The forex market is a very exciting place to buy and sell trades, and it is not exactly that hard to learn how it works. In a nutshell, it is buying currency and trading it with another of a higher value, earning your profit in the process. The tricky thing about forex, however, is making your profits outweigh your losses, and you will certainly need a good strategy to follow for that matter. Now, you really do not need to study forex day and night and spend a lot of money trying to figure things out. There are plenty of proven strategies that you can simply follow, and one of the most basic methods that you can learn as you go is price action trading.
What Is Price Action Trading?
Price action trading is known as the most effective forex trading strategies out there, so much that many traders view it as the only method that they ever need to learn. Indeed, the price action method easily served as the foundation for many powerful forex trading strategies. It is thus not strange that many recommend that traders learn this strategy alongside others that pique their preferences.
What is price action, though? In general, price action refers to important movements in the market, which serves as the basis for many major trading decisions that do not require information input from other indicators and the news.
Price action trading is composed of four cycles based on the basic movements in the forex market. These are the boom, recession, depression, and recovery. During the boom phase, bulls and bears reach equilibrium and the progressive bullish trend is dominant. The following recession phase sees the market drop until it reaches equilibrium. The depression phase is marked by a market equilibrium following a steady drop; bears are dominant in this phase, and this is followed by the rising recovery phase where bulls grow in dominance.
These phases do not have to be absolute. Given the unpredictable nature of the market, it is not exactly hard to pinpoint a boom or a depression until one has already come to pass. These highs and lows, however, are what price action traders attempt to predict such that they make the most profitable trading decisions — buying during the depression and selling once the market reaches a boom.
Pros of Price Action Trading
Price action trading has the following advantages:
- A clean chart to follow that stands in stark contrast to highly detailed charts full of multiple indicators. Indicators simply tend to distort reality and can easily drive traders to make hasty and misguided trading decisions.
- An indicator-free chart also means that you will not need to come to a situation where you need to resolve or reconcile multiple indicators that show contradictory outcomes.
Cons of Price Action Trading
We can only pinpoint one disadvantage to pricing action trading. That is, without indicators, predictions end up becoming subjective. Different traders tend to see different outcomes in price action trading, and it is not rare to find one trader seeing a rising trend where another sees a recession.
For Whom is Price Action Trading For?
This method is best for people who might find making trading decisions based on several indicators difficult. The simplified price action graph, however, will require a focused mind and a healthy knowledge of the forex market.
