Forex Price Action

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Trade Strategies

Developing a successful Forex trading strategy involves more than just choosing a system—it requires a disciplined, structured approach. Implementation can be broken down into planning, backtesting, optimizing, and execution.

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A Forex trading strategy is a method of trading Foreign Exchange currencies based on a predefined set of rules and techniques.

A Forex trading strategy is a structured method for buying and selling currency pairs based on a defined set of technical or fundamental rules. These strategies vary depending on trading style, time horizon, and market conditions. Below are some of the most popular approaches:

✅ Intraday Trading Strategies

Intraday (or day) traders open and close positions within the same trading day.

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✅ Swing-Trade Strategy

Swing traders aim to capture short- to medium-term price movements over several days or weeks.

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✅ Fundamental Trading Strategy

This approach involves trading based on economic indicators, geopolitical events, interest rate expectations, and other macroeconomic factors.

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✅ Price Action Strategy

Focuses on interpreting raw market movement—primarily candlestick patterns, support and resistance levels, and trendlines—without relying on lagging indicators.

» Forex Price Action

✅ Carry-Trade Strategy

A carry trade involves borrowing a currency with a low interest rate and using it to buy a currency with a higher interest rate.

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Your choice of Forex broker can have a profound impact on your long-term profitability and exposure to risk:

✅ Regulation Matters:

Always opt for a broker that is regulated by a reputable financial authority.

✅ Go for ECN/STP Execution Models:

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✅ Focus on Trading Costs, Not Bonuses:

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Intraday Trading Strategies -Forex Price Action

Understanding the dynamics of Forex price action is essential when trading Forex intraday. A wide variety of methods and tools are available for traders aiming to interpret daily price movements. These tools include candlesticks, chart patterns, harmonic patterns, Elliott Waves, and more.

What is Forex Price Action?

Forex price action reflects the flow of executed trading orders. What sets price action trading apart from other intraday strategies is the use of naked charts—charts that display only candlesticks, without any indicators or oscillators.

Basic Points

Price action in Forex trading refers to the real-time movement of currency prices, driven by the ongoing execution of buy and sell orders within specific time frames. Unlike fundamental analysis—which emphasizes macroeconomic data and geopolitical events—price action trading centers on interpreting the market’s raw behavior: how prices move, where they hesitate, and how they respond to significant levels.

While some traders use discretionary judgment to analyze price movements, the most reliable and structured method is technical analysis. This framework helps traders identify patterns, trends, and potential reversals with greater consistency.

What sets price action trading apart from many other intraday strategies is its minimalist approach. Rather than depending on lagging indicators such as moving averages, RSI, or MACD, price action traders focus on “naked charts”—simple, uncluttered price charts that display only candlesticks or bars, without any technical overlays. This stripped-down view highlights essential elements of market structure, key support and resistance zones, and candlestick patterns like pin bars, engulfing formations, and inside bars, which often signal high-probability trading opportunities.

By eliminating distractions, price action traders aim to capture the underlying psychology and sentiment driving the market—how both institutional and retail participants are positioning themselves. This approach enhances responsiveness in volatile conditions and reduces the likelihood of false signals that often stem from over-reliance on technical indicators.

As a result, price action trading remains a preferred strategy among seasoned Forex professionals who value clarity, precision, and real-time market insight.

Price Action and Candlesticks

A candlestick is formed by an opening price, a closing price, and two wicks. The wicks represent the high and low prices within the selected time frame (for example, a 1-minute chart). The candle's body is determined by the distance between the opening and closing prices, and a candle may be bullish or bearish depending on that relationship. Price action should always be interpreted in the context of current trading conditions in each Forex market. Let’s now distinguish between the two main types of Forex markets.

Key Candlestick Patterns in Price Action Trading

Engulfing Patterns

Bullish Engulfing: A large green candle completely engulfs the previous red candle, signaling a potential bullish reversal.
Bearish Engulfing: A large red candle engulfs the prior green one, suggesting the start of a bearish move.

