Monday, 11 November 2019

How to Implement Effective Price Action

In forex trading, one of the most widely used strategies is to utilize Price Action. By knowing how to implement Price Action, a trader can determine the right opportunity to open or close a position. But before you can apply it, of course you have to know in advance what is referred to as Price Action. The definition of Price Action is the price movement of an asset or a currency pair, while the Price Action strategy focuses on analysis
price movements in the past, hoping to find patterns that can be learned to help make trading decisions going forward. There are so many methods that can be combined, but the most simple and effective Price Action trading strategy is that which is combined with Support or Resistance, both in the form of horizontal lines and Trendlines.

The following are things to consider when implementing Price Action: Horizontal lines and trend lines are often used by analysts to measure the strength of price movements. The boundaries around the Trendline line are commonly called Channels.

How to Implement Price Action in Forex Trading

1. When the Market Is Trending

As shown in the picture above, USD / CHF moves downtrend with Support and Resistance levels (in the form of a horizontal line) following the rules of change: The broken support will become Resistance, while if the Resistance is successfully broken, it will become Support.

 Swing Point is a potential area for signal formation from Price Action. In this case, the Pin Bar formation formed at the Swing Point suggests a correction in the direction of the main trend (Downtrend). We can open or close a position manually at the Swing Point after a trading signal has occurred. All Pin Bars in the example above experience a rejection (False Break) at Support and Resistance levels, so that it can be considered valid. As for the Uptrend market, the reverse process is the case.

2. When the Market is Sideways

In the example above, the 4 Pin Bars occur at Resistance and Support levels. For market conditions that are Sideways (Ranging), we just need to observe the formation of bars that form on Resistance and Support. If there is a break, make sure it is not a false break. Why is the Pin Bar formation important here? Please note, forex traders often mistakenly think that all Pin Bars
formed for the same reason. In fact, many other factors influence the formation of the Pin Bar in addition to the size, characteristics, differences with the previous Pin Bar, as well as other technical factors. One of the things to look out for is the moment when big traders take Take Profit action. For False Break conditions, we can open the position again after the bar has finished forming. Stop Loss level and profit target can be determined at a level close to its Support Resistance, according to the direction of the Entry position that we are taking. In horizontal market conditions such as the example above, the strength of the Support or Resistance lines cannot indicate the length of the Sideways situation. Basically, Sideways occur because the market is consolidating. The safe step that can be taken is to wait for the market to reach an agreement and determine the trend.

3. When a support line is broken

USD / CAD Daily chart above, the Inside Bar Setup appears in the Event Area horizontal line (in this case the Support line) before it is broken and turns into Resistance. Next, a Price Action Pin Bar setup is formed which experiences a False Break in the Event Area line, as a Re-test that shows the strength of the trend. From the 3 examples above, it can be concluded that the implementation of Price Action strategy will be more effective if combined with supporting factors, in this case the horizontal line of Support or Resistance. However, there is another recommended way of implementing Price Action if the price experiences a reversal, namely confirmation with the Supply And Demand area.

4. When a Reversal Occurs

 This reversal is not the same as a reversal in the range that occurs in the Sideways market conditions above, because prices can form a new trend very strongly after hitting an important level. Predicting when a reversal will occur is the target of many Price Action traders. Unfortunately, there are not many ways to really predict when a reversal will occur, especially if only based on the current state of prices.
Most traders predict Reversal moments from price points taken from the past, using the Support And Resistance method, or if you want to be more measurable, traders can use the Supply And Demand area. The most common way to detect it is to look at certain candlestick patterns that are formed in the important zone of Supply or Demand. For example, if you see prices going up to the Supply area da sharp movement, followed by Price Action signals such as the Bearish Engulfing pattern, it is a sign that a reversal will occur.

Also Read : How to analyze EUR / GBP with RSI

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