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Learning Forex Price Action Trading Methods and Strategies

January 5, 2021 by Daniels Trading| Futures 101

Price is the current value of a security as determined by open market forces. It’s the product of an ongoing and unfettered interaction between buyers and sellers. Subsequently, as bids and asks hit a market, the relative value of the security in question evolves. This process is known as price discovery.

Price action is the term used to describe each movement of a security’s value. Accordingly, the tick-by-tick scrutiny of price action is a key consideration for many technical traders. For instance, in the world’s currency markets, traders frequently implement forex price action trading methods and strategies. Let’s take a look at the basics and break down a strategic example.

Price Action Trading 101: The Basics

Price action trading is a unique discipline in that it focuses solely on the movements of price itself. Here are three basic pillars of the strategy:

No Fundamental Bias

Traditional market fundamentals—such as breaking news, economic events, or changes to monetary policy—are ignored. All that matters is the behavior of price.

Context Is King

Traders use historic data sets and technical tools to place price action into a manageable context. Analytics such as strategic backtesting, walk-forward simulations, and technical indicators are common facets of price action trading methodologies.

Reduced Time Horizons

Price action trading strategies are designed for the short and intermediate time frames. Intraday, day, and swing methodologies are ideal for this type of trading.

We’ve been assisting our clients in making sound trading decisions for over 25  years.  Trust a Daniels Trading broker to help you reach your trading objectives in  any market.

It’s important to remember that price action trading is a purely technical approach. Accordingly, optimal target markets are those that feature consistent liquidity and volatility. Futures, stocks, cryptocurrencies, and currencies are four examples of opportune trading venues. Among the best are the global currency markets, which facilitate the application of countless forex price action trading methods and strategies on a daily basis.

Forex Price Action Trading Strategies

In reality, there are thousands of price action trading strategies available free or for purchase online. However, be forewarned―past performance is not indicative of future results.

Buying or selling from support and resistance levels is among the most basic forex price action trading methods and strategies. To execute this strategy, a trader must first define a specific price point as being potential support or resistance. You can accomplish this by using technical tools or identifying the presence of naturally occurring big round numbers. A few technicals that work great as support-and-resistance levels are Fibonacci retracements, moving averages, or pivot points.

Once you’ve identified a support or resistance level, you can enter a buy or sell order into the market. For example, assume that there is a prevalent intraday uptrend developing in the EUR/USD. Shortly after the traditional NYSE cash open (9:30 a.m. EST), Trader A decides that an immediate pullback in the EUR/USD may set up a short-term buying opportunity. Using Fibonacci retracements, Trader A applies the following strategy:

  1. Trader A quantifies the 38 percent Fibonacci retracement level from the intrasession high to the low
  2. Trader A places a buy limit order in the queue at or slightly above the 38 percent retracement level
  3. On the order being elected, Trader A evaluates evolving price action in real time

In virtually all forex price action trading methods and strategies, a trader must read price successfully to make a profit. In the example above, being proficient in the third step is imperative to success. This involves properly interpreting the two types of price action:

  • Positive: Positive price action represents unrealized profits. This occurs when price moves from a market entry point in a beneficial manner, creating an account gain.
  • Negative: Negative price action signifies unrealized losses. This occurs when price moves against a market entry point, creating an account drawdown.

The biggest mistake that many price action traders make is that they accept drawdowns for far too long. Remember, the only thing that matters is the direction of price―negative price action is itself confirmation that the trade didn’t work.

The general rule of thumb for forex price action trading methods and strategies is this: If price is moving in your favor, then your methodology is at least temporarily valid. If price is going against you, cut your losses and move on!

Want to Learn More Forex Price Action Trading Methods and Strategies?

The price action strategy we broke down above is only one of the thousands that traders can implement. If you think that this type of trading appeals to you, a little due diligence will offer you an array of options. For more information, schedule your free one-on-one consultation with a Daniels Trading market professional today.

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Filed Under: Futures 101

About Daniels Trading

Daniels Trading is division of StoneX Financial Inc. located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading was built on a culture of trust committed to a mission of Independence, Objectivity and Reliability.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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