In the study of technical analysis, the price action is a trading strategy that includes reading charts, candlesticks, swings (high & low), support, and resistance to predict the future price and trend. It helps traders identify the buy/sell trading levels in order to profit in forex trading.
Price action refers to a financial asset’s price movement.
Rather than using chart pattern recognition or applying technical indicators, which are derived from moves in price and have a natural lag, price action is about getting to the bare bones of trading.
By studying the movement in price over a set period, you get all the information you need to trade trends, breakouts, and swings effectively.
Japanese candlestick charts perhaps the most commonly used form of price action analysis.
Price reacts to all known news, which means that moves in price tell you what the collective view of breaking news is rather than any single individual.
Learning about risk management is a key step to become a better trader. Not everyone is speculating and reacting to the news. Every day, billions of dollars are transacted through markets by entities that aren’t speculating.
Perhaps it’s an insurance fund rebalancing its portfolios at the end of the month, a central bank managing its currency exposures, or a huge American smartphone company buying camera sensors from Japan in JPY.
Either way, price action looks at all global capital flows at any one time and provides a holistic picture of what the market thinks of the currency pair that’s on your chart.
Vincent Nyagaka is a Professional Trader, Analyst & Author. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker. Check out Vincent’s Professional Trading Course here.