These are buy and sell areas you can easily identify and place on your chart. The spread is the difference between the buy offer and sell bid price that we quote. Chapter 4 Price Action Setups. This allows you to buy or sell at the right time. Traders using Fundamental Analysis must sort through a great deal of market data, and so typically focus on only a few currency pairs. Thinking of candles as simple patterns is the wrong way to do things.
Other Forex Trading Strategies In addition to trades that focus upon the relative value between two currencies, there are also other popular types of currency trades.
Live Currency Rates
These are buy and sell areas you can easily identify and place on your chart. Once price hits these areas you know it is likely to stall or reverse completely. This is not that basic doji equals reversal stuff you may have seen elsewhere. Advanced candlestick analysis goes much deeper than that so that you have a full understanding of what a chart is telling you. These two techniques make up the core of my price action trading strategy. In fact, those are the only techniques I use to find and trade high probability setups.
My trading strategy differs from most courses you will come across as it is based entirely on Price Action…. My Forex price action strategy was born in and has been constantly improved over the last 12 years — this strategy has seen it all. It has survived major market changes from the financial crisis in to the Swiss Franc disaster in , to Brexit in It really has seen it all. From trending markets to low volatility, to ranging, to high volatility, it has weathered it all with consistent profits.
Indicator based strategies work well in specific market conditions. If you have a strategy that works in low volatility markets, it will fail in high volatility, ranging, or trending market conditions. In fact, my Forex trading strategy is so simple that you can trade it from your smartphone.
My Forex trading strategy was created with simplicity in mind. The core rule of my price action strategy is to keep trading simple. Because the Forex trading strategies that work best are simple. The only thing I place on my charts is support and resistance areas.
I use these support and resistance areas in conjunction with candlestick analysis to trade Forex. This chart is uncluttered, easy to understand and to navigate, with nothing to distract you from analysing price action. This style of trading is quick, efficient, stress-free, and you can do it from anywhere, including your smartphone. Support and resistance areas show you where to buy and sell, they are a vital part of every traders toolkit, and it is essential that you learn how to place them.
Support and resistance areas divide your chart up into buy and sell areas. An area that sits above current price is a sell area, any area below current price is a buy area. The terms buyers and bulls are interchangeable. Support is a buy area as buyers are found at support. The terms sellers and bears are interchangeable. Resistance is a sell area as sellers are found at resistance. This is a strong resistance sell area.
When price approaches a sell area large amounts of sell orders are triggered countering buy orders. This usually results in price stalling or even turning around completely for a reversal. They place their entry orders at significant price levels. Significant levels come in many forms.
The next time it approaches the level it pulls back again and then again two more times yellow highlights. Because market movers place their buy orders at the 1. This is how markets work, buy and sell orders are grouped together in the same general area and when they are hit we see the impact on price. There are a lot of indicators out there that claim to give you great support and resistance areas.
Support and resistance placements still need to be done by a person. These are my support and resistance areas , but if you want to trade more pairs you will need to place them yourself. I am going to break it down into a step by step process for you though. But first, we need to define some rules for support and resistance areas.
Select a daily chart and zoom out until you see around one year of data. Identify the highest and lowest bounces in the last year and place an area at each. Remember, place your areas at the bodies, not the wicks and as these are yearly highs and lows placing them based on a single bounce is enough. Place support and resistance areas between the first two by connecting areas which have two or more bounces. You will generally find that there are support and resistance areas on most charts.
If you have more than 8 you probably placed too many. Well the standard approach to candlestick analysis is basic pattern recognition, which fails to work in real trading. I delve much deeper than that, I look at the story behind the candle and in this chapter I will show you how to do that too.
You can read up on the basics here if you need to. Each pattern has a set in stone definition and that is the only meaning it can have. Actually, it is worse than useless. Thinking about candles as just patterns is counterproductive. It makes you a worse trader, it leads you to make massive mistakes. Giving a pattern a set definition leads to tunnel vision. When you see that specific pattern, you assume that something will happen. All candlesticks need to be assessed based on the candlesticks around them, and many other factors.
Normally people say that a spinning top means a reversal is imminent, which can be true. However, this same pattern can also mean that a continuation is imminent. It can mean that price is temporarily stalling. Every single candle on your chart is telling you a story. When you combine those candles together, you get the story of price.
Reading and understanding the story of price is vital in Forex. It is vital because it allows you to answer one of the most important questions in trading…. Being able to accurately answer this question is vital. If you are about to enter a short trade and you ask yourself.
If you look at the three highlighted candles below, it is easy to conclude that sellers are in control of price. The candles all closed lower than they opened, they all created new lows beyond the previous candles low and they all had small upper wicks in comparison to the candle body.
The small upper wicks indicate that buyers were unable to push price up by much. It has a short upper wick, a small body, and a long lower wick. This is what I call an indecision candle. Indecision candles occur when neither buyers or sellers can gain and maintain control of price. They are common, but if used in the right way, they can be very powerful.
Take a look at this bullish trend yellow highlight , it is a strong trend, there are several bullish candles heading towards an area of resistance. The big bullish candles tell us that during the highlighted period buyers were in complete control of price. Large Upper Wick Blue Highlight A large upper wick shows that buyers tried to continue the bullish trend but failed. Sellers took control of price and pushed it down. Small Bearish Body Green Highlight The small bearish body shows that sellers were able to close lower than the open.
This is significant because in the three candles before this price consistently closed higher than open. This shows us that buyers are losing power. Small Lower Wick Red Highlight The small lower wick shows us that sellers were not able to gain much ground either.
