Monday, February 13, 2012

Using Price Action Trading in Forex

In this post, let’s look at a much lauded foreign exchange (forex) technique, known as Price Action Trading (PAT).

What is Price Action Trading?

It’s a forex technique that is grounded in the logic that as we trade in the present, we should follow a chart’s price movements in the present to make trading decisions, instead of relying on indicators of past price movements. You can’t make money on yesterday’s trades, so it makes sense to interpret current market activity for immediate and near-future trading.

What is the concept of “Price Action”?

Literally, the examination of the action of prices – how they alter throughout time, what movements they make. The idea is that if you examine their actions over time, you can make accurate predictions as to market price movements based on actual current movements that will apply to the next couple of bars on a chart. It’s a “real time” strategy that really roots your trading decisions in the data applying to right now, and very soon after.

Why is PAT useful to me?

There are two great reasons why you should learn more about PAT and incorporate it into your trading:

First off, it is great for all levels of trader. When you are developing your forex trading strategies, either as a newbie or a veteran trader wanting to adapt his or her style for better results, PAT is good as it can be used alone or in combination with existing methods you use. If you’re new to forex trading, then you can learn how to read charts and examine patterns according to the PAT strategy. If you’re an experienced trader, you can combine the PAT theory with a system of sophisticated indicators.

Second, PAT makes sense; we trade in the present and future, not the past, so the data we pay attention to should cover those periods so that we can realize their analysis into profit. An over-dependence on trend and lagging indicators takes the focus away from the real live-action of price movements can lead to being surprised by volatile movements. Using PAT is a good safeguard to being blindsided by these.

Bio: Rick Silver is a Financial Writer and contributor to Everest Forex. She spent many years working at leading U.S. investment firms and banks, within the fields of foreign exchange, commodities, structured finance, asset finance and corporate finance.

1 comment:

  1. Hello,

    I was on this forum and they are talking about price action in forex, and I was wondering if it really is that simple to follow instead of all these fancy indicators that may clutter up my charts so much that I lose sight of what's important?

    Any help is appreciated.