Why Use Forex Price Action Analysis?
price actionI have tried about every trading method you can imagine, and after all the frustration, time, and money that I wasted earlier in my career, I ended up realizing that the best way to trade any market is just by analyzing a ‘naked’ price chart. When I say ‘naked price chart’ I mean trading off the pure price movement or of the market; in other words, you are trading primarily off the natural price dynamics of a market and not off of indicators, robots or expert advisors.
My unique way of trading using price action setups is a result of many hours of screen time spent analyzing price movement and price action patterns. Trading is a process of trying different methods and tweaking them and eventually ending up with your own unique trading method. I don’t believe in rigid and Forex trading systems that force a trader to trade in a mechanical fashion or when it gives them an automatic signal. The markets are dynamic and constantly changing and ebbing and flowing. I firmly believe that the only way to make money in this type of environment over the long-run is to employ the discretion and intellect of the human mind. Trading off the natural price action of the market is the best way to do this.
Why Trade Forex with Price Action?
The Forex market is a highly liquid and sometimes fast moving market that lends itself wonderfully to the trading method of price action analysis. Price action analysis is the identification and implementation of specific price action signals or setups in the market you are trading. Forex is a great market to use price action analysis on because it is open 24 hours a day 5.5 days a week and this means there are more price action signals for you to take advantage of. The Forex market also boasts dense liquidity and good trends, these are just a few of the advantages of trading Forex.
Successful Forex trading is both an art and a skill. Whilst you can manufacture trading signals by aligning lagging indicators together, you really need to trade in harmony with the Forex market and follow the raw price trail as it unfolds. Once you learn to effectively interpret this price trail or “price action”, you will have the potential to become an extremely accurate Forex trader and have an edge that many other traders are lacking. You have probably already experienced the frustration of entering a trade only to see it move against you immediately, this is often what happens when traders strictly use lagging indicators to trade the market, it’s a habit I try to encourage all my students to kick. The message is clear – “Stop Using Indicators!” The reason is that since these indicators “lag” behind price, they naturally give you an entry or exit signal just as price is about ready to move in the opposite direction, or in other words, they are “late” signals. In my view, the only true way to become an accurate Forex trader is to learn how to interpret the dynamic price trail (raw price data) as it plays out each day in the Forex market. Your new goal should be to learn to trade with price action trading strategies.
Price action analysis works very well in the Forex market because it is such a dynamic and active market. The beauty about price action analysis is that it is an inherently flexible approach to trading that gives you a perspective on the market that allows you to make sense out of what is happening at any given time. I have been profitable by concentrating on just 2-3 good price action strategies that have proved profitable again and again for me. If you learn how to read what the chart is telling you and focus on just 1 to 3 setups that you like, eventually you will master these setups / patterns, allowing you to have a better chance of making make money from your trading. Where people go wrong is using indicators and other overly complicated methods and then constantly jumping from one technique to the next (BIG MISTAKE). You have to find a truly consistent edge in the market and then just concentrate on that until you get it down, remain in the one frame of mind, focus and master those setups first, then you can maybe add more tools to your trading arsenal.
Trading is difficult enough without having an overly complicated method that tells you to look at multiple indicators when you could just be looking at a simple price chart. Probably the best reason to trade Forex using price action is that any indicator you use on your chart to analyze market movement is derived from price and is just showing you the same thing price is showing you but in a less vivid format. Some people like indicators because they give you buy and sell signals when lines cross or whatever and thus they eliminate most of the thinking that a trader needs to do and should do. The thing is, trading is not a ‘get rich quick scheme’ and you need to think and use your brain to be a successful Forex trader, just like you have to do this to be successful in any other profession.
Why Trade with Price Action Instead of Indicators?
Just because your charts come with a hundred different indicators doesn’t mean they are going to help you trade better or make you money in the markets. We are trading financial markets here, so the core of what we are doing is trying to profit off of price movements. Thus, why people would not primarily make their trading decisions off of pure price movement is beyond me. I promise you that if you simplify your trading method and concentrate on using price action strategies you will wonder how you ever traded any other way.
Look at the two charts below. The important thing to notice here is that the chart with all the indicators contains many more variables for you to analyze…other than price. Also, note how adding all these indicators onto your charts actually decreases the amount of screen area that the price action takes up…in other words it distracts you and takes your focus off the price action and puts it onto indicators. Indicators are derived from price action, they are simply a less precise and alternate way of viewing price movement…but why would you want to view price movement in any way other than it’s natural form? It is like trying to drive a car at night with your headlights off…sure you CAN do it, but just because you can do something doesn’t mean you should, and it also doesn’t mean it makes what your trying to do easier or better. Trading with indicators all over your charts is like trying to drive a car in the dark with your headlights off…it makes the same task much more difficult than it needs to be, as well as more dangerous.
A chart with just pure price action and the key support and The same chart full of some popular indicators:
resistance levels drawn in:
Learning to Trade with Price Action will Only Make You a Better Trader
Finally, perhaps the best reason to learn how to trade with price action is that no matter what strategy or system you ultimately end up trading with, knowing how to read and trade off the raw price action of a market will only make it better. Price action is the foundation of any trading method, whether you are using an indicator-based system or a software-based system, the signals that systems generates are ultimately derived from the raw underlying price movement. Therefore, having a thorough and practical knowledge of how to trade off of price action will help you understand your trading method much better than if you don’t.
Whether you decide to use price action in conjunction with another trading method or as a stand alone trading strategy, learning how to trade off of it is only going to make you a better trader. This is a realization that typically takes most traders a while to figure out as they struggle with mechanical indicator and software based systems. Once you learn how to trade with price action it will be like turning on the lights; you will instantly gain a clearer and more effective understanding of how the markets move. If you want to learn more about how to read and trade off of the raw price action of the market, you should checkout my price action trading course and members’ community.