Pin Bars (Hammer & Shooting Star)

Hammer (Bullish Pin Bar): A small-bodied candle with a long lower wick, showing rejection of lower prices and hinting at a potential reversal to the upside.
Shooting Star (Bearish Pin Bar): A small-bodied candle with a long upper wick, indicating rejection of higher prices and a possible downward move.

Inside Bars

A smaller candle entirely within the range of the previous candle, often signaling consolidation before a breakout.

Doji

A candle with little or no real body, where the open and close are nearly the same. It reflects indecision in the market and often precedes a reversal or breakout.

How Price Action Traders Use Candlesticks

Support & Resistance Reactions: Candlestick formations near significant levels (such as previous highs/lows or trendlines) often signal potential reversals or breakouts.
Trend Confirmation: A series of strong bullish or bearish candles can confirm the strength and direction of a trend.
Trade Entries & Exits: Patterns like engulfing bars and pin bars are commonly used to time high-probability entries and exits, especially when aligned with market structure and context.

The Two Different Forex Markets

One of the key challenges when trading online using a Price Action strategy is being able to identify and distinguish a Trending Forex Market from a Ranging Forex Market.

(1) Trending Markets

Trending Forex Markets are those that follow a clear trend (either uptrend or downtrend) within a specific timeframe. How can you identify a trend?

1.1 Down-Trending Markets

A market is down-trending when the latest high is lower than the previous high, and the latest low is lower than the previous low.

1.2 Up-Trending Markets

A market is up-trending under the opposite conditions: the latest high is higher than the previous high, and the latest low is higher than the previous low (see the following chart).

Forex Trending Market

(2) Ranging Markets

A ranging market trades within a specific price range, meaning price action is confined to a certain area. At the upper limit of this range, there is strong supply that tends to push prices down whenever reached. Conversely, at the lower limit, there is strong demand that can push prices up when touched. Ranging markets are common in intraday Forex trading and often provide straightforward setups for placing Profit-Taking and Stop-Loss orders.

Support & Resistance Levels

The evaluation of Support & Resistance price levels is incredibly important, regardless of the financial market or asset you are trading. Support & Resistance levels apply to any market, whether it is ranging or trending.

(i) The approach to strong Support & Resistance levels in trending markets is often the primary cause of trend termination or reversal.

(ii) In ranging markets, Support & Resistance levels most commonly define the boundaries of the range itself.

Basic Points

■ To assess the strength and significance of each Support & Resistance level, professional traders rely on historical charts.

■ Key Support & Resistance levels often determine the placement of take-profit and stop-loss orders for swing and long-term Forex traders.

■ Finally, evaluating Support & Resistance levels is closely linked to the optimal timing for market entry or exit. If price action breaks through a strong support or resistance level in a trending market, it signals a strong, ongoing trend. In ranging markets, such a breakout may indicate the end of trading within the established range.

Identifying the Correct Trending Lines

Identifying the correct trending lines is more challenging than pinpointing support and resistance levels. This is because trend lines are dynamic, continuously changing over time. Important trend lines can either signal potential trend reversals or, conversely, indicate strong ongoing trends that traders should follow.

Counting Candles Within Charts

Counting candles is commonly used for pattern recognition. The number of bullish and bearish candles within a specific period may indicate the likelihood of a trade’s success. Additionally, the number of candles reflects the passage of time. The candle-counting method is typically combined with other price action techniques.

Pattern Recognition

Price action tends to repeat itself. The process of identifying these recurring formations is called pattern recognition. There are many patterns, but here are some of the most important ones:

(1) CONTINUATION PATTERN RECOGNITION

1.1 Cup & Handle Patterns

1.2 Triangle Chart Patterns

1.3 Flag & Pennant Patterns

(2) REVERSAL PATTERN RECOGNITION

2.1 Head & Shoulders Patterns

2.2 Double and Triple Tops & Bottoms Patterns

2.3 Rounding Top & Bottom Patterns

■ Intraday Trading Strategies -Price Action Strategy

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