Price action analysis is simply using the price of any financial instrument (which includes currencies) to determine where a price may go in the future which sounds very simple and it is - but very few people understand how to do it correctly or how to make big gains with it.

Price action analysis is simply using the price of any financial instrument (which includes currencies) to determine where a price may go in the future which sounds very simple and it is - but very few people understand how to do it correctly or how to make big gains with it.

Trading the Odds with Forex Price Analysis

Forex Price analysis is based upon the logic that certain price patterns re-occur and can be used to develop a rule-based system. The aim of the rules is to simply trade the best chart patterns and set ups, get the odds on your side and then enter trading signals. If your analysis is soundly based, you will of course have losers but if you cut them quickly and run your profits, you can make some great gains.

The Logic

All you need to do is look at the chart and the price will give you the complete picture, all the news will be in the price and every traders opinion and all you have to do is trade the price action as it unfolds. Markets trend and a trend is more likely to continue than reverse and this is the premise upon which technical analysis is based upon and you can see big trends on any chart and make money from them.

Common Mistakes

Today many people like to complicate the analysis of price and make there systems incredibly complex. You get a huge amount amount of indicators on the chart and this actually confuses traders. They focus more on the indicators than the price movement itself. If you have to many indicators and filter and make your trading strategy to complex, it will probably fail to make money. Simple FX price analysis strategies work best and always have.

Also the analysis of price action should not be to short for example, studying price action within a few minutes or a few hours, is a complete waste of time and energy so don't bother. All you are doing is trying find order in random volatility ( which all moves within a day are) and trading in short periods will see you lose money. Price analysis, should be done via the daily, weekly and monthly charts only.

Another common error is to believe that currencies can be predicted with indicators or methods and a huge number of traders use methods based upon Gann, Elliot Wave or Fibonacci but instead of focusing on what the market price is now, they try and guess what it might be in the future. If you use these strategies, you may as well flip a coin, because prices cannot be predicted and the same goes for the huge amount of junk Forex robots which claim they can predict the future.

Trading the Reality as it is to Make Big Profits

When you trade price action where the price is right now is the critical factor above all else and that includes – opinions and indicators – by all means use a few indicators if you wish, to filter trading signals but they should be confirming your trades only and not leading them and use a maximum of three.

Your Mindset the Key

If you focus on price action and block out all other inputs, you are focused on the reality and you can trade it. While you only need a very simple system to win, you also need the right psychology to execute it with discipline and courage. A simple system based upon currency price analysis means, you have a method which lets the price tell you which way to trade and if you do have the right mindset, to execute your trading strategy with discipline you can make some great profits.