Trading Currencies in the Forex Market by Utilizing Price Action
There is no dearth of trading techniques popular in the foreign exchange market. Not all of these techniques may work in a given situation. In fact, the utility of a trading technique is highly dependent on the prevailing market condition. Many seasoned foreign exchange traders like to strip all available indicators at one and use only the price action to trade currencies. Novice traders may have a difficult time using price action as the only means to build up a position; quickly or gradually. The basic advantage of price action based Forex trading is that all indicators shown by trading software programs are merely interpretations of the same price action. In one way or the other, indicators represent the price action Traders who have understand the nitty-gritty of the foreign exchange, can directly trade by checking the price-action.
- First of all, you need to identify past resistance/support levels for a given currency pair. That means, you need to study the long-term price chart of currencies. In this case, the type of the chart will be specific to your preferred trading strategy or style. An hourly price chart is a must for an intra-day foreign exchange trader. If are more of a swing-trader in the world currency market, you can also study a four hour chart for best benefits. Daily/weekly charts should be studied in case you are interested in holding positions in the market for longer durations.
- In the next step, you need to find various points in the chart where the currency price took a reverse gear or got stopped abruptly. A reverse or stall point is what you need to recognize in the selected chart. These levels are your essential support/resistance points and you need to mark them properly. Choose the most suitable price level and draw a horizontal live in order to mark these support/resistance levels in the chart.
- Carefully monitor the price of a currency on the chart. You need to wait until the price moves a previously established point of resistance//support. Always remember that the past levels marked on the chart are your true candidates for all rallies/reversals in the next few minutes/hours/days depending upon the type of trading style concerned (intraday, swing or long term). The whole idea of this setting rests on the premise that the same historical pattern is going to emerge once again. While you are utilizing support/resistance levels marked on the price chart, you can also take inputs from the prevailing market sentiment and other important elements. If there are enough reasons in the market to perceive a price level as important, it constitutes a price action for sure.
- Do not trade without considering the trend. It is important to go in the general direction of the currency market at any given moment. The steady highs or lows should be recognized and your trading position should take that into account. Closely observe the trend to spot some buying opportunities. These opportunities usually appear when a small pullback occurs in an otherwise growing trend.