WHAT IS PRICE ACTION?

 

WHAT IS PRICE ACTION?

This is the basic definition of price action trading: 

 When traders make trading decisions based on repeated price patterns that once formed, they indicate to the trader what direction the market is most likely to move. 

 Price action trading uses tools like charts patterns, candlestick patterns, trendlines, price bands, market swing structure like upswings and downswings, support and resistance levels, consolidations, Fibonacci retracement levels, pivots etc. 

 Generally, price action traders tend to ignore the fundamental analysis-the underlying factor that moves the markets. Why? Because they believe everything is already discounted for in the market price. 

 But there’s one thing I believe you should not ignore: major economic news announcements like the Interest Rate decisions, Non-Farm Payroll, FOMC etc. 

 From my own experience and from what I’ve seen, I say this “the release of economic news can be both a friend and an enemy for your trades.” 

 Here’s what I mean by that: 

 • If you did take a trade in line with the result of economic news release you stand to make a lot more money very quickly in a very short time because the release of the news often tends to move price very quickly either up or down due to increased volatility.

 • But if your trade was against the news, you can walk away with all your profits wiped out or a loss and the loss can be huge because markets can move so fast during that period that there’s also the chance that your stop loss cannot be triggered.  

The chart below shows and example of what can happen when there is major forex fundamental news release:

WHAT IS PRICE ACTION?

This is one experience I will never forget. I traded a perfect price action setup, the trade went as I anticipated but a few minutes later, the market dropped down very quickly. 

 My stop loss was never triggered at the price level where I set initially. I tried to close that trade as many times as I could but it was impossible to close because the price was way down below where my stop loss price was! Price jumped my stop loss.