What is Price Action in Forex Trading?

A financial market creates data related to the movement of market prices in different time frames. These data are shown in the price charts. It helps traders to generate input and output signals in operations. In price action, there is no use of the technical indicators. It is a form of technical analysis since it ignores the fundamental factors of value and considers mainly the price history. It differs from other forms of technical analysis. In price action, a trader analyses the relationship between the current price of an asset and its previous prices compared to the values ​​derived from that price history. This history includes ups and downs and swing lows, trend lines and support and resistance levels. In price action, we observe the relative size, shape, position, growth, and the volume (optionally) of the bar or candlestick charts in different timeframes.

Price Action Analysis:

Price action analysis starts with technical analysis. The price action analysis does not use any technical indicator and the forecast of the future price. Price movements as a function of time can be represented in the form of price charts (bar or candlestick chart).

What is Price Action in Forex Trading

The price action could be seen as a measure of the change in the price with respect to time along with the description of the behavior of the price with respect to certain levels such as maximum, minimum, support and resistance. For example, if the price of a security rises above the maximum level reached in the last week and after that, it keeps recording new daily highs, the trader could conclude that this value is in an upward trend.

Its observation gives the trader clues about the current and possible future behavior of other market participants. The trader can explain why a particular pattern is predictive, in terms of bulls (buyers in the market), bears (sellers). Good knowledge of market makeup is required. The resulting image that a trader builds will not only seek to predict the direction of the market but also the speed of the movement, its duration, and intensity. All of this is based on the evaluation and prediction of the trader on the actions and reactions of other participants in the market.

Its patterns occur with each candle and the trader observes that several patterns coincide and take place in a particular order, creating a “configuration” that results in a buy or sell signal. 

Price Action Limitation:

It is common for proponents in the price action analysis to ensure that it is a completely subjective analysis. An interpretation based on probabilities and personal experience, it is difficult for two traders to interpret the price action of the same form to achieve the same results even having reached the same forecast. So it is very important for traders to use other tools/indicators to analyze the market to confirm the market prediction.