This tells us that sellers are not strong enough to turn price around completely. However, they are strong enough to stall further buyer movement. All together this indecision candle forming right after strong bullish candles suggests that power has shifted from a decidedly bullish buyer market to an undecided market.
While sellers are not in control, neither are buyers. If you remember, in the previous chapter we talked about resistance being a sell area and support being a buy area. So the image above shows us three strong bullish candles heading into a resistance area. This tells us that the sell area is working. When price pushed into that area sell orders triggered and buyers could no longer continue up.
Price action allows you to take many different types of trades, reversals, continuations, range, swing, breakout and scalp trades to name a few.
In my free Forex trading strategy I will focus on one type of setup, the easiest to spot and trade, reversal. Reversals are one of the strongest price action setups, and one of the easiest to trade. And because they occur so often, you can trade this setup exclusively and be a profitable trader.
In fact, for years Forex trading strategy focussed on reversals only. However, these days I trade more price action setups. In the example above, the preceding trend is a very strong bearish move, indicating that there are a lot of bears in the market and very few bulls.
If bulls were strong then price would not be trending down. The preceding trend shows us that bears sellers have strong control of price and they are pushing price down into a support area. The opposite applies for a bullish preceding trend which would show bulls buyers trending towards resistance, as you see below.
A preceding trend can be formed by as little as one candle. If the candle is strong and covers a lot of price distance, I categorise it as a preceding trend for the purposes of reversal trading.
Preceding trends are pretty simple. As long as you see a strong move heading into an area of support or resistance, you can consider it a preceding trend. A reversal setup will have one to three indecision candles. The indecision candles need to form on or near to the support and resistance area.
If indecision does not form on or near to the area of support and resistance, it is not a valid reversal setup. An indecision candle in a bullish preceding trend indicates that buyers are possibly losing control, and sellers may be gaining control.
In a bearish preceding trend it indicates that sellers are losing control and buyers may be gaining control. However, an indecision candle does not indicate that price will reverse with any degree of certainty. You cannot take a trade based solely on indecision. The image below shows indecision forming between support and resistance.
What about when a bullish preceding trend heads into an area of resistance sell area or a bearish trend into support buy area and indecision forms? But we cannot enter just yet, we need confirmation, which comes in at part three of a reversal setup.
The reversal trend is the third and most important part of a reversal setup. This is where we make our profit! After a preceding trend stalls at support, and indecision forms, you often see a reversal trend.
The image below shows a bearish reversal trend forming after indecision on resistance. In this case we saw a transition of power from a bullish preceding trend to a bearish reversal trend separated by a stall on resistance.
In this chapter I will show you how to use my Forex trading strategy to trade reversals profitably. My Forex trading strategy was built on reversal trading. It has now expanded beyond just reversals, but reversal trading is where it all started. Over the years I have refined reversal trade entries into a simple step-by-step process. Entering trades does not need to be difficult — remember, my goal is to keep everything simple.
You need to enter the reversal trade after part two indecision closes, but before part three reversal trend completely takes off. Obviously if you enter after the reversal trend takes off, it is too late.
In the image below you see a preceding trend heading into support, indecision, and a failed reversal trend. If you entered too early, you would have failed this trade.
Many people wait for a candle close to get in, but I have tested this thoroughly and waiting for closes gets you in too late. In addition to trades that focus upon the relative value between two currencies, there are also other popular types of currency trades. In arbitrage trades, an investor simultaneously buys and sells the same security perhaps a currency at slightly different prices, hoping to make a small, risk-free profit.
While this is obviously an attractive proposition, arbitrage opportunities are very rare in efficient markets because there are many other investors also seeking to exploit these opportunities. Therefore, any arbitrage possibilities that do exist disappear quickly.
Investors interested in arbitrage opportunities need to closely monitor market developments and act immediately when opportunities appear. When opportunities are available, the price differential is usually quite small.
To generate a substantial profit, investors need to trade in sizes large enough to magnify the small price differentials.
Another popular category of currency trade is the carry trade , which involves selling the currency of a country with very low interest rates and investing the proceeds in the currency of a country with high interest rates. In this category, the trader generates a profit as long as the relationship between the two currencies is relatively stable.
The carry trade is usually practiced by large, sophisticated investors such as hedge funds and is extremely popular during times of low market volatility. During high volatility, large fluctuations in the value of currencies and other financial assets can quickly overwhelm the traditionally slow-and-steady profits found in the carry trade.
Therefore, investors tend to shun the carry trade when market volatility rises. Trading Strategies Forex Currencies: Ways To Trade Forex Currencies: Currency Cross Rates Forex Currencies: Emerging Market Currencies Forex Currencies: Speculating on moves in foreign exchange The activities of most investors will fall under the broad category of speculation, which involves buying or selling a financial asset, usually in the face of higher-than-ordinary risk, in order to take advantage of an expected move.
Other Forex Trading Strategies In addition to trades that focus upon the relative value between two currencies, there are also other popular types of currency trades. Currency fluctuations often defy logic. Learn the trends and factors that result in these movements. Learn about the most traded currencies and the strategies used to trade them.
Popular Currency Profiles
Best Forex trading strategies that work. When it comes to technical currency trading strategies, there are two main styles: trend following, and counter-trend trading. Both of these FX trading strategies try to profit by recognising and exploiting price patterns. Click here to get the 10 Best Forex Strategies sent to you, starting now! #1: The Bladerunner Trade The Bladerunner is an exceptionally good EMA crossover strategy, suitable across all timeframes and currency . Based on your risk parameters, decide which currency pairs are best suited to your trading strategy. Decide how long you plan to stay in a position. Based on your currency pair selection, plan how long you want to hold your positions: minutes, hours, or days.