Why Should You Be Trading Price Action

Trading Price Action | Why Should You Be Trading Price Action?

I have found that trading price action is the best approach to trading the forex markets. If you’re just learning to trade forex then you’re probably aware of the countless number of indicators that are available for use in your trading. First, you have the momentum oscillators. Stochastics, MACD, RSI, and many more. Then you have the different types of bands with Bollinger bands and Keltner channels probably being the most popular. And let’s not forget those moving averages. Which do you prefer? The simple or the exponential? Maybe the smoothed or the weighted? Well, the truth is the faster you get rid of or at least limit the use of these indicators the faster you will achieve success. Trading price action is a much more effective way to trade.

Indicators are not all that bad, but if used incorrectly they can do some serious damage to your trading account. They are just tools and nothing more. Moving averages are best used to help you quickly identify the trend. They are just a guide to help you, a quick visual reference in this case. Oscillators, such as a stochastic, are best used to spot divergences. Let’s say you throw up a stochastic on your chart. You’ve probably heard about the 80 and 20 levels on the stochastic. The 80 meaning the market is overbought, and the 20 meaning it is oversold. So you decide that every time the stochastic gets above 80 you are going to sell, and every time it gets below 20 you are going to buy. Sure you’ll win a trade here and there. But if you keep doing it you’re going to lose money. If you do it for very long you’re probably going to lose LOTS of money. Ask me how I know. The day that I left indicators behind and started trading price action is the day my trading really started to improve.

Trading Price Action : The Benefits?

Trading price action is about learning to leave those lagging indicators behind. If you still want to use one or two that’s okay. Just make sure you’re not using them in a way you shouldn’t. But I think the more you learn about trading price action, the quicker you’ll find out that you don’t really need them. It’s easy when you are just starting out to throw four or five moving averages on your chart along with 2 or 3 different oscillators. It’s a trap I don’t want you to fall into. All of these indicators are blinding you. They aren’t letting you see the most important things that are happening on the price charts.

Learning to trade is not easy, and trading price action is no different. Price action really encompasses many things. It’s being able to recognize higher highs and higher lows, or lower lows and lower highs. It’s about understanding and recognizing things like support and resistance, chart patterns, and candlestick patterns. This stuff isn’t rocket science, but it will take some time and effort to learn. Chart time will be the biggest help in learning to identify these things. Support and resistance is a pretty simple concept. Many trading books briefly discuss it. I think they fail at really emphasizing its importance in the markets. I’m sure many think that since it’s not complicated it doesn’t work well. But sometimes something simple can be the most effective tool in your toolbox. Chart patterns and candlestick patterns aren’t too hard to learn. The problem comes when you try to learn every single chart pattern and every single candlestick pattern that exists. It’s overkill, plain and simple. You don’t have to know everything about trading price action. Just learn the patterns that are simple and easy to recognize. They tend to be some of the more effective ones. Some of the complex patterns work well too, but when you’re just getting started don’t make things too complicated.

Support and resistance, chart patterns, and candlestick formations all work together when trading price action. These tools are much more effective than indicators. If you are going to learn how to trade, then these tools will serve you well.