FINANCIAL FOREX INVESTMENT

Posts Tagged ‘price action analysis’

Price action analysis is one of the best methods to trade the Forex market with. By simply analyzing a naked price chart we can spot profitable setups that re-occur in the market. The best approach to take with regards to using price action to trade forex is just to master a handful of time-tested and easily identifiable setups; this will allow you to trade in a calm and collected manner and will thus help you achieve consistent profitability in forex. This article will introduce a couple of my favorite price action setups; the reversal or pin bar setup and the inside bar or inside day setup.

Reversal Price Action Setups

Reversal bars often occur at major swing points or at significant support and resistance areas in the forex market. Price action reversal bars can tip the keen forex trader off to large directional movements and also give traders a concrete method to exit a previous large directional run. Specific examples of price action reversal setups can be found on numerous websites across the internet; YouTube is host to some very good price action video tutorials. Reversal bar setups are a great way to enter a trending market or a range-bound market. Once mastered, specific price action reversal bar setups can prove to be your bread and butter forex trading method. You will encounter various names for reversal bar setups in forex such as, the pin bar setup or the shooting star setup in candlestick terms.

Inside Bar Setups:

Inside bars indicate the market is taking a breather from its most recent move. They are found in strongly trending markets but also in consolidating markets, they occur at market turning points but also as continuation signals. The inside bar setup offers a low-risk high reward scenario as often times they will break out strongly in one direction and allow the trader to employ a very tight stop loss. Knowing how to trade the inside bar setup off the daily and weekly time frames can be a very valuable and thus profitable tool to the forex trader. The forex inside bar setup is an essential technique to become a professional price action trader. Often times there won’t be a valid pin bar setup but there will however be a nice inside bar setup. As with the pin bar setup there are many great price action analysis videos that demonstrate how to profit from the inside bar.

In conclusion:

To conclude, price action is one of the most profitable yet simple ways to trade the forex market. Reversal bars such as the pin bar or shooting star are great entry techniques and can also be used as exit signals. Inside bar techniques work great in strongly trending markets as continuation signals. They also can be used at market turning points after a correction or swing area has been hit. Learning a few consistent price action setups such as pin bars and inside bars can really make the difference in your forex trading. Find a great forex mentor or a reputable price action education site and begin your education today.

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The forex market ebbs and flow in a contrarian fashion. This means the movements this market makes are generally counter to what looks like should or could logically happen next. This is a huge reason why many aspiring forex traders have trouble developing a profitable trading plan and why consistent success in the forex market can seem so elusive. The forex market is designed to handle large volumes, as a result of this there is often volatile price action induced by commercial bank traders that can cause extreme price swings from day to day. This type of volatility combined with the ability to employ high leverage is what attracts many retail traders to trade forex. However, these same two factors can be, and often are, what ends up causing many traders to blow out their trading account and ultimately give up.

We can take advantage of the large price swings within the forex market by understanding what to look for and thinking contrarian. Anyone can sit down at a price chart and if it is going higher make the observation that they think it will continue higher. This same mentality is what gets many FX traders into trouble however. Often times aspiring forex traders are nervous or fearful to enter the market, this is usually a result of them being un-confident in the method they are using and/or using too much leverage, which means trading too big a position size for their trading account. Managing position size is a result of self-discipline and control over one’s own emotion, unfortunately this skill cannot really be taught, it is generally acquired through trial and error or from belief in the teachings of a mentor or professional trader who has already made the same discipline errors their self. The skill of reading price action and learning to trade and think contrarian is however a skill that can be taught.

The power of price action analysis lies in is ability to allow traders to see possible price direction before it occurs in the forex market. Often times large directional moves in the forex market terminate in a specific reversal pattern that we can learn to spot and use to our advantage. Many traders will feel good about a market as it trends in one direction and then often times right when the trend is at its peak or trough is when many traders enter due to the safe feeling they get from such a powerful movement. Unfortunately feeling is not something that is useful to the successful FX trader. Professional forex traders know that the market moves contrarian to what the masses usually expect, consequently they will trade contrarian to what most forex traders are doing and generally use a method like price action analysis that gives them a clear and concise method to enter and exit a trade.

Price action setups can help to safe-guard a forex trader from jumping in with the amateurs just as a strong move is ready to reverse. Developing a keen eye for specific price action setups is the best tool that one can employ to develop a contrarian mindset in the forex market. Analyzing the raw price data inherently supplied by the forex market with no lagging indicators is the best way to develop your contrarian forex trading skills. Once you develop this skill you will start to pull away from the masses of amateur traders who are constantly losing money and become one of the professionals taking it.

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Price action analysis is one of thee most effective yet simple techniques to achieve consistent success in the forex market. Simplicity is key in trading any market because a simple method helps you control your emotions more effectively than a confusing indicator based trading system. Any one who has actively traded forex, stocks, or commodities for any period of time knows that emotion management is paramount to long-term success. Price action setups allow you to have a window into market direction based on price movement, price data is the most important data no matter what market being traded. It is the visual representation of everything you need to understand for your price action trading plan.

Trading the forex market off of price action is a great journey in self-discovery to embark on. The simplicity yet relevance and profit potential provided by price action setups cannot be emphasized enough. Once you learn how to spot specific price action setups you will be on target to consistently profit in the forex market. It is entirely possible to master one specific price action setup and achieve consistent profits off of that one setup. Where many aspiring forex traders go wrong is in thinking they need numerous setups or indicators to make money; they often fall into the trap of assuming more is better in forex trading, when in fact more is usually worse when it comes to trading. The less confusing and jumbled up your charts are the more clearly you will be able to see what price action is naturally trying to show you.

Many traders over look the strategy of price action analysis because they think it is too easy to learn or that trading should be technically difficult. The fact is that profiting consistently in the forex currency market is not technically difficult at all, it is actually technically easy. It is very easy to learn price action setups that work with a high degree of probability. What is not easy in forex trading is managing one’s emotions and managing one’s money as well as maintaining discipline. This is one of the main benefits of price action analysis; it helps you manage your emotions and maintain discipline by giving you a straight forward yet highly effective and relevant method to base your trading plan from.

Most traders start their trading plan on a shaky foundation that employs a confusing method that they themselves barely understand. Why use lagging indicators that are derived from mathematical formulas that you don’t understand which ultimately just show you past price movement that you could have seen in a much clearer form using price action analysis? The truth is that forex trading is an intensely psychological profession, and until you realize that every aspect of your trading plan needs to take into account the psychological aspect of market activity you are doomed to fail. A solid forex trading method is usually the first thing traders try to obtain when starting out. Generally, they pay way too much for junk systems that just cover up the relevant price pattern setups that you can spot on any naked price chart. Don’t fall prey to the scam of complicated lagging indicator based systems or signal services. Learn price action analysis and teach yourself how to fish in the forex market, then you can eat for free for a lifetime.

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