Price action trading is a methodology of financial market speculation which consists of the analysis of basic price movement across time. Everything that affects the market and makes it move, from news and economic reports to big players like hedge funds and banks, is reflected via the raw price action on a price chart. There are many ways in which traders can take advantage of price action. Different forms of technical analysis — such as indicators, support, channels, etc. — can be used as a way of identifying changing price action. This allows traders to look for trading opportunities during times of increased volatility.
A trader that uses price action strategies will be targeting to study the market so as to make subjective decisions on trading with respect to the current and definite price movements. The trader observes the relative size, shape, position, growth, and volume of the bars on an open-high-low-close chart bar or candlestick chart, starting as simple as with a single bar, but most often combined with chart formations found in broader technical analysis such as moving averages, trend lines or trading ranges.
Price action trading is based on trading the naked price chart and uses no indicators whatsoever - there are no momentum indicators such as the RSI or stochastic, no moving averages and no volatility indicators, you simply look at the chart trade support and resistance and look at the open, high, low and close on a bar or candlestick chart. The logic is that all the fundamentals and the sentiment of all the traders trading the currency pair are reflected in the currency pair you are looking at. You are seeing the true price clearly in front of you and if you have the right strategy, you can develop a high probability trading strategy which will help you make consistent profits by simply trading the price.
Price action trading is typically the art of basing all your trading choices on the movement of prices on the price chart. You do not need any indicators to help you identify your go-ahead in the form of support and resistance areas and trends in order to trade this way. This discipline to making trading decisions is based on the fact that over a certain period of time, financial markets generate data about the changes in the price of a market. This comprehensive data is then displayed on price charts. In the end, price charts are used to display the actions and beliefs of trading participants, which are eventually represented on a market price chart in the form of a price action.
Making a successful trade is not always easy because a lot of things have to be considered for one to make the right decision. Trying to be a genius and have all this information at hand will harm you much more than it will help. The mistake many people make is to trade emotionally and others find it hard to be flexible in their decisions. If you want to make a good living trading in the forex markets, you have to be wise and one sure way to achieve this is through price action trading.
