In today forex faq, we have a question from one of our fellow traders regarding the topic on price action trading.
Below is the question:
What is Price action trading?
Price action trading is actually the trading of candlestick patterns. It is solely based on analysis of forex candlestick patterns and most of the time do not require the use of indicators.
There are some reversal candlestick patterns that people likes to trade with like the head and shoulder pattern, double top/bottom or railway track pattern. Once you see any one of these formation in a trend, it is a sign that there is going to be a retracement or reversal of trend.
So what a trader will do is to enter a trade based on the retracement or reversal of the market whenever they see any one of the above reversal candlestick patterns.
From my personal experience, there are a lot of fake out movements in these type of patterns which will lead you to more losses than profits and therefore it is best to add it one or two indicators that can help you to identify a good entry point. As a whole, I am not into price action trading as it is not a complete technique analysis system.
As a trader, we are always looking for a trade with the highest probability of winning. Therefore it is best that you can also make use of one to two indicators in your trading system as it will greatly improved your overall performance if you pick the right indicators and make the right settings.
If you have read one of my blog post on how to formulate your own strategy. You will notice that the first step is to create a general strategy. Price action is only the first step of formulating a strategy and therefore you will need the help of other indicators to give you a better entry point and exit point.
To find out more about reversal candlestick patterns, you can read the post below
It is best for you to add one or two indicators into your price action strategy and then fine tune them to give you a decent winning percentage and risk reward ratio.
I hope that I have answered your question and do feel free to give me your comments below.