[B][U]Price Action: The Perfect Forex Trading System[/U][/B]
Trading the Forex market has become very popular in the last few years. But how difficult is it to achieve success in the Forex trading arena? Or let me rephrase this question, how many traders achieve consistent profitable results trading the Forex market? Unfortunately very few, only 5% of traders achieve this goal. One of the main reasons of this is because Forex traders focus in the wrong information to make their trading decisions and totally forget about the most important factor: Price behavior.
Most Forex trading systems are made off technical indicators (a moving average (MA) crossover, overbought/oversold conditions in an oscillator, etc.) But what are technical indicators? They are just a series of data points plotted in a chart; these points are derived from a mathematical formula applied to the price of any given currency pair. In other words, it is a chart of price plotted in a different way that helps us see other aspects of price.
There is an important implication on this definition of technical indicators. The fact that the readings obtained from them are based on price action. Take for instance a long MA crossover signal, the price has gone up enough to make the short period MA crossover the long period MA generating a long signal. Most traders see it as “the MA crossover made the price go up,” but it happened the other way around, the MA crossover signal occurred because the price went up. Where I’m trying to get here is that at the end, price behavior dictates how an indicator will act, and this should be taken into consideration on any trading decision made.
Trading decisions based on technical indicators without taking price action into consideration will give us less accurate results. For example, again a long signal generated by a MA crossover as the market approaches an important resistance level. If the price suddenly starts to bounce back off that important level there is no point on taking this signal, price action is telling us the market doesn’t want to go up. Most of the time, under this circumstances, the market will continue to fall down, disregarding the MA crossover.
Don’t get me wrong here, technical indicators are a very important aspect of trading. They help us see certain conditions that are otherwise difficult to see by watching pure price action. But when it comes to pull the trigger, price action incorporation into our Forex trading system will definitely put the odds in our favor, it will generate higher probability trades.
So, how to create a perfect Forex trading system?
First of all, you need to make sure your trading system fits your trading personality; otherwise you will find it hard to follow it. Every trader has different needs and goals, thus there is no system that perfectly fits all traders. You need to make your own research on various trading styles and technical indicators until you find a concept that perfectly works for you. Make sure you know the nature of whatever technical indicator used.
Secondly, incorporate price action into your system. So you only take long signals if the price behavior tells you the market wants to go up, and short signals if the market gives you indication that it will go down.
Third, and most importantly, you need to have the discipline to follow your Forex trading system rigorously. Try it first on a demo account, then move on to a small account and finally when feeling comfortably and being consistent profitable apply your system in a regular account.
Indicators, in and of themselves, are difficult to profit with.
However, you can use indicators along with charts to get an edge.
so how to use price action?
Price action for me is stripping all indicators and studying price behavior from a raw chart that consists of just Japanese candlesticks. Price action gives you a clear concise foundation for trading and keeps you focused on the behavior of price. To grasp price action you first must know a little bit about Japanese candlesticks. The best method in trading forex is k.i.s.s (keep it simple stupid) A clean price chart is all you need to trade. Some indicators may aid you in your trading but you must be aware that the indicators are indicative of price behavior. If you would like to learn price action check out priceaction.webs.com
Stunning insight.
Master Tang,
Please, why did you say (that was) “stunning insight”?
Pure simple sarcasm.
Most likely, by the validity of the credit card in question.
The price action setups that I trade are pin bar, inside bar, and fakey setups. When these setup form at relevant support and resistance levels in the market you normally get great risk/reward scenarios. When trading you want to always aim for at least a 2x your risk. If you can achieve 3x or more of course that would be ideal. You have to realize that you will not win every trade but if you keep this rule of thumb you will stay in profit. If you have any more questions about the setups just let me know. Thanks
how do you feel about just using daily and weekly pivots? as this has worked for me. not indi just pivots. i trade off of 1hr and 4 hr pivots.
Trading off of daily and weekly pivots is fine. I don’t trade based on those. As long as there is a price action signal off these levels and there is other influencing factors then by all means take the trade. but I don’t trade off of pivots. What I do is use a raw chart and draw in horizontal lines at relevant areas of the market.
A lot of people are hyped on price action… to the point that it’s easy to think indicators are poor practice. I don’t like that viewpoint – though beginners may often look for perfect indicators (or combinations of indicators) which just don’t exist.
Indicators to me are not poor practice because they can aid in you in your trading, but there is much more validity in price action signals. I wouldn’t use strictly indicators to base my trades off of. I would use indicators in conjunction with price action signals.
Sounds like Nial Fuller’s course he offers on his website (google it you’ll find it easy)
I agree with you Price action shoule be the base of every system.
I agree with you Mr. Pip, the first signals are coming was price which in candlestick pattern, the indicator only follow the act of prices. Make indi always look lates:)
But the post to which you’re replying, just to say “I agree”, was made [B][I][U]over 6 years ago by someone who last logged in here over 5 years ago[/U][/I][/B].
And for this, the thread has to occupy a front-page position again, displacing something else? :rolleyes:
Welcome to the forum, but please check the date of the previous post before replying, if you have nothing new to add to the thread? 