First of all let’s set the record straight price action trading is nothing new and it is definitely not a secret. If you happen to be a beginning Forex trader, then it may be new to you, but so will most methods of Forex trading.
The price action trading method can be extremely straightforward. In Forex trading circles trading using price action is purported to be the opposite of trading using indicators. There are those who believe that the price action itself tells the entire story and that indicators are by their very nature lagging behind price action. Whether you trade using Forex indicators or without Forex indicators with price action is completely up to you. It’s not a matter of which method is correct or incorrect. The only thing that really matters is which method you can use to profit in Forex trading.
Price action has been used to trade since before there were computers or Forex trading software or even an official Forex trading industry or market. Stock investors used to watch the dynamics of price change as far back as the ticker tape days. This is proof positive that the price action trading method is nothing new. It should also serve as a testament to how effective trading with price action can be as it has been used effectively for so long.
Let’s take a look at a simple example of trading using price action. Below will be a simple Forex trading system using price action. Please keep in mind that this is oversimplified and is for the purpose of illustration only.
Buy the EURUSD when the price rises above the highest high of the last 10 days
Sell the EURUSD when the price falls below the lowest low of the last 10 days
In our example above we are looking to buy because we are interpreting a move above the highest high of the last 10 days to be bullish. Conversely we are also interpreting a move below the lowest low of the last 10 days to be bearish.
This brings us to a very interesting point as what we have described is a very popular price action trading method. This method is known as a “channel breakout”. In this case the highest high of the last 10 days forms the “ceiling” which is the top part of our channel. The lowest low of the last 10 days forms the “floor” which is the bottom part of our channel. In our example we used 10 days simply for the purposes of illustration. In this case the “length” of our channel was 10 days. This could basically be any number from 2-100 are beyond. When the price “breaks out” of either the top or bottom of the channel the assumption is that the price will have the necessary momentum to continue in that direction.
What we’ve just seen is a very simple price action trading method. There are many, many more methods available and it is suggested that you grab your favorite Forex charting software and start to experiment in the wonderful world of price action trading.
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