The Ins and Outs of Price Action in Forex Trading

Ravindra Ambegaonkar
Author : Ravindra Ambegaonkar
June 23, 2021
3 Minutes Read
  
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    Determining when to sell or buy a currency pair might be a challenge, and there are a number of trading techniques investors resort to in order to find the best time for doing so. In order to figure out whether the chosen trading technique will do the trick, however, investors should make sure that it allows them to inspect the market and carry out their trades, without overlooking the risk management techniques. 

    Besides, the goals and the resources of the trader should also be given due attention while looking for the most suitable trading strategy. Although it is hard to say which is the most profitable or the best Forex trading strategy, investors should always make sure that they are using a beck-tested and well-reasoned one. What we can say for sure is that a Forex trading strategy is likely to help traders achieve their goals if it relies on price action, which is exactly what we will focus on in this article. 

    What Price Action Is All About

    Price action comes into play in order to keep track of the way prices change during time and, more specifically, to explain the characteristics of the price movement. An important thing to consider is that it can be used in conjunction with a trading indicator or a stand-alone technique. Normally, price action is interpreted using charts that follow the ups and downs in the price values over a specific period of time. 

    To put it another way, investors will fall back to price action when they are looking to make trading decisions without using technical indicators and will instead focus on the most recent changes in the prices. What investors should be mindful of, however, is that price action is the starting point from which all tools are built rather than a trading tool to fully rely on. 

    As for the length of the price, the best thing about price action is that it is applicable to short-term, medium, and long time periods. The fact that price action can be employed in different time periods is what makes this technique so well-liked by investors, and all the more so with investors who are looking to generate profit within a short stretch of time. 

    Price action is based on previous or rather recent changes in the price values, which goes to show why it relies on technical analysis tools, and takes no notice of fundamental analysis. Yet, the most outstanding difference between price action and technical analysis is that the former is significantly more flexible, and the approach to making decisions is rather freestyle. 

    In order to figure out what price action tells them, investors fall back to different chart compositions, but first, they should consider going over the price action trading guide available out there. It turns out that the candlestick charts are the most widely-used ones, and there is a simple explanation why, as keeping track of the close, open, high, and low values is made possible through ups and downs graphs. With this in mind, such charts will work best for investors simply because they provide larger volumes of information about the price values at any given moment. 

    As you already know, buyers and sellers are the ones to move the prices up, down, and sideways, and this is the reason why traders should take their time to learn what effect their actions will have on the price value. The best thing traders can do when they wish to improve their results is to try to figure out what the actions of the sellers and buyers were, so that they could determine what is most likely to happen next. 

    The Downsides of Price Action in Forex Trading

    First and foremost, it should be underlined that the interpretation of the price movement is subjective, meaning that two investors might arrive at different conclusions while examining the way prices have behaved over time. In this way, investors might view the changes in the prices as an imminent turnaround, while others might consider that the same movement speaks of an upcoming sharp decrease. 

    Of course, the importance of the period of time investors have focused on should also be given due attention since uptrends and downtrends can appear and disappear at all times. Another vital thing to remember is that using more trading tools while making your predictions is a must for the simple reason that decisions based on price action are rather speculative, no matter the time period, which is taken into account. 

    As mentioned already, price action trading is an option, which might not sit well with traders who are looking to make long-term investments and be a perfect fit for traders who wish to acquire a medium or short-term profit.

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