In my last post, we tackled about the basics of Foreign Exchange (ForEx) Market and the essentials about following the ForEx market. Now, as we move on to another chapter, we are going to tackle about Foreign Exchange (ForEx) price action strategies and price action trading. I will also share my experience and knowledge about the HLH4 strategy, the ForEx trading system development (TSD), and the price action indicator MT4. These are some of the most essential lessons you have to know to get started and apply what you have learned into the real ForEx world.
My last article served as the foundation of this one, so I suggest that you check out my article “Following the ForEx Market” first before delving into this one.
The Foreign Exchange (ForEx) market may look and sound complicated to most people. Some even regard this market as a market just for the geniuses; a market for the rich and the wise. Well, this kind of thinking is inevitable, because talking about this market with all of the computations, graphs, data and analysis involved, who would not think of that?! So, it’s better not to enter into it; even best not to know anything about it! Buddy, it should not be that way.
Fear not, for I will teach you how to start your journey in the ForEx market with these essential lessons we are going to tackle. Thus, let us start with tackling about the Foreign Exchange (ForEx) price action and strategies about it that will serve as your guide as well as your best friend.
Since Foreign Exchange (ForEx) rates are constantly changing, valuations of currencies are determined by the respective currency flows in and out of a certain country. Currency valuations are also determined on the demand of a country for a certain foreign currency. For you to understand more of this concept, let us use an example:
For instance, a company based in Europe sells its products to a company in United States (US). Since this company based in the US needs Euros (EUR) to pay for the goods they bought, then, there is a demand for Euros. This may be a minor situation of currency exchange, but if the flow of Euro currency in totality leads to a high demand for such, then, the value of Euros are very likely to increase.
Since value of currencies is much influenced by the high demand for such, then fluctuations in the value of currency happen anytime within the Foreign Exchange (ForEx) market. Thus, there is a need to know ForEx price action strategies for you to be knowledgeable of where to invest, and what you can most likely expect.
Primarily, let us know what price action is before proceeding to the trading and strategies involved in such.
Price action is an analysis used in the ForEx market that solely focuses on historical trading prices. It serves as an indicator that gives more probable and reliable results than relying on other price action indicators. It is also considered a study of being able to read past trading prices and “visualize” the future trading prices by using such.
Furthermore, price action trading (P.A.T.) is the act of using “raw” price charts to make Foreign Exchange (ForEx) trading decisions. Price charts are reflections of the actions of participants, investors as well as data generated by the computer involved in trading in the ForEx market. These data and actions are represented in the price chart in the form of price action.
Since price actions in the market are reflections of all variables involved in the ForEx market at any given period, then “signals” are important indicators in market trading. Thus, price movement plays a vital role to determine such signals. A price movement delivers signals you need to create a profitable system in the field of trading. When these price movements are put together, they are called price action trading strategies.
Price action trading strategies utilizes the market’s price movement and these, too, serve as a guide to predict future price movements with accuracy for a profitable and highly probable strategy in market trading.
Being in the field of Foreign Exchange (ForEx) market, everything is uncertain. You will see that this certain currency pair’s value gradually increases, but if you already invest in such, unfortunately, its value declines. It can be a bit of a heartache when you expect your money to grow when you invest in such (Trust me, I’ve been there.), only to realize you are losing way more than you expected. But, the only way to conquer these losing battles is to be wise. They are wise, too? Then, be wiser. They are wiser, too? Then, be the wisest. You may tell me it’s easy to say that, but believe me; I think and act that way, and it does me well.
This may be the real world where money matters and there’s no room for losing, but you have to own it too, you know, because positivity is the key, and being positive means being motivated, and being motivated is seeing the bright side of life, and when you see the bright side of life, you see things clearly. That is why when you see clearly, you know what to expect! This virtue can be way helpful when predicting where the price heads.
Cheer up and never lose hope, because I’m going to show you different price action strategies that will simply but surely help you.
#1: Simplicity is the key.
Whether you are a beginner or a pro, it doesn’t matter, because in using price action, you have to keep it simple; the simpler, the better. You do not want to bombard yourself with price charts that are difficult to comprehend; you will be wasting trading time in focusing on such. In addition, filling your charts with lots of indicators will be hard for you to see the real price action. Thus, it is best to keep your charts clean and simple. Let me show you an example of a clean price chart:
#2: Deal with a few pairs at a time.
