candlestick charts are used by traders to make a trading decision. Here, only the current data is being analyzed, so there is no use of past or future prices, unlike technical analysis.
Bottom Line: Is Price Action Strategy Worth the Hype?
Price action trading strategy is not without its disadvantages. When you compare this approach to other strategies like traditional technical analysis, price action trading strategy requires a lot of discipline for sticking with the rules, time, and patience to wait for an appropriate entry and decent knowledge about the market.
You can look at this strategy as some filter for relevant trading opportunities. If you are not on your toes at every moment, you might miss an important price movement and hence, miss entering a trade. Using this approach requires more positive qualities rather than negative ones like haste or lack of patience.
To get accurate predictions, you can consider it alongside technical analysis. In technical analysis strategies, information about the past is used for trading decisions. On the other hand, price action is only concerned about what’s happening right now and how it might affect future prices.
Your Final Submission
The Price Action is probably one of the most effective and accurate ways to predict future prices in Forex Trading. However, one needs a lot of research and knowledge as well as practice to be able to master the strategy. It is prudent to use this tool alongside other strategies to achieve accuracy.