What is Price Action Trading? The Holy Grail For Forex Traders

what is price action cover artPrice action is the king of the Forex technical world.

It offers traders essential knowledge that strengthens any technical strategy, and enhances forecasting ability.

Have you ever just wanted to look at a naked price action chart and be able to tell where price is likely to move next… with confidence?

Price action is widely considered a compulsory learning step for Forex traders, as it’s the life blood, soul, and backbone of the technical analysis world.

With a serious adoption of price action analysis, a trader can be accelerated towards becoming a ‘master chart reader’ – no doubt.

Most retail and institutional traders use it, or at the very least use the skill of price action to enhance their own technical trading strategies.

Price action analysis is very dominant in the industry because:

  • Price action trading methods are easy to understand
  • Price action analysis is very minimalistic, so there is no ‘analysis paralysis’
  • No indicators or extra data are required
  • It can be a very stress free way of trading
  • Consumes very little of your time once you know the strategy
  • Any form of technical analysis is reinforced by the understanding of price action
  • Most importantly – It works

It’s not hard to see why traders fall in love with it easily – it’s a type of trading that doesn’t care ‘why’ something happened on the chart, but more ‘what is likely’ to happen next.

This is the motto I follow: “Trade what you see, not what you think”.

If you’re keen to learn more, read on…

 

Price Action Explained for Beginners

Price action analysis is a big compliment to technical analysis.

The term “price action” refers to making trading decisions exclusively from a “naked” chart – a chart which has no indicators or other data loaded (which may influence the trader’s decision).

It is all about going back to basics and working with key elements on the charts like:

  • Market structure
  • Support & Resistance
  • Channels, Ranges, Trends
  • Price and candlestick patterns
  • Breakouts and fake outs

All this information is readily available to us in a simple candlestick chart!

One of the main reasons traders are drawn to a price action system is because of the simplicity and minimalism.

But another major reason for the move to price action is the escape from crippling anxiety and headaches from a stressful indicator heavy system…

A very messy chart - how did I ever trade without price action?

If you’re a new trader, you might find public Forex forums a gold mine of information, and get lost in the strategies shared in all the threads for days.

While a lot of good information is shared on forums, there are a lot of strategies being pushed that really are a headache to trade, and difficult to make work.

If you’re a frustrated trader – it’s time to hit the reset button and go back to the basics…

Price action is the study of price over time. This is called ‘time series data’. It doesn’t get any more raw than this.

price vs time chart

With a nice clear chart, we can focus on the things that matter. Time and price ūüôā

Price action encapsulates the analytical study of historical price movement and using that knowledge to find repeating patterns to help forecast future price movement.

Essentially, we look in the chart history to see what happened ‘before’ to recognize and prospect predictable, repeating patterns.

We wait for these predictable patterns to occur again in live markets, so we can forecast where the market is likely to move next – this is the basis for a price action trade ‘signal’.

Look at the price action below. We see the market continuously rejecting this support level – when bullish rejection forms off this level again, where do you think the market is likely to go?

price action repeated behavior

We capitalize on this repeatable and exploitable behavior.

Because the market is driven by a crowd mentality – the same patterns keep occurring and producing the same result thanks to this crowd psychology.

Once you learn to the read the charts directly (without indicators) – you will develop the crucial skill of translating the¬†‘price footprint’, empowering you with the knowledge you need to transform yourself into a very confident trader.

Make the step towards increasing your understanding of price action and I promise – you will look at the market from a whole new perspective.¬†I want you to think of reading plain charts¬†as interpreting the ‘language’ of the market.

The charts are trying to communicate to you through the price movements, you just need to be receptive to what’s being communicated.

When you think back to your dark trading days, you will wonder how you were ever able to survive trading without the knowledge of understanding price action!

Checkpoint

Price action is backbone of all technical analysis. Don’t underestimate the ‘back to basics’ price vs time data. Important information can be gathered from a plain price chart, which is powerful enough to enhance any technical trading strategy in the right hands and accelerate a trader towards becoming a master at chart reading!

 

How Does Price Action Trading Work?

how price action worksAs we discussed already Рtechnical analysis involves observing a security’s historical patterns and placing trades that assume the patterns will repeat themselves in a similar way.

The basic assumption is that history repeats itself, because of the herd mentality of the market place.

But price action is more of a methodology rather than a term for a singular strategy. There is no ‘one way’ to trade it, in fact there are many.

Well you really start to dig in, it seems like there are endless ways to evaluate price action. I think this diversity is what draws in so much of the trading community.

Forex price action is more of a mix of art and science – a skill based system that makes it very subjective.

You could give two traders the same price action strategy, and they would both probably personalize them to their own way of evaluating the market.

But the process still remains the same. We use what information we have on the chart to establish a directional bias, and wait for signals to confirm our belief.

reveral candle at weekly level

As a technical, or even a quantitative¬†analyst, it’s your task to look¬†at current price behavior and compare it with past behavior.

The comparison of what’s happening now vs. the history of price behavior¬†can arm you with the knowledge needed to accurately forecast future price movements ‚Äď this is quantitative analysis 101.

The same price action candlesticks and patterns occur repeatedly, and tend to produce the same reaction over and over again. This is exactly the type of behavior we want to exploit.

By learning these recurring patterns Рwe gain a statistical edge needed to become profitable over the long run!

Some price action nuances to consider are:

  • The behavior of the market you’re trading
  • What session the signal/event formed in
  • The structure of recent price action
  • If the market is at a major decision point or not

Take a look at an example trade below. We are looking at a bearish rejection candle that forms off a lower high.

daily price action on audusd

A very simple sell signal – no complicated analysis necessary.

