When we are new to Forex it is so easy to get stuck using this indicator and that trying to get a edge on on our trading strategy. It is easy to think that if the stochastic is overbought i sell, then i make millions..? The truth is it is not that simple, in fact most traders fail simply because they rely on indicators. Simply put, all indicators have flaws.. And why is that, that is because they lag and move based on price action alone. So what is the solution to this, the solution is removing them..
First off does this sound familiar, you start out trading, you first use no indicators and your results are not bad, then as time goes on you place all sorts of indicators on your charts until the point that you cant even see the price and then what happens..? Bam, you guess it, you start losing money.. Why you may ask? Because most indicators run off price and by basing a decision on them alone you usually will find you enter too late or you enter based on the wrong decision.. This is common to many and as you keep losing you create more fear and thus a losing cycle begins, then you start to even believe that when you enter a trade that the market is opening against you, when really in reality the indicator is giving the signal after the market has made the move. This does not mean that indicators totally have no place, they do, but you should never open a trade based on indicators alone.
Price action trading is different, it is referred by many names, naked trading, trading without indicators and so on. Each one means the same, a clean chart and basing your decision of trading on candle patterns and using weekly and daily support and resistance areas. Once a trade starts to do this there whole world changes, your success ratio goes up and you find your winnings far out way your losers. In fact you can even live off your forex earnings for life.. This could become your profession. This does not mean it is simple, it just means that when you know the pattern making money from the market is a breeze rather than a battle. Price action gives that edge and why, because it shows what the market is doing right then and not after it is has happened..
So back on topic, if you are wondering how to enter on a price action trade, then look at the chart below. It shows a perfect example of where price is most likely going to go. However to be even more successful all one has to do is place a limit or stop order above the candle to filter out even more bad trades.
Simple Price Action Strategy
- Trade only on the h4 or daily chart.
- Draw your weekly support and resistance.
- Draw your daily Support and resistance. This can be done putting on these time frames and looking for points in the market where it turned multiple times. At these spots place lines. These are your watch areas.
- Look for a signal that pierces your support or resistance but still still closes its body in the zone..
- Look for space to the left, these are more high probability as price is showing it has not been there recently and is common in a trend change.
- When price moves to a support or resistance then wait for either a bearish signal at a resistance or a bullish signal at a support. If one presents itself, place an order above the close of that candle if bullish and below if bearish in the opposite market.
- Place the stop loss or emergency stop loss just below the candle formation.
- Take profit in an around the next range, next support or resistance or simply adjust your stop loss to lock in some profits and then let the market see if it progresses even further thus allowing you to possible gain even more profits.
- Lastly if for some reason the order does not open on the next candle then close as it is a false signal. To be a good signal it should open during the duration of the next candle. That gives the order 4 hours when trading the four hour chart and 14 hours if you are trading the daily chart.
Below are Some Examples of Price Action in Action and What to Look For with Each Trade
The below images show a few great trades based off price action on the Euro / US 4 hour charts. Click on image to see larger view.
And then this one.
And here is some more visual showing price action in action..