How to trade forex using price action

• Price action is based on studying an asset's price movements over a period of time
• Price action trading does not involve the use of technical indicators or fundamentals
• Price bars are the most commonly used tools in price action trading 
• Price action strategies are highly subjective

The price action method is widely used in forex trading. Traders who engage in price action trading believe that all relevant information is reflected in price movements. The basic concept behind price action forex strategies is that by studying price charts, traders can identify market trends, support and resistance levels, and make informed decisions about buying and selling. 

Price action traders focus on the analysis of price charts, usually in the form of candlestick charts, bar charts, or line charts, to find repeating patterns and trends. They will scrutinize opening and closing prices, high and low price levels during a specific time period, as well as trend lines, price bands, high and low swings, and various technical levels.

Traders using price action strategies seek clues on where the market may move next by studying how prices moved in the past and make trades based on those assumptions. Price action trading is considered a form of pure technical analysis and can be used in both short-term and long-term trading strategies.

Price action trading is a highly subjective technique and traders will interpret the same chart or price history differently. For example, one trader may believe that once a currency pair crosses a certain price level, it will appreciate further and based on this assumption he/she will open a long position. Others, however, will assume that crossing the same price level will lead to a reversal and will open a short position. 

If you want to give price action trading a try, you will need to open a brokerage or demo account at an online  broker. Check out our top list of the best forex brokers in the world, compiled by our brokerage analysts after testing their services with real money, to find the best broker for your needs. 

Let’s suppose Joe is a forex trader interested in buying EURGBP and he wants to use price action. He studies a daily candlestick chart of the currency pair, which shows that the price has been trending upwards over the past few weeks, with each day's price closing higher than the previous day's close. This indicates that the currency is in an uptrend and that buyers are in control. 

Joe identifies a key resistance level where the price previously failed to break through and close higher. The next day, EURGBP closes above this resistance level, which Joe interprets as a strong bullish signal. Based on this assumption, Joe enters a long position, buying EURGBP at the closing price of that day.  

Joe will continue using price action to manage his trade and will monitor price movements for as long as the position is open. He will close the position when the exchange rate reaches his predetermined profit level or when his stop-loss level is hit. Alternatively, he can close the position manually at any time he sees fit. 

In this example, Joe used only price action techniques, such as analyzing the trend and observing key levels of support and resistance, to make trading decisions.

What does price action mean?

The term price action refers to the movement of a security's or currency pair's  price over a period of time. Price action is often used in technical analysis to identify key support/resistance levels and market trends.

What is the price action strategy?

A price action strategy is based on using historical prices to identify emerging trends in the market. For example, if a currency pair’s exchange rate consistently reaches new highs and higher lows, it suggests an upward trend is forming.

Does price action trading really work?

Many forex traders swear by price action as a trading strategy. Even though price action strategies have proven accurate and profitable, price action will not work 100% of the time. No single strategy does.