When a person first discovers the potential of the Forex market, the first thing that usually happens is they go onto the Forums and learn how to be a loser.
We know the famous statement, 95% of retail Forex traders are losers and this is true. The question you should be asking is, “What are those 5% of traders doing that set them aside from the losers”.
The internet is filled with clever marketers that know how to target those emotions of yours in fancy sales pages. They promise you the world and build up your hopes high, only to disappoint you with a crappy low quality product that doesn’t work.
Let’s talk more about price action based trading and how you as a professional trader can really start to turn your trading around by making the switch to price action.
No Indicators Needed
You need to look at the markets clarity, to achieve this we first need to clean up the chart template.
The first step in cleaning up your charts is to remove all your indicators, you don’t need them. Indicators are dead weight and drag you down. It’s almost like trying to run a 100m sprint with an iron ball chained to your legs, you’re going to have a very hard time reaching your end goal.
Indicators do nothing but produce outputs that lag behind the actual movements of the market, this puts you at a major disadvantage because there could be a massive move in the market and the indicators don’t respond until most, if not all of the move is over.
By trading with price action we can keep our finger on the pulse on the markets and trade in ‘real time’ with price movements.
Price Action keeps trading simple
When you’ve got a chart filled with indicators , Fibonacci retracement levels drawn out everywhere, and pivot points all over the screen you may think you’re doing yourself a favour by taking on some ‘advanced analysis’, but all you’re doing is shooting yourself in the foot.
This type of complicated technical over analysing of the charts will burn out a trader’s stamina quickly, induce stress and eventually cause the trader to start making emotional mistakes. We all know as traders that there is no place for emotions in the trading profession, so the best thing to do is create an environment that is free of stress inducing factors.
This is where price action comes in. When you’re working with just the candlestick chart you will actually start to see what is really going on in the market. It brings out the clarity and all of a sudden using simple analysis you are able to make more confident trading decision and lose less sleep at night.
We prefer the larger timeframes such as the daily timeframe, as we find them to be more reliable. There is more price action data within a daily candle than say a 15 min candle. This means the signals that form on the daily chart are more reliable and have a greater chance of working out than signals that form on the lower timeframes.
Using higher time frames, you won’t have to be tied up in front of the charts for hours waiting for an intraday trade signal. Trading the daily charts is a nice relaxing way to make money from the markets, and you can even trade daily charts and keep your day job while you build up your trading capital.
Price Action Signals are easy to identify.
You don’t need a degree in physics or be an economics master to trade with price action, that’s the beauty of it. Price action trading strategies can be learned by anyone.
One of the most popular Price Action signals is the Pin Bar Reversal candle. Most traders would have heard about pin bars before, they are extremely powerful reversal signals in the market which you as a price action trader can use to anticipate further price movements on the chart.
A pin bar looks like well”¦ a pin. It has a long upper or lower tail.
A pin bar with a long upper tail signals that higher prices were rejected and lower prices are most likely to follow.
A pin bar with a long lower tail suggests that lower prices are not favoured by the market higher prices are a strong possibility.
A simple pin bar trading strategy is to line up these bullish and bearish rejections with key support and resistance levels that you’ve identified on your chart. Bringing support/resistance and pin bar signals starts to add confluence to the trade setup. The more confluence you add to a trade setup the higher the chances it will work out in your favour.
If you think this type of trading is something that you could really benefit from, Pin bars are just the tip of the iceberg when it comes to Price Action trading strategies. Once you clean up those charts and make the switch to price action, you are never going to look back. You’ll wish you discovered price action trading a long time ago.
Cheers to your trading future.
Guest post by Dale Woods of The Forex Guy
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