4 Simple Ways to Become a Better Price Action Trader
by James Stanley , Currency Strategist
Price action and Macro.
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Price Action Article Summary:
- Price Action is a form of technical analysis that focuses solely on past prices that have traded in the market
- This article contains a simple, and complex method for new traders to begin learning price action
- This study can be furthered in the live sessions on DailyFX in which Analysts and Instructors explain price action in real market conditions
One of my favorite phrases to use in webinars is as follows:
‘Price Action is my favorite indicator, because it’s the only one that will never tell me a lie.’
And this is true; albeit maybe a little ‘opaque’ for new traders, or even experienced traders that haven’t yet found the study of price action. The study of price action entails reading past prices, to build an approach or plan for the future.
Surely, most traders that end up ‘making it’ as a trader will find this specific study of technical analysis eventually; but it’s usually only after multiple disappointments and failed attempts at building indicator-based strategies that zig when the market actually ‘zags.’ So, please allow me to elaborate on my earlier statement.
Price action will never lie to us, as traders, because it never purports to tell us what WILL happen; but rather it only tells us what HAS happened.
There is a chasm of disconnect between these two premises.
As a trader, you will NEVER truly know what will happen in the future. Any indicator or indication of what MAY happen in the future is just a possibility. And even then, it could be a remote possibility at best because that indicator you’re using - well, it’s really just a fancy way of looking at previous price action.
So, regardless of the strategy - those same boring concepts of risk, trade, and money management are of the upmost importance to the trader.
But after that - traders can focus on getting the probabilities on their side as much as possible through analysis, and this is where price action can really shine.
Because, once again - this is a ‘clean’ way of looking at past prices, without the obfuscation of a mathematical formula that may be obscuring what’s happened in the recent past.
Below are four simple ways that traders can become better at reading, reacting, and analyzing price action.
Method 1 - The Price Action Primer
If you’ve been to DailyFX over the past couple of years, you may have encountered a previous article on price action . We talk about this A LOT because of all the aforementioned reasons, and quite simply - it works. Not that it works in telling us the future, but it works in allowing us to see the past as efficiently and honestly as possible.
Method 2: Grade Trends by Focusing on Swings
One of the first pillars of technical analysis centers on that age-old saying of ‘the trend is your friend.’
And the reason for this goes right back to one of those very first things we touched on at the beginning of this article: The future really is unpredictable.
But trends take place for reasons, right? Maybe it was a QE announcement, or a Debt Crisis - whatever the reason, trends exist much like the tide of the ocean exists.
And just like swimmers in the ocean, traders are often best served by going with the flow.
Because, if we look at trading as pessimistically as we can, and we assume that any individual trade is akin to flipping a coin, then we have a 50/50 chance of price moving up or down, right?
Well, if that bias continues, and further - if we are trading in the direction of that bias, it stands to reason that we can begin moving our chances or probabilities of success slightly better than a 50/50 split.
Perhaps it’s small, perhaps as small as 51/49 in our favor, or 52/48 - but the logic is the same.
If what has happened continues happening, I may stand a better-than-fair chance at success.
If we add in strong money management, well - now we have an entire strategy!
Traders can read and gauge trends using solely price action. We expand on this topic in our Introduction to Price Action ; but we can simply look to the chart to point out the trend.
Up-trends will often be highlighted with higher-highs, and lower-lows
Meanwhile, down-trends will see lower-lows, and lower-highs
And this, in-and-of-itself, is very powerful. but the big question you need to ask yourself is whether it is enough to just simply ‘buy’ when prices have been moving higher, or to ‘sell’ when prices have been moving lower?
The answer is a definitive ‘no.’ And the reason is because, once again, we want to try to get the best possible chances of success in the market given the information available to us, and for that we can move on to the next method.
Method 3: Use Price Action to Highlight Valuable Support and Resistance
The second primary aspect of technical analysis is Support and Resistance , and this is another message that the study of prices can bring to us.
Price Swings can identify support and resistance in the market
Reading ‘swings’ in the market is an easy way to begin doing this. A swing can, quite simply, be classified as an inflection point in the market. We discussed this topic in the article Price Action Swings, and have added an illustration below to highlight this point.
The swing in the market is the point at which demand outstripped supply (in the case of a swing low setting support), or supply ran over demand (creating a swing high of resistance before prices moved lower).
Traders can use these progressively higher swing-highs, and higher swing-lows to define an up-trend. Each of these swing-highs offering a point of support with which traders may be able to look to buy into the up-trend ‘cheaply.’
Higher swing-lows define support in an up-trend
They can also use progressively lower-lows, and lower-highs to denominate a down-trend. And, of course, each of these lower ‘swing-highs’ become levels of resistance that traders can use.
