I have been trading Forex, Futures and other financial products for several years. In the beginning, I focused entirely on fundamentals and used unexpected news events to profit from the equity markets. This generally involved waiting for negative unscheduled news to be released about a publicly traded company and then short-selling their stock. As time passed, I became fascinated with price charts and technical analysis. I remember taking a free on-line course about technical analysis and learning about all of the flashy technical indicators. These indicators filled me with hope as they seemed to predict future price movement with great accuracy. Once I was actually trading with indicators though, the story was a lot different. Thankfully, my indicator trading period was short-lived and I soon found that reading, analysing and studying 'naked' price charts was much more rewarding. I have been trading Forex and other financial markets using price action analysis for many years and I am truly a price action convert. In this post I have listed some of the main reasons why I love price action trading. I hope that you find this post useful.
Why I Trade Forex, Futures and other Financial Markets using Price Action
Reason #1 - Price Action is Universal
One of the things that I love about price action trading is that it is universal. I can (and do) actively trade a range of financial markets and time frames using the same price action techniques and strategies. Unfortunately, this is not possible when trading using fundamental analysis or trading with indicators. The fundamentals game is very different for each individual market. Different fundamentals influence the metal market than the equity index markets. The influencing fundamentals of the Forex market is different to the Oil markets, and so on. The fundamental trader has to change his or her analysis for each individual market. The same goes for technical indicators. Some indicators work great for certain currency pairs, commodities and time frames but you have to cherry pick your indicators depending on the market and time frame. Price action is universal and can be used to trade all markets profitably. It works over and over again and in my opinion, using at least some price action analysis is a must for most traders.
Reason #2 - Price Action is Reliable
Price action is simply using price data and reading price behaviour to predict where future price may be. The market momentum, bias, sentiment, economic data, news event impact and the psychology of market participants is all shown in price and price behaviour. Price is everything. Indicators are derived from price. They put price through a formula and display the results as an indicator on a chart. This process can provide misleading direction and information. Don't get me wrong, there are profitable traders that use indicators as part of their trading. More often than not though, the profitable traders that use indicators use them for confirmation of price analysis instead of using them for reasons to open and close positions.
Reason #3 - Price Action is Simple
Perhaps a better sub-heading for this reason could be 'Price Action analysis can be more simple than indicator analysis and fundamental analysis' but that title didn't seem as catchy. During my trading day I analyse trend support and resistance areas, horizontal support and resistance areas, individual and groups of Japanese candlesticks and price patterns. I sometimes have a couple of moving averages also. Though I am analysing a lot, my charts are not confusing and look relatively 'clean', 'tidy' and 'naked'. I trader using indicators to analyse as much as me will often be left confused. Below are a couple of USDJPY screenshots that demonstrate this. The upper screenshot is of a typical price action chart. The lower screenshot is of a typical indicator chart. Both screenshots are the same pair and time frame...
Reason #4 - Price Action is Professional
Obviously, some professionals do use technical indicators and some professionals focus on fundamentals. But when it comes to reading price charts, professional traders generally focus on 'raw' price data rather than indicators that are derived from price data. There are very few - if any - professional traders that use an RSI or moving average cross to determine when to open a trade. Spend a day or two watching Bloomberg TV. When referring to charts, analysts and traders will frequently refer to highs, lows, support, resistance and even head and shoulder patterns! If you want to be a professional trader, do what the professional traders do.
Reason #5 - Price Action is one of my Keys to Profitability
Of all the reasons I could give to trade using price action, this is the most important. Trading using price action has resulted in me being able to consecutively bank profits. I am not just a full-time trader, I am a full-time price action trader. Being able to read, understand and speculate price movement correctly is obviously the ultimate key to success. Using price action analysis has enabled me to do this. Trading is all about making money. Whether that money is made through trading with price action, fundamentals, indicators, the solar flare calendar (I don't recommend this) or flipping a coin (I don't recommend this either), if it makes you money, then it is worth using as part of your trading.
To learn more about me, please watch my '30 Minutes with a Forex Trader' audio-book video.