Dear Forex Traders,
My name is Ludovico and I am part of Horizon Trading Academy, our mission is to broadcast knowledge acquired throughout many years in this fabulous and rewarding industry, and to be your number one guide on your trading journey to success. We have been working internationally spreading our edging price action strategies for more than 10 years with excellent results, which will give you a great advantage in scanning financial markets and kill your trades.
Today, I would like to drag your attention to Forex and how to effectively trade in this environment, following price action techniques.
Price action trading is an analytic method to spot basic price movements of any given security, allowing traders from all over the world to generate markets entry and exit signals. This is a pure form of technical analysis, since it ignores fundamentals factors and indicators looking primarily at the financial instrument price history. Therefore, price action is simply how prices is changing throughout time. Hence, it is very important, in order to trade using price action, to understand where liquidity and price volatility are highest, because by recognizing these areas, traders will have an edge and kill trades every minute, every hour and every day.
What does price action tell you?
Price action can be followed by analysing and interpreting charts that plot prices over time. Usually, professional traders will use a combination of different charts and timeframes to increment their ability to spot and read trends, breakouts and reversal. Mostly used tools to trade using price action systems are candlestick charts, since they better visualize price fluctuations and display opening, high, low and closing value of the instrument traded. In addition, beside telling traders price movements, candlestick charts create patterns which help investors to better understand what will come next.
Price action is not described as a trading tool like an indicator, but rather a technique used by different kind of traders to focus solely on support and resistance level to anticipate and predict breakouts and consolidation. Because this trading method does not take into consideration fundamental elements, such as macroeconomics and geopolitical factors, and indicators, traders must pay close attention to additional factors, such as volume traded and key levels to be more effective while triggering and closing positions.
Support, Resistance and breakout Levels
Fundamental to understand what price action is, and how to make profit out of Forex market by using this technical analysis is to comprehend support and resistance level:
Support level: It is the level where the price tends to find support when it falls. This means that price is likely to bounce off this level rathe than break through it. However, when price level pass through this zone is expected to continue falling until meeting another support.
Resistance Level: This is opposite of support level, therefore is when price finds resistance as it is engaged on a bullish rally. Therefore, once price action meets this specific area it is more possible to bounce off rather than breaking it. Nevertheless, if price manages to break through it is likely to rise again until clashing into another resistance point.
Breakout Level: This level is a stock price moving beyond a well-defined support or resistance level with increasing volume.
After understanding these very crucial level in other to trade price action professional traders find best market entries and exits throughout pattern analysis.
What is a pattern?
In technical analysis, changes between a bullish and bearish trends are often characterized by price pattern. When defining price pattern traders refer to a recognizable shape of price movement that is identified by using trendlines or curves. There are two main pattern groups reversal and continuation which describe different market set ups following either an uptrend or downtrend.
This pattern group signals a change in price direction, more specifically highlight where either the bulls or the bears have run out of steam. Therefore, the main trend will pause and reverse to the other direction.
Head & Shoulders
Head and shoulders pattern is a chart configuration that consists in 3 peaks.
See image below:
It is possible to see from the picture that from a falling trend market had a pause and then revers. Shoulder #1 represents the first part of the pattern while shoulder #2 the last part before market initiates to change direction moving up. In between the 2 shoulders there is a false breakout which generally is called head.
It is possible to see this pattern very often during trading sessions giving traders new potential earning setups.
Double bottom looks like the letter “W” and occurs when price tries to push, breaking support level, however, is denied, and makes a second unsuccessful attempt to breach the same support. This will suggest a possible trend following.
See image below:
On the other hand, double top reversal pattern, which often recall the letter “M”, is built on first attempt to break through resistance level followed by a second failed trial to break out the same area. This is also a potential pattern which will help traders understand reversal scenarios and trigger very efficiently profitable trades.
See image below:
NOTE: both double bottom & double top can appear in different shapes such as triple bottom and triple top . However independently from the shape remains a reversal poattern
A price pattern that highlights a temporary break from an existing trend is usually called continuation pattern. Therefore, is a trend which will appear when a bullish is recharging energy to explode or vice versa a bearish trend interruption before starting the sell off again.
Pennant appears between two trendlines which eventually converge. Main feature of this pattern is that the two trendlines will move in two direction, one upwards and the second one downwards. Second characteristic is that the closest the trendlines get to each other volume decrease until break out point.
See image below:
Cup & Handle
Cup & Handle is a continuation pattern where a bullish trend has paused but will continue its rally when pattern is confirmed.
See image below:
It possible to notice that this specific pattern is divided in two main parts, the cup “U” shaped and the handle forming a “V” when at the handle level price breaks resistaence is a great point where to speculate for bullish trend continuation.
In this article we went through several patterns that will help you out to step up your game becoming more and more efficient in your daily trading. However, within different markets it is possible to notice many more recurring shapes that, when spotted will increase your chances to make serious earnings.
I therefore invite you to subscribe to my webinar where we are going to see more deeply what price action is and how to take advantage of it making an elite trader.
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