Thursday December 15, 2016 - 14:46:19 GMT
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Price action vs other trading strategies in the forex market
There are a number of different ways of trading the financial instrument in the world. Some of the traders use different kinds of indicators and some use plain chart to trade the different assets in the market. Profits can be made in a number of different ways but it is extremely important to have a valid trading strategy for consistent profit. If you are relatively new in the forex industry then it will be extremely difficult for you to understand the basic price movement of the major currency pairs.
Forex market is such a lucrative market that every single day the number of forex traders is constantly increasing. Most of the rookie traders fail to make a decent profit in the forex market due to their lack of knowledge in the financial industry. It’s imperative to have a strong foundation about the financial market for the stable trading result.
There are three major types of analysis in the forex market. Out of them technical analysis is most widely used in the trader's community. In technical analysis, professional traders use the chart and different trading tools to identify the high probability trades in the market. A group traders develop their trading strategy based on indicators and EAs. They use these tools to trade the key support and resistance level in the market. On the contrary, the price action traders use different candlestick formation and use the raw price data.
The price action trading strategy is considered to be one of the most advanced trading strategies in the forex world. Most of the expert traders in this industry have developed their trading strategies based on price action analysis. They use the raw price data and formation of the candlestick in order to execute high probability trades in the market.
In every single strategy in the forex market, the use of support and resistance levels is a must. In the eyes of trained professional trading, the support and resistance level is the most profitable trading strategies in the world. Professional price action traders cautiously wait for the test of the key support and resistance level in the market. Once the market hits a specific support or resistance level they use different price action candlestick confirmation signal to execute their trade in the market.
One of the major advantage of using the price action signal lies behind its risk reward ratio. Unlike other trading strategies, price action traders always execute their trade with précised stop loss and take profit level. They use the formation of the candlestick pattern to set their predefined loss and potential take profit level in the market.
Excellent risk reward ratio
Figure: Execution of high probability trade in the market
The price action trading strategy is extremely simple and it is based on the raw price data. Unlike other trading strategies, price action traders always have a clean chart. They use the key support and resistance level in the market to execute their order.
Strategies which are based on indicators and different EAs are a little bit complex compared to price action trading strategies. Traders always have a messy chart since most of them use too many indicators for their technical analysis. However, some traders use on or two indicators and trade the key support and resistance level in the market.
The most popular indicators in the forex market are the moving average and oscillators. Oscillators are considered to be leading indicators and moving average act as lagging indicators in the chart. Experts use both of these indicators and take their trading decision in the market.
The major disadvantage in using indicators lies within their false signal. Almost every forex indicators tend to generate lots of false signal in the market. If you are not well experienced then you will have a tough time for filtering the best trade setups in the market. However, over the course of time, you will master the use of indicators and will be able to execute a high probably trade in the market.
Strategies based on EAs and indicators don’t have good risk reward ratio compared to price action trading strategies. Most of the traders need to use wide stop loss by using the key support and resistance level in the market. And when it comes to real life trade execution it turns out that they always generate late signals in the market. So if your trading strategy is based on indicators, you will miss a decent portion of the market move.
Most of the novice traders in the forex industry fail to achieve success since they rely too much on the indicators. They think that taking confirmation from several indicators will increase their percentage of the wining ratio in the market. But in reality trading with too many indicators simply increases the risk. But there are some smart traders who use price action trading strategy along with indicators. Such traders usually make a decent profit at the end of the month.
Trading strategy varies from person to person. If you truly want to become a professional forex trader then you should gather as much knowledge as you can in your early part of your trading career. Once you have a solid foundation about the forex market then try to develop your strategies. Make sure that your strategies suit your personality.
In today’s world, most of the expert traders suggest to use price action confirmation signal since they extremely reliable and generate high profitability trade in the market. If your trading strategies are based on indicators then try to use highly reliable candlestick pattern along with your trading strategy. This will dramatically improve your trading result.
This article was written by Dwayne Buzzell
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