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Posted on Jun 08, 2021 at 04:14 PM
Are you ready to clear your chart of unwanted clutter using Price Action Analysis? Read on to learn the basics of Price Action and its successful application in your trades.
Pssst… Can you study here? [Image Source]
Your final exams are approaching…
So, you decide it is study time and you enter your room only to find the following: A heap of your dirty clothes, pieces of papers, shoes scattered all over the floor, a half-empty bowl of cereal you couldn’t finish from the previous day and your unwashed soccer boots on the bed.
What would you do?
OPTION 1: Shrug it off and proceed to study amid the disorganization.
OPTION 2: Rearrange the room, clear the clutter and start studying.
Option 2, right? Yeah! Who wants to study in a mess?
There’s absolutely no way you are going to concentrate in that messy condition because the stinking atmosphere and buzzing flies just won’t let you.
That’s going to be too much for the brain to process because SIMPLICITY IS THE KEY!
In the same way, loading your Forex chart with tons of technical indicators such as oscillators, Fibonacci retracements, series of moving averages and pivot points is stressful!
It will not just drain your energy, but also make you lose out on opportunities and become emotionally attached to your trades.
Do you know what happens when you become emotionally attached? You stop trusting your analyses and strategies even when they are top-notch, and lose profits as a result.
How do you solve this problem? How do you clear your Forex chart of this unnecessary clutter? It’s by utilizing PRICE ACTION!
This is sure going to be an interesting ride. Fasten your seatbelts and don’t lose concentration – not one bit!
METHODS OF ANALYZING THE FOREX MARKET
There are two ways to forecast the prices of trading instruments in the Forex market – Technical Analysis and Fundamental Analysis – with more emphasis on the former.
Technical Analysis involves the overall use of charts to provide the basis for trading. A technical trader watches out for price patterns such as triangles and flags for determining entry and exit points.
Fundamental analysis, on the other hand, involves the assessment of the economic well-being of a country, and its currency and does not take price movements into account.
A fundamental forex trader will analyze the country’s inflation, trade balance, gross domestic product, etc., to make a trading decision.
WHAT IS PRICE ACTION?
In simple language, Price Action is the study of Forex candles and the patterns they form.
Price action trading is a day-trading technique in which traders make trading decisions based on price movements rather than the derived indicators from technical analysis.
All indicators are lagging indicators because they depend on price. Price, itself is a leading indicator while other indicators are lagging indicators.
Since Price Action is the study of candles and the patterns they form, it is very important to understand the concept of chart analysis.
Why? Because it will help you to become independent of other indicators and perform naked chart analysis easily!
To progress in this “Price Action” journey, a knowledge of the type and behaviour of candlesticks is crucial!
A candlestick is used in Forex technical analysis and shows you the high, low, open, and closing prices of a trading instrument for a specific period.
There are two types of candles – the Bullish and the Bearish.
A Bullish Candle opens at a low price and closes higher, while a Bearish Candle opens at a high price and closes lower.
Now that you understand the basics of price action, indicators, Forex analysis and candlesticks, it’s time to level up to more interesting stuff on Price Action (Part 2).
Did you enjoy the article? If you have questions, do not hesitate to drop them in the comment section and we will be sure to address them right away!