The use of technical and fundamental analysis has made forex trading more advanced and more predictable for many traders, both those who are home-based and working for themselves and those who work for major banks and hedge funds. However, if you prefer utter simplicity while analyzing currency pair charts, price action is a more suitable long-term approach.
What is Price Action?
Price action is also referred to by some as naked trading since the charts are clean of momentum indicators and oscillators, such as moving averages and relative strength index. Price action traders rely on the actual candlestick that is forming in front of them at the present time. Moreover, they use historical price data to put present price action in a more relevant context.
Why Use Price Action?
For starters, it’s very simple to trade with. Majority of technical indicators lag, which ultimately leads to less profitable and riskier trade setups. Fundamental analysis, on the other hand, tends to impact the long-term picture of a currency pair and may not affect current price action, rendering the information useless for scalpers, day traders, and swing traders.
Tips to Using Price Action
Beginners of the strategy should first familiarize themselves with candlestick patterns like the Bullish and Bearish Engulfing and the Three Black Crows. Also, zoom out of the price chart and try to get a bigger picture view of the currency pair. Avoid basing your decision solely on the current price action as this can lead to fake formations that are meant to fool novice investors.