Lower swing-highs define resistance in a down-trend
We can even rope in some additional Support and Resistance studies in an attempt to find really important levels. Psychological levels , for instance, can be a great way of pointing out swings that might have a little more importance in the market place. Fibonacci can be another fantastic addition to Price Action to point out levels that other traders may be watching for.
After traders can identify swings with support and resistance inflections, traders can then begin looking to buy up-trends cheaply, at or near support; while traders can look to sell expensively when prices are at or near resistance. Which brings us to the exact entry of the trade…
Method 4: Use Price Action Formations to Trigger into Positions
After the trend has been identified, and after traders have found support and resistance via swings displayed in the marketplace, traders can begin looking for formations to decide when, and how to enter into positions.
There are quite a few of these out there, and we’ve talked about numerous such formations over the past few years. Most recently, we highlighted five of the most common bearish reversal patterns in the article, Trading Bearish Reversals .
A Bearish Engulfing Pattern before a massive move lower
And, a favorite of price action traders, the pin bar can offer some excellent entry opportunities.
To learn more:
I know that when I was learning price action, much of it, at least initially, felt very esoteric. So, in our constant effort to provide the best possible education for our traders, we offer numerous price-action based webinars every single week.
I do a webinar on DailyFX e ach week. During this webinar, I’ll look at various markets to show how traders can integrate this type of knowledge in a dynamic environment, and further - how to strategize with and around it.
Have you ever wondered what causes currencies to fluctuate? Check out page 8 of our free beginner FX guide to understand the fundamental drivers that play a major role in determining a currencies value!
-- Written by James Stanley
James is available on Twitter @JStanleyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Part 13: Professional Price Action Forex Trading Strategies
Nial Fuller’s Professional Forex Trading Strategies
Now that you’ve made it through my Free Beginner’s Forex Trading Course , I want to give you guys a little insight into my core trading philosophy, why I trade the way I do, what I teach, and how I can help you become a better trader. I hope that you enjoyed taking this free course as much as I enjoyed making it, and you should now have a solid foundation on the basics of what the Forex market is and how it’s traded.
Knowing the basics of Forex is great, and every trader needs to know them, but if you are serious about making consistent money in the markets, you need to learn real-world trading strategies that will provide you with a high-probability trading edge. Here’s some more information about me and my price action trading strategies:
About Nial Fuller:
I’ve been trading the markets for over 10 years now, and I have learned every lesson you can imagine along the way. Perhaps the biggest lesson I’ve learned is that ‘simple is better’, and this is the main point I try to convey to my students and it’s why I don’t use a ton of indicators or messy trading systems. My primary mission after becoming a successful trader has been to help other traders “see the light” of simple price action trading. I am very passionate about trading Forex, and I know a lot of other people are too, but unfortunately there is so much misleading information about it, that it can be really difficult to get started on the right path. My goal as a trading mentor is to lay a simple path for all traders to follow, that path is paved with the price action strategies that I have found to be very effective over the years. Be sure to check out Part 6 of the course on price action analysis for a refresher on what price action trading is all about.
How I trade with price action
• My core trading philosophy
My personal trading style is completely focused on “reading” the price movement of the market in its “natural” form, or in other words: “Price Action Trading Analysis'”. I don’t use any indicators or confusing systems; I simply trade from a naked price chart.
I have an arsenal of powerful price action patterns that I look for within the structure of the market. For example, if a market is in an uptrend, I will be looking for price to retrace to a support level within the uptrend, this is what I consider a “value” area, and I will then watch patiently for one of my price action signals to confirm a trade entry. Whilst the majority of my trades are following the trend of the market, I will occasionally take a counter-trend trade setup or a range-bound market trade.
Regardless of what direction I am trading, the main thing I am looking for is “obvious” price patterns forming at “key” levels in the market. When I see one of my trade setups has formed at a key level in the market, I consider this a green-light confirmation signal for me to enter a trade. Given that there are only a ‘few’ good signals each week, I spend a lot of time just waiting patiently for a trading opportunity. I wrote a very popular article last year on the concept of being a patient trader waiting to ambush trading opportunities, you can read that article here: “Trading Like A Sniper “.
In summary, my trading approach is largely built on finding multiple pieces of “evidence” that work together to confirm an entry into the market. Professional traders call this “trading with confluence”. In regards to my price action trading strategies, trading with confluence means looking for multiple factors on the chart that support the case for entering on a price action signal that has formed.