With using price action as the only indicator, you are not just freeing yourself from headaches; you are also allowing yourself to see price actions of different currencies, because this indicator is not limited to some currencies alone. This may be great news, but to keep the simplicity of the process and to avoid complications and distractions once again, it is best if you deal with one or a few currency pair/s at a time.
#3: Focus on the few.
You can trade in the Foreign Exchange (ForEx) market with any currency pair you might want, but the truth is, there are currency pairs that are easier to handle. Currency pairs such as the EUR/USD, USD/CHF, GBP/JPY and AUD/USD are some of the currencies with the most predictable movement. In addition, unless there have been highly unexpected updates and sudden turns along the way, these currency pairs’ movements are smoother than other currency pairs.
If you are just starting in the business of Foreign Exchange (ForEx) Market, then, I highly recommend you trade using these currency pairs first before trying other currency pairs.
#4: The longer, the better.
Focus on data from the price charts that are based on a longer time frame. You can refer to 1-hr, 4-hr or day-to-day/daily charts, as the patterns involved in these time frames are easier to distinguish; the more you can distinguish where it would head, the more you will know where to invest to generate more profits.
#5: Know your target and where to stop.
In the world of Foreign Exchange (ForEx) market, even the smallest detail matters. Any minor movement in the price will either lead to profit or loss; these two are major things, but are influenced by the smallest of details. Thus, it is best for you to know what these small details are about.
In the ForEx market, we use the term “Pip” which means the smallest movement in price in a given exchange rate. It is the last decimal point in currency pairs, and currency pairs are valued up to four decimal places. Also, in most pairs, a pip is valued as 1/100 of the 1%.
You may ask: What makes this smallest of the smallest price movement important? It may sound funny to you because you do not deal with pips on a daily life basis. But always remember, this smallest price movement will lead to profit or loss, and that is the only thing you have to remember if you want to make money.
So now that you know what pip is, let us move on to this last strategy. In the Foreign Exchange (ForEx) market, it is ideal for you to know what to target and where to stop. Since currency values in ForEx are volatile and are always changing, you can use around 8-40 stop loss and 15-80 pip target depending on the market.
Do you know the best price action expert advisor (EA) in the world of Foreign Exchange (ForEx) market? Do you also know what the best and highly recommended price action strategy and indicator is? Both questions lead to the same answer; it is price action itself.
Now that you know the different price action strategies, let me share you a strategy that I have tried before. It is the HLH4 Breakout system. The main catch of this strategy is it opens a buy order if the present price is above the previous high price of the previous bar; it opens a sell order if the present price is below the last low price of the previous bar, and it makes a hedge order and a profit locking.
I also tried developing my own trading system development (TSD) in the Foreign Exchange (ForEx) market. It involves swing trading and making use of simple moving average (SMA), Stochastic and relative strength index (RSI). In TSD, 5-10 SMAs are applied to close, stochastic oscillators are used to know where a trend might end, and RSI are used to determine which conditions are overly bought as well as sold. This tool has been helpful and essential to me as it lets me know trend formations in the ForEx market.
I also experienced using MetaTrader 4 (MT4) as a price action indicator. It is a platform used for financial market analysis. Since I highly recommend using price action as a simpler and the best indicator, you can make use of MT4 too, if you want to; this platform can be downloaded for free. In addition, I also have experienced the ForEx Simulator, a trading simulator also created by MetaTrader 4. For me, it is one of the most innovative and amazing trading simulators I have used, so if you want to try Foreign Exchange (ForEx) simulators, better check this one out first.
There are a lot of Foreign Exchange (ForEx) price action strategies you can find. You can even make your own set of ForEx price action strategies! It is an important matter for you to know that the ForEx market is an uncertain market for the risk-averse. It sounds ironic but it works that way.
Since you already know the basics and essentials about the Foreign Exchange (ForEx) market through my previous article “Following the ForEx Market”, and you have ideas on how to apply what you’ve learned about price action, price action trading and different price action strategies, then might as well great to say you are good to go!
Just remember: the key to successfully trade in the ForEx market is to keep it simple. Do not overcrowd your charts with lots of indicators. You can only use the price action indicator (I highly recommend it!). But, if you aren’t satisfied with price action and you want to try more indicators, it won’t be a problem since there a lot of indicators available online.
Learn more to be the best.
Go for greater yields, go for ForEx!