Hi Traders! Hope you had a great trading week!
Today’s article will focus on explaining what I mean with “price action” and how I view price action when looking at the charts.
This topic was actually an idea from Dave, a member of our trading room. Thank you Dave for that great idea!
Regarding our trading room, if you are in need of adding rock solid trading strategies to your trading arsenal, then do not hesitate one second and join the Winner’s Edge Trading room right now. Besides the great strategies, read here why else I personally believe a trading room is so great.
If anyone else has an idea for a particular article topic, please don’t be shy and don’t hesitate to write down the topic idea here down below in the comment section!! Also if you have any questions regarding this article, please write down your question and I will help explain it in more detail.
TWITTER PRICE ACTION EXPLAINED
For those of you who follow the Winners Edge Trading twitter account, you know that we refer to a topic named “Forex price action” or “Forex price action alert”.
I will first explain what I mean with price action via Twitter and then I will elaborate what price action means for my own Forex trading.
Just in case you case you are not following us on Twitter, I will post some examples of our tweets. And if you want to get this useful information on a regular basis, please follow us now via https:[email protected].
1) #Forex price action: EURUSD failing to break through daily support and bounced off 1.2820 levels. Broke 1 hour resistance at 1.2850
Here are two other examples:
2) #Forex price action: EURUSD and GBPUSD pushing above resistance levels
3) #Forex price action: EURUSD moving impulsively up. Nathan and I warned for upside in video and daily trading room
When we are writing about price action or price action warning, this means that we want to make our readers aware of certain price movement. We are technical analysis traders that fully focus on price and derivations’ off price, such as trend lines and Fibonacci levels.
So when price makes interesting or unexpected movements, then we want to warn our readers of that action. We know that not everyone is able to watch the charts constantly and continuously, so as a service and a heads-up we want to make warn traders that a certain currency is “on the move”.
This service is more of a heads-up and warning for those who:
a) already have a trading plan or trading idea for a particular currency pair;
b) are waiting for the price to reach their selling or buying zone;
c) or for traders who are waiting for a particular price movement (slow/fast) or chart pattern.
That is why price action tweets either refer to:
a) actual price movement which is non-typical. That could be because the price movement is very quick (spike) or very small (corrections);
b) price movement reaching key resistance and support levels.
Let’s walk through some of the examples:
Original Tweet Dave responded to and he asked what is exactly meant by price action: “#Forex price action: USDJPY crawling up and approaching 99.50 top.”
- Background: price had recently fell on the USDJPY to 95 on the 7th of June, but had retraced all the way to 99.20 during the next trading day.
- Resistance level: the price was close to a 4 hour fractal / top at 99.48, which meant that the currency had already corrected very deeply and was close to major resistance.
- Speed of price: I wanted to warn traders of a slow down in the upside momentum as well (crawling up).
- Outcome: price hit 99.27 and fell to 93.70 within 4 trading days this week.
The goal of these tweets is not to make a trade call or recommendation. But a Forex trader could use the information to their benefit. For example a market order short at 99.20 with a stop loss at 99.60 would have been a great trade to catch a 450 pip fall. However that decision is always yours. We just want to warn traders of movement and levels.
We do tweet regarding our home made Strike and Boomerang trade strategies. But even here the decision and consequence is always yours if you use that information (your own decision). But in these cases we do tweet what trade we personally take ourselves. Here is an example:
1) #Forex trade setup: EURAUD strike entry is now 1.4060, SL 1.3987, TP 1.4220. Is invalidated when bottom at 1.3990 breaks.
We also tweet about other things such as: (real twitter examples):
2) #Forex candle stick formation: EURUSD day candles of Wednesday and Thursday making a piercing line formation.
3) #forex key levels GBPUSD: support at 1.5380 / 1.5330 / 1.53 & resistance at 1.5420 / 1.5460 / 1.5520
4) #Forex chart patterns: bull flags on EURUSD and GBPUSD
WHAT PRICE ACTION MEANS IN MY FOREX TRADING
When I view price action in my own trading, I am referring to the nature and character of the price movement: either impulsive or corrective.
I analyze the the swing of price movements to distinguish whether the currency is moving fast or slow. This in turn provides me information about the power of the down or upside and the most likely continuation as well.
