♞ Intraday Forex Trading Strategy -Forex Price Action
"Price Action is a simple trading method that lets traders analyze any financial market without using indicators. This is often called "trading naked charts." 🔗 More: » Trading Naked Charts & Price Zones
〽️ Introduction to Forex Price Action
Understanding price action is essential when trading Forex intraday. Traders can use many methods and tools to read daily price moves, such as Elliott Waves, candlesticks, Chart Patterns, and key support or resistance levels.
Definition – What is Forex Price Action?
Price Action is a trading approach that shows how buy and sell orders shape the market within a set time frame. You can study Price Action through observation, but the most reliable way is by using technical analysis. What makes Price Action different from other intraday strategies is the use of clean candlestick charts without indicators or oscillators.
Price Action and the Use of Candlesticks
A candlestick is made up of (i) the closing price, (ii) the opening price, and (iii) two wicks.
- The two wicks show the highest and lowest prices during the chosen time frame (for example, a 1-minute chart).
- The candle’s body is the distance between the opening and closing prices, making it either bullish or bearish.
Price Action should always be read in the context of the current market conditions.
Let’s look at the two main types of Forex markets.
🗃️ Two Main Types of Forex Markets
A key part of trading with a Price Action strategy is knowing how to tell the difference between a Trending Forex Market and a Ranging Forex Market.
(1) Trending Markets
Trending markets are those that move consistently in one direction (either upward or downward) within a given time frame.
How can you spot a trend? There are many methods, but this is the simplest way:
Higher-High / Lower-Low
1.1 Down-Trending Markets
A market is down-trending when the latest high is lower than the previous high, and the latest low is lower than the previous low.
1.2 Up-Trending Markets
A market is up-trending under the opposite conditions. This means the latest high is higher than the previous high, and the latest low is higher than the previous low.
Trend Lines
Finding accurate trend lines is harder than spotting other support or resistance levels because trend lines are dynamic and change over time. Key trend lines may point to reversals or signal strong ongoing trends worth following.
Price Channels
A price channel forms when two parallel trend lines contain price movement. It is a continuation pattern (bullish or bearish). The top line marks resistance, while the bottom line marks support.
In the above example chart, we see a strong bullish price channel.
(2) Ranging Markets
Ranging markets move within a fixed price area. The upper limit acts as a strong supply, pushing prices down when reached. The lower limit acts as a strong demand, pushing prices up when reached.
Ranging markets are very common in intraday Forex trading and can offer clear setups for placing Profit-Taking and Stop-Loss orders. 🔗 More about the types of trading orders
📈 Support & Resistance Levels
Support and resistance levels are crucial in any financial market, no matter the asset or whether the market is ranging or trending.
(i) In trending markets, reaching a strong support or resistance level often causes the trend to end or reverse.
(ii) In ranging markets, support and resistance levels usually define the boundaries of the range.
(iii) To measure the strength and importance of each level, professional traders rely on historical charts.
(iv) Key support and resistance levels often guide take-profit and stop-loss orders for swing and long-term Forex traders.
(v) Evaluating support and resistance also helps with timing market entry and exit. If price action breaks through a strong level in a trending market, it signals a strong ongoing trend. In a ranging market, it may signal the end of the range.
🧩 Pattern Recognition
Price Action tends to repeat itself. The process of spotting these repeating moves is called pattern recognition. There are many patterns, but these are the most important ones:
(1) CONTINUATION PATTERN RECOGNITION
1.1 Cup & Handle Patterns
1.2 Triangle Chart Patterns
1.3 Flag & Pennant Patterns
(2) REVERSAL PATTERN RECOGNITION
2.2 Head & Shoulders Patterns
2.2 Double and Triple Tops & Bottoms Patterns
2.3 Rounding Top & Bottom Patterns
🔗 Chart Patterns & Probabilities
Counting Candles Within Charts
Counting candles is a common method for spotting patterns. The balance of bullish and bearish candles over a set period can show the chances of a trade being successful. The number of candles also represents time. This method is usually combined with other price action techniques. 🔗 Learn how to count with The TD Sequential
■ Forex Price Action
George Protonotarios, Financial Analyst for TradingCenter.org (c)
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