Johnathon Fox of DailyForex.com explains a profitable forex trading method that does not involve any complex indicators, news, or cluttered price charts, relying simply and solely on price data to uncover quality set-ups.
Price action trading is a simple tool that traders can use to trade the forex market. Price action trading is using the information that is presented to a trader in the form of raw data such as candles or bars that form trade ideas.
Price action is appreciated by forex traders for its simplicity, as it involves using only key levels in the markets with proven price action formations to signal a trade set-up. Standard forex indicators such as MACD or exponential moving averages (EMAs) are made using old price data to try and predict what will happen in the future. With price action trading, traders use only the live price to manage each trade.
Eliminate All Those Indicators
The first thing a trader interested in price action trading needs to do is take off all the indicators and clean up his or her chart. Indicators tend to make forex charts look very messy and hide the most important part of the chart: the price!
Many traders overload their charts with indicators, and it doesn’t take much for all the bars, lines, and moving averages to clutter your screen:
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Here is the clean chart of a price action trader:
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Forget About the News
Price action candles are thought to already have the news factored in. In other words, whatever the news does, it is already showing us on our charts. Of course, at times, new announcements will make price react more than usual, however, price in most cases will already be showing us the way even before the news release.
For example, price may be getting close to a support level when a news release is announced. Price most times will still respect the support level regardless of what the news had to say, and from just watching and following raw price, we could see what price was likely to do.
It is for this reason that keeping track of the news and trying to trade accordingly is just not necessary. The only thing trading the news does is increase the confusion for a trader. Traders will suffer analysis paralysis and in the end will not trade due to fear of doing the wrong thing. Price action trading should help keep things simple.
Learn One Signal at a Time and Perfect It
Don’t try to trade every set-up all at once. Learn just one price action signal such as the “pin bar” and perfect it so you know what to do in every situation. Instead of being average at them all and master of none, learn one signal at a time and perfect it. This will put you at a much better advantage than the majority of the traders.
The same goes for trading in different time frames. Start with the longer time frames such as the daily and only trade on it. Until you have mastered that one set-up on the daily time frame, do not go scanning down on the lower time frames just to enter rubbish set-ups.
Until you have perfected trading on the daily time frame, you have no hope of trading on the smaller time frames. Trading smaller time frames such as the one hour will just cost you money until you know what you are doing.
Lose the indicators and simply watch price move between areas of prior highs and prior lows. Using those levels as support and resistance is all you need to make solid decisions when trading currencies.
By Johnathon Fox of DailyForex.com