These 2 patterns of impulse and correction are like an off and on switch and are the rhythm of the Forex market. The market bounces off support and resistance and from level level and it does so in a certain pattern. That pattern is impulse and correction.
When the currency breaks a resistance or support level, then there is a high chance of an impulse developing. This impulse will last for a while until the currency approaches another resistance or support level which will cause the currency to pause and make correction.
For an uptrend the following is valid:
1) Price breaks resistance and moves impulsively to next resistance.
2) There is a high chance of price maintaining this impulse mood until the next resistance level.
3) Depending on how impulsive price is behaving and how strong/weak the next resistance level is, price could either break or stop at this level.
4) At one point the impulsive phase to the upside will end and the currency will return to:
a) a corrective mode to the downside OR
b) become impulsive to the downside.
It is vice verse for a down trend.
For more information on how to actually trade using impulse versus corrective and trading break outs I strongly encourage to read these previous articles I have written for Winners Edge Trading:
What I encourage Forex traders to do is to focus on catching the impulsive move, which often occur in the same direction as the trend. These trades develop the quickest and hit the target the soonest. The risk on these trades is therefore the lowest as well.
This is exactly what we do in our live trading room as well. We are geared towards catching break out trades as the probability of trading an impulsive increases tremendously.
DISTINGUISHING THE DIFFERENCE
So let’s now discuss how I mark the difference between impulse and correction.
IMPULSE – IMPULSIVE MOVES – IMPULSIVE STRUCTURES:
Here are the characteristics what I am using:
1) The impulsive moves are 1 directional
2) Most / majority of the candles are bearish or bullish
3) The impulsive candles are relatively big in terms of pip size
4) The closes of the candles are near the extreme
5) Most candles are making consistently higher highs and higher lows for up move or consistently lower lows and lower highs for a down move
CORRECTION – CORRECTIVE MOVES – CORRECTIVE STRUCTURES:
1) The corrective moves are a mixture of up and down
2) The corrective moves usually make / build a chart pattern of some sort such as flags, triangles, wedges.
3) A mix of bearish and bullish candles
4) The corrective candles are relatively small
5) The closes of the candles are near the middle
HOW TO USE IT
During Forex trading it is very useful to be aware of the following:
1) What type of market are you seeing?
2) What is the structure: impulse or correction?
3) Is it corrective or impulsive price action?
4) How long has the impulse or correction lasted?
a) The longer the correction and impulse last, the sooner the correction could reverse back to the other formation.
5) If it is corrective, where would the break out happen?
6) If the break out occurs, are there any major support or resistance levels that are close by which could make the break out a false break out?
7) If it is impulsive, where would a support or resistance level be able to halt the impulse?
This is the typical pattern for the market:
1) Most of the time, the currency will make a correction after an impulse OR
2) An impulse after a correction.
Although this is the most usual, currencies can also change gear and in some cases:
1) The currency makes two or even three impulses in a row or
2) Two or three corrections in a row.
Those patterns are dependent on the Elliott Wave Theory. That would make the article too long but please take a look at this article for some more guidance.
In my opinion the safest trading a Forex trader can do is to wait for an impulse and correction and then focus on the break out of the next impulse in the same direction as the previous impulse. This is statistical the safest trading. The setup is best when the impulse occurs with the bigger trend and the correction against the prevalent trend.
Here is a table:
TREND: Trend Counter-trend Range
Impulse BEST OK OK
Correction OK WORST WORST
The best is to trend with trend and impulse.
Once again, this is exactly what we do in our live trading room as well. We are geared towards catching break out trades as the probability of trading an impulsive increases tremendously. We have great strategies how to do so, join us here.
Last but not least, just to clarify:
1) price action refers to price having an impulsive or corrective mode.
2) price action refers to the impulse or correction structure of a swing or swing high / swing low, not only 1, 2 or candles (these are candle stick formations, not price action)
3) candle stick formations can be useful in identifying when an impulse ends and starts or when a correction ends or starts:
a) engulfing twins at the end of a correction could start the impulse
b) a pinbar at the end of an impulse could start the correction
Hope you enjoyed the article! Please write down below a comment if you did, thank you!!
Also any sharing of this article would be just awesome.
Wish you Good Trading today and a great weekend!
Forex Trader, Writer, Educator at Winners Edge Trading
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