Price Action Strategies For Precision Forex Trading – Price action trading is a methodology that relies on historical prices (open, high, low, close) and actual price movements, rather than relying solely on technical indicators.
Stay with me, it’s not as hard as it sounds and if you want one profitable strategy as a trader, I recommend you try this strategy and take your trading to the next level.
Price Action Strategies For Precision Forex Trading
Price action allows traders to trade what they see the market doing rather than what they think the market should be doing.
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Here’s something even better, with price action you will have cleaner charts and be able to pinpoint entries and exits
Markets will always create repeating patterns, as I once said, and support and resistance is just one way to better refine your trading analysis
Support – This is simply a horizontal line or area on your chart where you expect buyers to push the price higher. Trust me, this strategy comes at a price.
Resistance – This is a horizontal line or area on your chart where you can expect sellers to push the price lower
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Draw the most obvious levels; if you want to be more specific, try zooming out the charts to get a much clearer view.
What you want to do then is try and adjust your levels to get the maximum number of touches, but remember if you are second guessing it’s not the level that matters.
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How To Learn Algorithmic Trading Using ChatGPTHow To Start Learning Algorithmic Trading Using ChatGPT Follow Trend Algorithms With PythonSupport and Resistance is the basis of the most important price action trading concepts. Mastering support and resistance can make you a skilled trader.
The concept of support and resistance is the foundation of price action trading. A large part of price action trading is about analyzing the support and resistance levels of various levels. The goal is to integrate them to form your opinion about the market and execute your trades.
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In this guide, you’ll learn everything you want to know about support and resistance – from theory and technical rules to messy considerations.
In a nutshell, these are price levels (or areas) where traders expect a change in market direction
If our view of the market is completely and permanently random, then we cannot make money in the market. However, when we detect a tendency for the market to act one way or another, trading opportunities present themselves.
It acts as a price floor as long as it is effective. When the market gravitates toward a support level, we expect the market to have a more than random chance of stopping at that level.
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It acts as a price cap while being efficient. When the market moves up towards a resistance level, we expect the market to have more than a chance to stop its rise.
It is essential to know that support and resistance levels are zones. Accuracy is a luxury in the probability market. The use of price ranges (zones) rather than exact price levels reflects this understanding.
(I usually draw support and resistance areas around the candlestick shadows to project the area.)
First, we will discuss how to mark support and resistance on price charts. In this section, you will learn about the different ways to draw S/R.
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However, to keep our discussion focused, we will only delve into the most basic method: pivot pivot projection.
Second, we will learn to judge the importance of support and resistance areas. This skill is essential for designing practical trading methods and knowing when to remove S/R from a chart.
Third, we will examine possible trading approaches using support and resistance as our analytical basis. This section will show you how the detailed S/R structure informs our trade entries and exits.
There are dozens of approaches to mark support and resistance areas. We will list them here to showcase the fascinating variety.
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This section will elaborate on market structure projection and provide a brief overview of other types of S/R.
(Each method deserves a separate guide if it’s discussed in detail. And I hope to eventually create individual guides for them. For now, I’ll just list them and link them to relevant resources found on or off our website.)
If you are new to price action trading, you should spend your time on the S/R type market structure. This will help build a solid foundation for understanding price action.
(These lines also form the basis for a whole set of chart patterns, such as the Bull Flag and Head & Shoulders.)
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As you can see, all methods involve choosing a pivot point (or turning point) as an anchor and projecting a line to the right of the chart.
The table below shows examples of different types of support and resistance that you can project from a market structure.
They will therefore form the basis of our discussions below. They serve well to illustrate fundamental principles that generally apply to all types of support and resistance.
After learning how to project S/R from market structure, focusing on price action formation is a natural progression.
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Since market psychology supports technical analysis, these simple methods can be very effective depending on the market being traded.
More theory for those interested. You can skip this section if you want to focus on practical use.
The many types of support and resistance listed above can seem overwhelming at first. But you can organize them in your mind with these three spectrums.
We identify reactive areas by observing where price has traded or where volume has concentrated or both. The key here is that the S/R areas are marked based on where the market was traded. We respond to historical market information.
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For forecast zones, the market has not traded there, at least not recently. So you can say that we anticipate that the level will serve as an S/R area.
Some forms of support and resistance remain the same once marked and do not update. These are static zones. An example is the horizontal zone projected from the swing pivot.
There are also purely dynamic zones that are constantly updated with each upcoming price course. Most calculated S/R zones (e.g. moving average) correspond to this.
Some S/Rs are somewhere in between and need to be updated regularly (or based on price). The trend line is updated with new twists. Floor trader centers used for day trading are audited each trading session.
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It’s useful to know if your S/R zones are dynamic so you can ensure they update immediately, either manually or automatically.
Predicted support and resistance are entirely dependent on price characteristics and geometry. Therefore, you can imagine that they are closer to the basic price action.
On the other hand, S/R calculated as moving averages are indicators. A price action trader will use these tools more judiciously.
The essence of creating a trading strategy is to analyze the probability that the support or resistance area will hold.
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The more times the market tests the S/R, the more the S/R becomes established. If the area tests well, we are more confident that the area is indeed S/R.
For example, every time the market touches a support level and bounces up, it removes some eager buyers from that level. Eventually, with more tests, there are no more eager buyers at that level and that’s when support drops out.
For example, a healthy support zone will cause a strong bullish reaction to the test. Therefore, if candlesticks with long lower shadows (like a Pin Bar reflecting buying pressure) form in a support area, this is a positive signal.
A decisive breakout refers to any price formation that gives the impression that there is no S/R
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