When I started forex trading, I began using price action based strategies exclusively. I have found them to be very effective strategies for trading. However, at the time I started, I didn’t even know the name for what I was doing. See, I have never even studied the more in-depth technical indicators. I remember spending some time in a chat with another new forex trader at that time. We were chatting and he began asking me what strategies I was using and I tried to explain. He then tried to warn me, and he said something to the effect of “you must study fibonnacci in order to have success in forex.” (This scenario is common where one newbie trader tells another newbie what to do based on advice from a third newbie trader on a popular forex forum. Lol - have you been there?) At the time I honestly didn’t even know what fibonnacci was (it sounded like a classical musician to me — you know Beethoven, Mozart, Tchaikovsky, and Fibonnacci?)
Anyway, from the beginning, I traded based on price movements, daily or hourly high/lows, time-based recurring patterns and such. It took me only about 7 months to break through my own psychology and to become profitable. I suppose I was lucky as I had a good mentor when I started trading forex, and this person directed me to price based trading strategies from the start. Since then, I have interviewed and read the books of many full time successful forex traders. It seems to me thus far, that “home-based” traders who are the most successful are also using priced action strategies.
When I see traders scrutinizing, drawing, and referring to complex lines on charts, discussing Bollinger bands, and analyzing candlesticks, I think - “Why are they working so hard when they can get a more reliable outcome with simpler strategies?” Of course, they think I am strange too. It’s ok, though. I suppose there are strategies for different personalities, and everyone has different objectives for why they trade and different goals for their trading. The main desired outcome, whether you use complex technical analysis or simple price action strategies is that you earn more pips than you lose. Right?
Anyway, since so many traders were telling me to learn Fibonnacci, I decided I should at least look into it. I’m always wanting to learn more strategies to add to my forex arsenal. Early on, I learned that all of the complex technical indicators such as those in fibonacci analysis and EMAs are considered to be “lagging indicators.” A lagging indicator appears only after the price pattern has changed or a new trend has already been set. Now of course, these indicators can still be very helpful. However, traders who prefer price action strategies believe that actual price movements within certain time frames are more predictive of what is going to happen in the short-term trading scenario.
So what is a price action based forex strategy? Basically, like other technical methods, price action strategies have entry and exits based on “rules” ; and the rules are based on actual “real time” currency movements, usually within a specified time frame. Often times the strategy will have specific rules related to a specific currency pair. For example, the following might be considered a price action based strategy (by the way, this is a variation of a simple and effective strategy, which I also often refer to in this blog as the New York Open Breakout strategy:)
1. Observe the EUR/USD from 8:00 am to 8:30 am Eastern Time in the morning.
2. Take note of the high and low points during this 30 minute time frame.
3. When the EUR/USD breaks through the high or low point by at least 10 pips, initiate the trade in the direction of the break.
4. Set a 40 pip SL and a 40 pip take profit.
As the example above shows, price based action strategies have very specific rules when to enter and close a trade. As this example shows, the strategies are very specific, and include rules for when to enter, when to exit, and how to manage losses. This makes the strategies very simple to implement, even for the novice trader - as no complex technical analysis is necessary, and the best price action strategies have loss management principles built in within the rules.
-Ann Pevey - owner/admin
To get a copy of one of Ann’s preferred price action strategy, –> Go Here
To follow Ann’s price action trades daily, visit –> Ann’s Daily/Weekly Trades
June 6th, 2009 at 9:30 pm
HELLO , I THINK THIS IS THE BEST FOREX SITE I;VE EVER SEEN.
JUST GIVES SOME FAIR DINKUM INFORMATION AND IDEAS TO KEEP YOUR FX SIMPLE . ESPECIALLY IF YOURE JUST STARTING OUT ALL YOU NEED IS BASICS TO KEEP MAKING A FEW MORE PIPS THAN YOU LOSE AND OVER TIME YOU GET BETTER AND BETTER.
GEOFF D
July 16th, 2009 at 8:12 am
Thanks for sharing the New York session trading strategy. I will have to look into that soon. Can you share any useful information about what you learned about Fibonacci trading? Also, what about trading in the specific time periods? Thank you!
July 16th, 2009 at 12:26 pm
Hi Martin, as far as Fibonacci, I don’t use it as one of my methods or indicators. As an intra-day trader, I am much more successful using price action together with volume (RSI indicator), and then I normally take simple breakout trades when a pair breaks a support, resistance, or pivot level. I’ve recently been applying more about using candlesticks to make trading decisions and I’ve found this has increased my ability to take the better breakout trades and stay away from the losers. I will be posting more on candlesticks soon.