Why Trade Forex with Price Action Analysis ?

Successful forex trading is both an art and a skill. You cannot manufacture trading signals by aligning  lagging indicators together, instead you have to trade in harmony with the forex market and follow the raw price trail as it unfolds. Once you learn to accurately interpret this price trail or “price action” as I call it, you will have the potential to become an extremely accurate forex trader and have an edge that your opponents (other traders) are lacking. You have likely already experienced the frustration of entering a trade only to see it move against you immediately, this is often what happens when traders strictly use lagging indicators to trade the market, it’s a habit I try to encourage all my students to kick. The message is clear - ”Stop Using Indicators!”. The reason is that since these indicators “lag” behind price, they naturally give you an entry or exit signal just as price is about ready to move in the opposite direction, or in other words, they are “late” signals. In my view, the only true way to become an accurate forex trader is to learn how to interpret the dynamic price trail (raw price data) as it plays out each day in the forex market. Your new goal should be to learn to trade with price action.

The forex market is a highly liquid and sometimes fast moving market that lends itself wonderfully to the trading method of price action analysis. Price action analysis is the identification and implementation of specific price action signals or setups in the market you are trading. Forex is a great market to use price action analysis on because it is open 24 hours a day 6 days a week and this means there are more price action signals for you to take advantage of. All you need to know is what to look for and you can best learn this from a professional price action trader and by studying the charts and applying a price action trading plan.

I have tried about every way to trade the market you can imagine and after all the frustration, time, and money wasted earlier in my career, I ended up realizing that the best way to trade any market is just by analyzing a naked price chart. My unique way of trading using price action setups is a result of many hours of screen time spent analyzing price movement and price action patterns. Trading is a process of trying different methods and tweaking them and eventually ending up with your own unique trading method.

Price action analysis works very well in the forex market because it is such a dynamic and active market. The beauty about price action analysis is that it is an inherently flexible approach to trading that gives you a perspective on the market that allows you to make sense out of what is happening at any given time. I have been profitable by concentrating on just 2-3 good price action setups that have proved profitable again and again for me. If you learn how to read what the chart is telling you and focus on just 1 to 3 setups that you like, eventually you will master these setups /patterns, allowing you to have a better chance of  making  make money from your trading. Where people go wrong is using indicators and other overly complicated methods and then constantly jumping from one technique to the next (BIG MISTAKE). You have to find a truly consistent edge in the market and then just concentrate on that until you get it down, remain in the one frame of mind, focus and master those setups first, then you can maybe add more tools to your arsenal.

Trading is difficult enough without having an overly complicated method that tells you to look at multiple lagging indicators when you could just be looking at a simple price chart. Probably the best reason to trade forex using price action is that any indicator you use on your chart to analyze market movement is derived from price and is just showing you in a less vivid format the same thing price is showing you. Some people like indicators because they give you buy and sell signals when lines cross or whatever. The thing is, if you know what price action signals to look for you can get the same entry signals but at a much better price which gives you a better chance at profiting.

Just because your charts come with a hundred different indicators doesn’t mean its going to help your trading or make you money in the markets. We are trading financial markets here, so the core of what we are doing is trying to profit off of price movements. Why people would not naturally make their trading decisions off of pure price movement is beyond me. I promise you that if you simplify your trading method and concentrate on using price action strategies you will wonder how you ever traded any other way.

Here is Another Article – 10 Reasons Why Price Action Analysis Will Improve Your Forex Trading

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Copyright Learn to Trade the Market 2010 – Author – Nial Fuller

You may ALSO be interested in the following recent forex lessons …

• Price Action Trading Explained
• Learning Price Action – The Key to Your Forex Trading Success
• Pin Bar Forex Trading Method – Introduction

Article by Nial Fuller – Head Trader and Coach at Learn To Trade The Market