Before we get into why it’s the best solution, we need to understand what price action is. Price action is the study of price over time. Price action trading is the use of this data to make subjective investing decisions.
Forex investors love it because of its straightforward approach. You read charts to analyze price and gain a footprint of the market overall. That’s it.
The price chart tells you everything you need to know. The trick is translating the information into an accurate forecast. To that end…
Information is Your Friend
If you’ve read the forums you might’ve seen this phrase passed around: the trend is your friend. That’s true-ish.
Yes, trends will tell you which way the market leans. Investors then exploit them to profit. But you have to analyze the trends in context.
Most new Forex investors trade candlestick signals in isolation. They fail to realize that candlestick signals on their own are too weak. Then, they lose out.
You have to look at the bigger picture, meaning you need a top-down approach. A top-down approach synergizes the higher market time frame with the trade time frame.
Essentially, you look at the market week to week and compare it to the market day to the day. The patterns that emerge give you a broader look at market trends. Thus, it better informs your trade decisions.
That last section mentioned that information is your friend. I should clarify: the right information is your friend.
Price charts generate all sorts of data, not all of it useful. Singular or combined aspects of price action are known as indicators. They’re not your friend.
Indicators act like fads–short-lived market patterns–as opposed to trends–long-lasting, predictable behaviors. Most new Forex traders don’t know how to use them.
They get lost in the data, becoming victims of analysis paralysis. Worse still, they misuse the information and make poor decisions.
Don’t succumb to the shiny new object. Learn to read the price charts your self.
Price action trading is the backbone of Forex investing. It takes naked data and shows where the market will go and what you should do next.
But these charts are a language unto themselves. Translating them will unlock your full profit potential. It all starts with a top-down approach, focusing only on the information that matters.
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