With knowledge of price action, traders can perform a wide range of technical analysis functions without the necessity of any indicators. Perhaps more importantly, price action can assist traders with the management of risk; whether that management is setting up good risk-reward ratios on potential setups, or effectively managing positions after the trade is opened.
Before we get into the individual elements of price action, there are a few important points to establish. The first area of analysis that traders will often want to focus on is diagnosing the trend or lack thereof , to see where any perceivable biases may exist or how sentiment is playing out at the time.
In Price Action Introduction we looked at how traders can notice higher-highs and higher-lows in currency pairs to denote up-trends; or lower-lows, and lower-highs to qualify down-trends.
The chart below will illustrate in more detail: The picture below will show a pin bar in greater detail: This is where trend analysis can greatly assist in the setting of initial risk stops and limits. Periods of congestion or consolidation can also be used by traders utilizing price action. We looked at the Double-Spike breakout for instances in which traders are anticipating that the support or resistance that has twice rebuked price may get broken with strength.
The Double-Spike breakout is plotted below: And for situations in which traders are anticipating support or resistance continuing to be respected, the Double-Spike Fade may be more accommodating: On the topic of congestion, another very popular setup that we discussed was Trading Price Action Triangles. While there are different types of triangles, most traders look to trade these periods by anticipating a breakout. Related is the ascending triangle that is highlighted with an upward sloping trend-line.
In both instances, traders are often looking to play breakouts of the horizontal support or resistance level this horizontal line is support for descending triangles, and resistance for ascending triangles.
The following illustration shows a symmetrical triangle setup, along with how a trader may look to trade it: And for periods in which the market is ranging the article How to Analyze and Trade Ranges with Price Action went over the topic in detail. We took this a step further in the article How to Identify Positive Risk-Reward Ratios with Price Action , so that traders can analyze the relevant swings to decide whether or not the potential trade given its management parameters would be warranted.
And of course, once we are in the trade, managing profits is a topic of key consideration. The following picture will illustrate this concept further: DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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