Forex Blog

Price action (PA) analysis and trading focus on what the currency rate (price) does and its clean chart displays. Traders who employ PA methods use naked charts composed of bars or candles to find support and resistance (or supply and demand) zones and then work with them and the current changing price. Unlike traditional technical analysis, PA does not rely on lagging technical indicators or classical chart patterns.

Some believe that price action trading is the only way to be successful in Forex, especially if you day-trade. Others think that PA is nothing more than an overrated gimmick — after all, getting rid of indicators just removes a usefully presented layer of information from your screen.

Many traders claim that fundamental methods (news, macro indicators, long-term economic policy) and sentimental analysis (broker’s order book status, Commitment of Traders report, etc.) are more reliable and evidence-based approaches than price action.

Still, in the debate of price action’s validity and superiority, the truth is probably not that simple. Current market conditions play an important role here. For price action to be a powerful trading technique, the currency pair has to be in a high-liquidity trading session. Exotic low-liquidity currency pairs are poor subjects for PA analysis. Also, any surprise high-impact economic indicator release as well as some totally unexpected news report could impair a PA-based strategy. Complementing your usual PA trading routines with other methods of market analysis could help in going through such obstacles unscathed by extra losses.

I often determine support and resistance zones by looking purely at the currency pair’s previous price action. I then use these zones to determine my stop-loss and take-profit levels. However, PA is in no way my main tool to trade Forex — it just helps me with one of many aspects of trading. And how about you?

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If you want to talk about how successful or disastrous your experience with price action trading is, please use the commentary form below to reply.