Forex Trading Strategy Made Very Simple – Price Action

If you plan to trade in the market using the technical analysis perspective of trading, you have to keep in mind the basic Forex Trading Strategy that most profound trader would use, which is price action. It is the use of “lagging indicators” as a primary decision making tool. With the knowledge and application of price action, a trader can technically analyze the market without the much exhaustion of other indicators. More importantly, it could guide traders in controlling the possible risk in trading.

The goal in this article is to teach you one of the important Forex trading strategies in relation on how to analyze and grade trends, enter trades, and manage risk while looking at support and resistance. Before we begin in depth, there are few important points to establish first.

Forex Trading Strategy: Price Action

Analyzing Trends

Before jumping in, you should observe and analyze if there are any trends that are occurring on the chart. After a thorough assessment, by then you have already distinguished any biases that may exist or how the attitude is fluctuating at the time.

Refer to the Diagram A-1, it depicts the higher-highs and higher-lows in currency pairs to denote up-trends, lower-lows, and lower-highs to qualify for a downtrend.

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Diagram A-1

Entering Trades

After the trend analysis, you are well equipped to look for trades in the market since you already have an idea of the sentiment on the chart and also the trend in currency pair.

Here are some of the different Forex Trading Strategies in entering trade that you can use:

1. Price Action Pin Bars – The Pin Bar is highlighted by the elongated wick that ‘sticks out’ from price action. It is a reversal price bar on a chart which shows an obvious change in sentiment during that period. The price bar has a long tail with the close price near the open.  Pin Bar occurs after an extended move up or down.  The bar looks like a pin thus the name Pin Bar. To visualize what a Pin Bar looks like, refer to Diagram A-2.

 

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Diagram A-2

2. Fake Pin Bars – If the long wick does not stick out from previous price action; they are not a genuine Pin Bar, but rather ‘Fake Pin Bars’, which differs Fake Pin Bars from Pin Bars. Basically, the difference between a Pin Bar and a Fake Pin Bar is determined by recent price action. Trading Fake Pin Bars requires additional analysis, as the signal of a short-term reversal in prices may not be as consistent as that of a genuine pin bar. To visualize what a Fake Pin Bar looks like, refer to Diagram A-3.

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Diagram A-3

3. Double-Spikes – There are two types of Double-Spikes that you should know of: Double-Spike Breakout and Double-Spike Fade.

  • Double-Spike Breakout – If the price is rebuked for more than once by the support or resistance then the trader should anticipate a Double-Spike Breakout.
  • 4Double-Spike Fade – If there is a continuous anticipation of support and resistance then it is considered to be Double-Spike Fade.

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Managing Risks

  • Identify Price Action swings

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  • Identify an up-trend

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  • Identify Positive Risk-Reward Ratios

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Bottom line is that the price action is one of the most important Forex Trading Strategies out there in relation to analyzing the trend, trading and managing risks.

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