There are only two types of traders in the world. Price action trader and fundamental trader. Who is a price action trader? well, who trade based on only price action or on price movement only, called price action trader.They do not care how fundamental is going or what news is coming. A price action trader takes all of his trading decision by doing technical analysis.
So,What is technical analysis? Technical analysis is a term used for describing price action trading in depth. Price action trader use technical analysis as a tool. support,resistant,supply,demand,indicator,trend,momentum etc are the terms used for technical analysis. According to the servey most of the forex traders in the world are price action trader.
How to trade with price action?
To trade with price action you need to understand the basic terms of price movement.
Trend:When price goes only one direction by creating higher high or lower low.
Pattern:Patterns are two types only. One is chart pattern and another is candlestick pattern.chart pattern means when price makes a pattern in the entire chart like head and shoulder,double top,double bottom,triangle,flag,zigzag etc. Candlestick pattern forms with only one or two or three candlesticks.There are tons of candlestick patterns . Some widely used patterns are:bullish and bearish engulfing,dark cloud cover,shooting star,doji,dragonfly doji,hammer,three black crows,three white soldiers etc.
Indicators:Indicators are tools or mini software installed on your charting software. It helps trader to know price action better. Some indicators are leading some are lagging. Leading means indicator does not follow the price movement which means it gives it’s own signal. But lagging indicators are always behind the price. Those move only after price has moved already.
Momentum:Momentum means havvy and strong bias of the market to one direction. It looks like crazy price move or a big collapse in the market. When a momentum starts it just goes and goes with one direction sharply.
support and resistant:In any market support and resistant are the key to profit specially if you are a price action or technical trader. Almost every price action trader follow this principle to gain profit. They build their own trading strategy based on support and resistant.SO, what the heck is this ?support means when the price hit this level it turns into a buyers market and resistant means when price reach its upper limit or respect a level from where previously market turned into a sell mode. It just a future prediction based on historical data.But it works and you can profit from it.To describe it in one sentence — a support or resistant line is a potential area from where the past price reacted and according to this theory future price may react again to this area.
How to apply these?
To trade successfully you need to first develop a trading strategy or you can use other people’s trading system. At first, use support and resistant .Find a price level in the chart from where price was reacted in the past and draw a line or zone. After drawing wait for the price to come to this level. Carefully monitor the movements around this price level and after confirming with candlestick patterns or any indicator you can place your trade. Remember don not forget to place a stop loss order. A stop loss order can protect your fund from being blowup . At last try to build your own trading strategy and test it on demo market.If you find this profitable just go to live market and apply. Voila ! You did it. You are now a price action trader. Go and practice on demo market first,then build a trading strategy and gain profit. Happy trading.