Overall, my trading strategy might appear quite simple, and frankly it is, but as I said before; simple is better in Forex trading. I’ll be honest with you guys, must unprofitable or beginner traders are attracted to overly-complex trading methods and this is usually what leads to their eventual failure. As a trader who has “been around the block” a few times, I know what has worked for me in the markets, and I feel it’s my job to convey that information to other traders. Thus, my main priority as a trading mentor is to teach my students how to trade with a simple forex trading strategy.
Here’s one of my recent videos explaining how I use one of my favorite price action signals; the pin bar trading strategy, to trade in-line with the trend:
• My favorite markets and time frames
If there is one lesson that you should accept right now, that will save you A LOT of time and money, it’s that trading the daily charts is the easiest thing you can do to reach your goals as a trader. Now, to be a little bit more specific…if you start off your trading career trading small time frames like the 5 minute and 15 minute charts, you’re going to experience a lot of frustration, lost time, and lost money. You see, these small time frames contain more variables for you to analyze (and over-analyze), this means more “noise” or random price movement that isn’t really impactful or meaningful. When you move up in time frame you get a natural “filter” that works to smooth out the noise and confusion of the small time frames. The daily chart gives you the best view of the market and also provides the most effective filter against the noise of the small time frames. I also trade the 4 hour time frame quite often, and occasionally the 1 hour charts, but I NEVER look at any time frame under the 1 hour.
My favorite markets to trade are the EURUSD and AUDUSD, but each day I will typically scan through all the major Forex pairs looking for price action trading opportunities. I also trade gold and silver and occasionally look at crude oil, the Dow Jones cash market, as well as some of my local Australian stock indexes.
Why I trade the way I do
As I say often, I am very simple in how I think about and trade the markets, my years spent “in the trenches” of the markets have reinforced the necessity to eliminate unnecessary variables from my trading. Most traders over-analyze the market and confuse themselves as a result, this ends up in them trading emotionally and losing money. Thus, I have no desire to sit in front of my computer screen staring at the 5 minute chart like a strung-out zombie-trader. I prefer to trade the daily charts and trade in a relaxed and stress-free manner; if there’s a trade setup that meets my pre-defined criteria, I enter the trade, if not, I walk away until the next day usually.
I really want to stress the fact that taking a slow and calculated approach to your trading is far better than trying to be a day-trader or entering 20 trades a week. If there’s one thing you guys take away from this free course it should be this: you aren’t going to make money fast by trading time frames under the 1 hour and by rushing your trades. You will make money faster by being a patient trader and taking a daily-chart outlook. Forex trading success is measured in months and years, not in days or weeks. So, if you remember nothing else from my website, remember that slow and steady wins the race.
What you will learn from me as your trading mentor.
I like to think I am a bit of a “contrarian”, in my trading and probably in my everyday life to some degree too. I’ve often found that if you do what everyone else does you’ll get what everyone else gets, and when it comes to trading, this approach simply doesn’t work. The fact is that most traders struggle to make money in the markets, they get frustrated, emotional, lose money, lose time, and generally have no concrete trading strategy or forex trading plan. So, if you want to be like most other traders who are obsessed with indicators and “magic” robot trading software, you will probably lose money rather quickly, like most other traders.
I don’t sugar-coat anything, and my reputation has been built on that fact. So, what I will tell you is that if you choose to learn from me, you will learn honest, long-term and sustainable price action trading methods. I will teach you how to read the natural price dynamics of a price chart and how to find high-probability entry points within it. You will develop a discretionary trading sense that will allow you to trade for yourself forever; this is a skill that you can carry with you to not only Forex but to any market.
You will never need a signal service or $5,000 trading course to teach you to trade, because I will teach you the only trading strategy you’ll ever need. I firmly believe in the old saying “teach a man to fish and you feed him for life”. I don’t care what anyone else tells you, rigid mechanical systems will always fail over the long-run…you NEED to learn to READ and make sense of the price movement of the market, and you need to learn to ebb and flow with it. In essence, the market is dynamic and constantly changing, so you need a trading strategy that gives you the ability to trade in this type of environment. A market will change over time, and as a price action trader, you have the ability to change and adapt with it.
I would like to extend my personal thanks to each and everyone one of you who made it all the way through this Forex introduction course. I hope that you now have a solid understanding of the Forex market and Forex trading. Whatever path you decide to take in your Forex trading career, I wish you all the best, and if you remember nothing else from my website, remember that ‘simple is better’ when it comes to trading.
If you would like to continue learning about the power and simplicity of Price Action, then you should consider my Professional Price Action Forex Trading Course and Trading Community here. My Students get lifetime access to all of my advanced price action Forex Courses, video lessons, webinar tutorials, daily trade setups newsletter, live trade setups discussion forum, traders support line & free ongoing course updates. For more information visit the Forex Course page here.
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