Why Price Action Is An Effective Forex Trading Method

tradingtheforexmarketfromhomeThere’s an absolute variety of trading markets available for the stay at home technical trader. The Forex for many is a favorable market because of its high rate of liquidity and the market being active and open 24 hours a day. If you’ve tried stocks or indices in the past, but never had any luck picking the right stock or commodity, or not picking the right direction that it’s headed.

What you’ll learn when trading the forex market is that technical analysis usually works. When trading the equity markets for instance, the price action never usually seems to behave the way that they should most of the time. On top of that, you may find yourself making the right technical analysis but your timing may be off.

Trading The Forex Market Using Price Action
So enter the forex market. You’re able to watch the price pairs move up, down or sideways, often rapidly, and you’ll be able to apply your own method of Technical Analysis to the price movement.

You can find that they at times will behave almost exactly the way that they should, based on the various technical analysis techniques for the majority of the time. This at least more often than the other markets such as stocks, indices or the equity markets.

Technical analysis seems to behave properly for the futures market as well, but most still prefer the forex market because of its 24hr availability, allowing you to trade or remain in the market at all hours of the day or night.

For some, the commodities market is attractive because they’re able to trade recognizable commodities such as coffee, corn or oil, along with the fact that the price action usually behaves accordingly. But if you’re needing to choose which market to trade, the forex market may be the way to go.

Demo Trading The Forex Market
It’s always advised that you open up a free forex demo account, preferably on the MetaTrader4 platform as it offers the best flexible tools. You should be testing and developing your own trading system and style for at least a few months to perfect and then tweak your trading until it’s consistently profitable.


If and when you begin to profit consistently, then you may decide to fund a real account and begin trading it. But until you reach that stage, you should always demo. Set your initial demo account for $5,000 using 10:1 leverage. Use $5000 if that’s the amount that you’re wanting to fund your real money account with.

The leverage is set at 10:1. When using this leverage level, you can trade 10,000 lots at $1 per pip maximum, this is strictly for money management purposes.

Price Action Forex Trading Method
This particular trading method relies strictly on price action, which is coupled with support and resistance levels, trend lines, pivot points and fibonacci points. That’s basically it. The idea of any trading method is to keep it as simple as possible. The main trading method is watching basic candlestick formation.

The Main Candlestick Formation Which You Should Be Looking Out For Are:
• Certain Pin Formations – such as: Hammer, Shooting Star, Hanging Man and Inverted Hammer
• Outside Bar Formations – Bullish and Bearish Engulfing Candles
• Inside Bar Formations – such as: Haramis, Double High Lower Close, Double Low Higher Close (DBHLC/DBLHC)

Step 1: You should be on the lookout for these candle formations for potential market turning points. Once you’ve spotted one or a few of these, then be aware of potential high or low market swings.

Step 2: Look for potential support and resistance levels at or around these regions where the candlestick formation price action appears. This can also be anticipated by watching Fibonacci levels, key pivot points, trend lines, and previous S/A.

The longer the time frame is, such as the 1 hour or daily charts, the better. Also, if the price action occurs where there’s a lot of confluence from any of the Support and Resistance levels, the Fib levels or if the Pivot Points all consolidate, the better. The main objective however is to look out for price action at these Support and Resistance levels with confluences.

Is This Two Step System Too Simple?
This two step system is too easy so it can’t possible work, right? Well, it’s been preached by successful traders for decades to keep it as simple as possible. What you want to do is keep your mind as clear and open when a potential trade opportunity presents itself.

So you won’t see any blinking or red flashing indicators telling you when to buy, sell or take a bathroom break. Often, you’re able to check for divergences at basic swing highs or swing lows to confirm a potential trading opportunity. But you should not however trade strictly on divergences.

Using Proper Money Management
You should never be risking more than 2% or 3% percent of your account capital at any time on any trade, under any circumstances, regardless of how good the trade looks. So if your capital is $5000, then 3% percent would be $150 per trade max. If you’ve entered a trade with a 10,000 lot, then your maximum loss on the trade can only be 200pips.


Initially, try keeping the majority of your trades in the hourly, daily or even weekly time frames. Always enter the trade using the intraday charts, use either the 15min, 1 or 4 hour charts to enter.

You can also throw in a few day trades as well from time to time, if there happens to be a trade that you like. But the most solid as well as stable trades are usually by using the daily charts.

Leave a Reply

Your email address will not be published. Required fields are marked *