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Forex Price Action strategy is a very common concept used in trading, which involves different strategies. 

Forex Price Action contemplates the study of price movement in the short term through the analysis of recent historical data and technical analysis tools.

Obviously, the Price Action strategy is not suitable for all traders since there is no strategy based on Price Action valid for every type of movement and operation that you want to do during price action scalping.

Forex Price Action Strategies


What is Forex Price Action? 

The Forex Price Action deals with describing the characteristics of the price movements of a given instrument in a specific period, often the price changes refer to the past. 

Forex Price Action is therefore a trading technique that allows us to read what is happening in the markets and decide regarding our trades based on the most recent price movements rather than trusting technical indicators.

What are Price Action Trading strategies?

The Price Action strategy is a method of trading that refers to the practice of buying and selling securities based on the fluctuations in their prices. Typically, the data of these price changes is represented in easily readable candlestick or bar charts.

Traditionally, price action traders rely on the price action charts, they reject the inclusion of indicators with the conviction that, since all supplemental price action indicators are undoubtedly lagging interpretations of the basic data available on the price action chart, the action of price is the most reliable and accurate price action indicator.

The patterns of price movements reveal the balance between the supply for sale and the buying demand of any security or currency pair. 

Any price change implies a change in the relationship between buyers and sellers. An increase in supply will push the price down, while any increase in buying demand will raise the price higher.

The price action trader bases on predictions of whether buying demand is greater than the supply of sellers, and therefore the price is poised to head higher or vice versa in their trades.

In the Forex market, this means that a price action trader will take pains to buy a currency pair when the base currency, the one quoted first, is likely to appreciate against the counter currency, the one listed second.

Conversely, they will sell a currency pair wherein they expect the counter currency to appreciate relative to the base currency. 

To make these predictions, price action traders interpret the junction of many factors, particularly trends, candlestick patterns, and price levels, known as support and resistance.

This guide should provide an introduction to these interpretive factors, to the risk management practices essential to profitable trading, and lastly, some examples of real trades that demonstrate these ideas in action.

Because we ignore fundamental analysis factors and focus more on recent price movements, trading strategies based on Forex Price Action depend on some technical analysis tools.

Instruments used in the Forex Price Action.

Since Price Action trading refers to the very recent closed price movements, a Price Action strategy can use various tools: 

technical analysis of charts, trend lines, price bands, swings between the minimum and the maximum, and technical levels. Obviously, these parameters will be used according to the strategy that best suits the type of trading we want to do.

In any case, the tools and patterns we will use can be simpler or more in-depth, by evaluating volatility or price channels. 

The subjective part is also very important. Each trader reacts differently in each of his trades and this can influence the decisions on Price Action. For example, many could point to a limit value, after which they think they have to close. 

On the other hand, other traders analyzing the price action chart understand that despite having reached the limit value, the price can still rise, thus seeking the maximum profit.

Forex Price Action is a rather systematic trading practice that, assisted by technical analysis tools and the recent history of prices, can allow every price action trader to act according to his own subjective will.

Who uses Price Action and its 2 main strategies?

Price Action is a trading approach that includes price speculation forecasts and is therefore used by retail traders. The Price Action can be used on many instruments, including stocks, bonds, forex, commodities, and derivatives.

The use of the Price Action also depends on our level of experience. More advanced traders, who have accumulated more experience with Price Action, maintain very different options for recognizing patterns, entry, and exit levels in a trade in order to obtain the necessary information. 

This approach occurs, because having just one strategy on a stock may not be enough.

Most traders use an approach that follows two fundamental steps:

The identification of the scenario, i.e. understanding whether the stock is entering a downward or upward phase, its price channel, and a possible breakout.

Once the scenario has been identified, the trading opportunities are identified, and we will then understand what can be done. If a stock is rising, you can aim for a further rise or it has its own descent. As previously said, the choice is totally subjective.

when Price Action is convenient?

Price Action is generally suitable for traders accustomed to operating in the short and medium-term. Many traders believe that the market does not follow a pattern, and therefore cannot be defined as some sort of strategy that always works. 

Despite this, however, the Forex Price Action comparing the technical analysis tools with the recent price history is a trading strategy that enjoys a lot of support in the world of finance.

The main advantages of the Price Action strategy are the creation of customized strategies that allow us to have flexibility and applicability to multiple instruments with a simple and intuitive use through various trading platforms. 

Furthermore, an aspect that should not be underestimated is the possibility of back-testing with any strategy identified through past data.

Steps of Price Action Trading.

More experienced price action traders maintain multiple options to recognize trading patterns, entry and exit levels, stop-loss, and related observations. 

Having a single strategy on one (or more) stocks may not offer enough trading opportunities. Most scenarios involve a two-step process:

  1. Identify a scenario: Such as the price of a stock entering a bull/bear phase, channel, breakout, etc.
  2. Within the scenario, identify trading opportunities: For example, once stock is rising, it is likely to (a) break out or (b) pull out. This is a completely subjective choice and can vary from one trader to another, even with the same scenario.

Here are some examples:

  1. A stock reaches its maximum according to the trader’s view and then retreats to a slightly lower level (scenario encountered). The trader can then decide whether he thinks he will double top to rise higher, or whether he will fall further following a mean reversion.
  2. The trader sets a floor and a ceiling for a particular share price based on the assumption of low volatility and no breakout. If the stock price is in this range (satisfied scenario), the trader can take a position assuming the set floor and ceiling will act as support/resistance levels, or take an alternative view that the stocks will breakout in. both directions.
Finally, we should know that price action trading is closely assisted by technical analysis tools, but the final trading decision is up to the individual trader, offering them flexibility instead of imposing a strict set of rules to follow.

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