The price action strategy is perhaps one of the most used market strategies, especially by people who do not like a lot of indicators on the chart, and whether you are a short-term trader or a long-term trader, the price action strategy will definitely suit you.
What is the price action strategy in forex trading?
When we talk about the term price movement, we simply mean the study of the historical market movement to know how traders acted at this time with this movement, and it is often relied on Japanese candles mainly in addition to some other technical models.
It can be said that the strength of the price action strategy is mainly due to the fact that information analysis is the essence of trading and that the behavior of traders repeats or repeats itself in the future based on the past.
Explain price action strategy
Of course, there are a lot of strategies that depend mainly on price movement, and we will not be able to limit them all in one article. In this article, we will focus on one strategy that depends mainly on the hammer candle.
Hammer candle: It is a candle that appears in the bearish direction and indicates a reversal of the price in the near future, and indicates that the sellers do not have enough strength to maintain the trend, and its shape is in the form of a hammer.
Price Action Strategy Requirements
In this strategy, we do not need any of the technical indicators. All we need is to be aware of the shape and method of the hammer candle that we mentioned above.
Time frame used
This strategy can be used on any of the time frames from the minute to the monthly time frame but to be honest with you this strategy is not very effective on the short time frames so it is preferable to use it on the big time frames from the hourly to the monthly time frame.
Strategy Rules
Come, dear reader, go deeper in explaining the strategy, and now we come to the most important part, which is its rules, and we will divide it into steps so that it is easy to understand well.
Find the Hammer Candle
The first step of the strategy is to look for the hammer candle on which the strategy is based, but remember that this candle should be in a downtrend and not in an uptrend.
Entering into a buy position
As we mentioned above, the hammer candle indicates a weakness in the sellers' strength that calls for the price to change direction, but it is not a condition that a change in trend can be a correction, or nothing happens.
And to avoid the greatest loss, we will wait for a confirmation signal from the next candle, which must close higher than it, and its body must be higher than its lower shadow.
Setting a stop loss order
Now we come to our important part which is setting a stop loss order which can be placed below the hammer candle as breaking this level below means the failure of the bullish correction or reversal.
Select the target
There are several ways to set a take profit order in this strategy, which is effectively up to your discretion. One of the first of these is that the deal can be closed after two candles from the entry point, and then you are satisfied with the profit you have achieved.
Some leave the deal open and do not close it except with a sign indicating the end or weakness of the current corrective movement, and supports and constituents can also be used, but as we mentioned that this is due to the trader’s assessment and the extent of his experience in the market, so if you are a beginner, it is preferable to use the first method.
Finally, a price action strategy describes the characteristics of the price movements of a security and this movement is often analyzed in relation to price changes in the recent past. Technical indicators.
Since price action Forex trading strategy ignores fundamental factors of analysis and focuses more on recent and past price action, price action trading strategy relies on technical analysis tools.