The price action trading analysis is the evaluation of raw price movements through price charts in the forex market for over a period of time. Using the price action of a forex market, you can see which direction is the market moving and how you can use it to earn profits while trading.
For doing successful Forex Trading in Sri Lanka, you can use price action trading analysis as it can help you make the right trading decisions based on price movements.
There are various economic factors that affect the price movement in the forex market and it can be seen on the price charts which are used for technical analysis. Thus, instead of wasting your time analyzing every economic factor, just make use of price action trading as it is easy to follow and it considers all the factors affecting the price movements.
Who can use Price Action Trading ?
The price action trading analysis comprises making predictions and speculations about price movements in the future. There is no hard and fast rule as to who can use price action trading analysis. This method is used by individual traders, speculators, large trading firms and other parties involved in the forex market. The price action trading analysis is associated with past price movements and data of the recent past. It uses all sorts of technical analysis tools including market trends, price charts, high and low swings, technical data about support, resistance and consolidation, etc.
Constituents of Price Action Trading
The price action trading analysis comprises of 4 main elements. They are:
- Bearish Trend
- Flat Market
- Bullish Trend
With the help of these 4 elements, you can make yourself a successful trader in the forex market:
- Candlesticks - Candlesticks is one of the most preferred forms of price charting in the forex market trading analysis. A candlestick chart is a type of fiscal chart which is used to determine the price movements of a currency in the forex market. Each candlestick represents the information about price movement of one day.
- Bullish Trend - Bullish trend occurs when the forex market is moving upwards. It is an upward trend in the prices of the foreign currencies in the forex trading market. It shows the high level of confidence shown by the traders in the market currencies.
- Bearish Trend - In the bearish trend, forex market moves downwards. It is a downward trend where prices of the foreign currencies go down in the forex trading market. Bearish trend is not something traders relish as they might have to sell their stock at low prices.
- Flat Market - As the name suggests, a flat market is a situation where there may be very little or no profit or loss during the trade. It is better not to trade during a flat market condition. But if you still want to, you must have good analytical skills and do proper research before making any move.
Tips For Price Action Trading Analysis
Use support and resistance zones
Support and resistance zones are perhaps one of the most used price action trading tools. As a currency price move upwards and downwards over a period of time, it is inclined to stay inside a range. The up and down limit of that range of a currency price is called support and resistance zones. By choosing the support and resistance zones, you will get a lot better and easier understanding of price movements. It also helps you in grabbing good trading opportunities.
Use Forex highs and lows of prices
As a forex trader, you should learn how to evaluate highs and lows of the forex market correctly. That way, you will get able to attain a much-improved understanding of how to earn profits. By studying the highs and lows of the forex market movements, you will also be able to gather information about what could be the market trend in near future, how long the trend might last, will it be strong or weak, etc.
Choose the right time and place to improve your trading profitability
Here, finding the right price action signal important. Even the best price action signal might not be right for your trading position. You can improve your chances of earning good profits by doing trades at significant and substantive price levels. Many times, novice traders use any price action signal they get, without thinking of when and where they are occurring and whether they are going to make something substantial out of it or not.
Do not completely rely on standard patterns
Most of the times, when traders in the forex market have difficulty understanding new patterns or charts, they prefer to stick with textbook patterns. They use their textbook knowledge while but what they need to understand is that the forex market has come a long way and its working and structure keep on changing.
But what to do when despite using textbook patterns and knowledge, you are losing your money in forex trading. What you need to do is think innovatively and look at the things from a different angle and objectives. Price, trends, and patterns keep on changing continuously and it is not a feasible solution to trade in the forex market with the same patterns.
Choose appropriate currency market
When you are creating a list of forex currencies to keep an eye on before you start trading, it is important to make the right choices. Choose the currencies based on how they might perform in near future and whether there would be sufficient price movement for you to buy and sell the currencies at right time with the right amount of profits. Many times, currencies have low price movements which in turn might lead to volatile conditions with narrow ranges, tight congestions, and squeeze consolidations. Only choose those currency markets that offer broad and well-defined price action and avoid the markets that have very low price action or are too changeable and strident. Keep rotating your currency pairs based on market conditions and price trends.
The price action trading analysis is a skilled and analytical method of approaching your forex trade. It is one of the most profitable methods if you want to Forex Trading in Sri Lanka. If you want to know more about different forex charts and their patterns you can refer to Forex Chart Types, Chart Patterns, Candlestick Patterns, and Indicators. To learn how to trade forex in Sri Lanka, read Where to trade Forex Online and type of Forex brokers article.