I know from my experience in the market, when we start to see weakness off lower highs after clear a bounce off a weekly resistance, the market is likely to continue with it’s downtrend…

audusd trade success

Paying attention to historical movements vs ‘the now’ can make a life or death difference in helping you forecast future price movement.

If you want to trade price action like a boss, study the chart history, collect data. Know your signals in and out – you will be able to trade with a high degree of accuracy and confidence.

You would be surprised how many times these kind of price action events allow you the opportunity to position yourself ahead of the moves.

Checkpoint

Price action trading is the skill of prospecting repeatable market behavior, comparing current markets to historical price movements to identify high quality trade signals and make accurate forecasts. Traders who learn how to read a naked chart can exploit reoccurring price patterns for a profit.

 

Price Action Vs Indicators

price action and indiactorsBecause we are very analytical creatures, indicators draw on our temptations.

An indicator usually visualizes one aspect of price action, or many combined together.

You would be surprised how many ways you can get data from price action, therefore we have an endless supply of indicators – extending into the thousands.

They draw on the ‘shiny new object’ syndrome – giving us a new ‘special’ way to view the market.

While my feelings are mixed these days about indicators, the truth is ‘lost’ traders tend to pile the indicators onto their charts, overloading their brain with too many inputs.

Or another common symptom is the ‘pogo stick hop’ from one indicator to the next – chasing the ‘shiny new object’, hoping the next will be the ‘one’ to bring endless riches.

That’s why I generally discourage traders from using indicators and to first become good with reading price action instead.

It is my belief that most traders fail with indicators because they don’t really understand the data that is being represented.

Most traders are looking for the ‘buy on green arrow, sell on red arrow’, no thinking required kind of tool. But most of those are usually deceptive by ‘re-painting’, or produce really low quality signals.

Whenever you’re using an indicator, you should really make an effort to understand how it’s calculating its data so you can interpret what it is meant to be telling you.

Lets look at the Relative Strength Indicator as an example. I am going to show you how to read the same information the RSI tells you, directly from the price action.

The RSI is really simple. In simplistic terms:¬† it counts how many bullish candles, and bearish candles there were during the calculation period (how many candle’s it looks back at in history).

That number is converted to a ratio and printed as the final output. Basically a 0-100 number of a bull vs bear candle ratio.

rsi calculation simplified

A 100 output would mean only solid bullish candles were found in the calculation period – which is super rare.

You can see when there are more bull candles counted in the calculation period, the number will be higher.

But what about divergence? This is the part of the indicator that traders find mystic and powerful…

rsi divergence explained

The divergence is occurring because the price action is still making new highs, but the RSI is reflecting less bullish candles being printed. Is this really magic?

No – take a second look at the chart with the RSI out of the picture…

price action explained without RSI

Although the market was officially printing new highs, they were not much higher than the previous – this is a statement of weakness from the price action.

Also, the momentum of the bullish trend has completely died off, and you can see price has now just stalled by drifting sideways – not a sign of weakness, but a sign the market has lost momentum.

When you think about this logically, it is easy to see why the divergence occurred. The RSI was weakening because of the sideways price action.

You only need to look at a plain candlestick chart and examine the swing highs/lows, and look at price momentum to spot strength and weakness in the market without using an indicator.

It’s not magic, and I really think the RSI is pretty useless in today’s markets.

I believe ditching the indicators like the RSI, and learning to read the information from the price action itself will make you a much better technical analyst.

You will also have the benefit of cleaning up your charts!

Some indicators out there may be more complex, and viable to use – especially now we move into the age of big data, and machine learning.

But most of the common indicators just give you second hand information that you can already get from looking at the chart properly yourself.

Checkpoint

Most indicators are a waste of time, especially the common ones. If you know what to look for, you can get all the information directly from the chart without having to clutter up your work space with squiggly lines. If you learn to bypass the common indicators, and read the chart – you will become a much better and more confident technical analyst!

 

Want to Learn More About Price Action?

If you’ve made it this far, you’ve probably gotten a clearer understanding of price action trading.

You should be starting to realize by now that a price action based approach to Forex trading is a very powerful and lucrative skill to invest the time in learning.

Any trading system that has a price action based methodology as its foundation is probably going to be around for the long term too.

I hope the guide here has been a nice ‘kick starter’ into your journey.

The price action I explained here is only the tip of the iceberg.

If you’re one of those ‘hungry for knowledge’ types, you might like to move on to my tutorial which takes things to the next level:¬†examining price action strategies further.

However, if you’re really serious about learning price action, and want to dedicate yourself to learning everything, check out¬†our¬†Forex course – in my¬†private war room for traders (which also contains all my custom MT4/5 tools).

Don’t forget to leave your comment below, your feedback on these tutorials is important to me and gives me the positive motivation to make more tutorials like this.

Look forward to hearing from you, best of luck on your new price action journey!

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63 Comments...


  1. Kwabena Boateng comment display photo
    Kwabena Boateng
    Dale Woods, you are so smart and bright. You really have command on the charts. Let me ask you, did you graduate from any of the Ivy league universities? Thank you for sharing again this priceless piece of knowledge with the rest of us. Stay blessed.

  2. Norbert Harisch comment display photo
    Norbert Harisch
    Thanks a lot for this guide! Really a great service for your customers. It helps a lot to get an overview regarding price action trading. Also the chapters about Heiken Ashi and Renko are deeply interesting.Norbert Harisch

  3. Eric LeBouthillier comment display photo
    Eric LeBouthillier
    very nice Dale !! Great work !

  4. Ovidiu comment display photo
    Ovidiu
    Hi Dale, Very good article as always! Kind regards, O

  5. Paul Wett comment display photo
    Paul Wett
    Thanks for posting this Dale.

  6. Tobias comment display photo
    Tobias
    This guide is very comprehensive and written is such a simple style that I find it very easy to understand and will be very helpful for me in the future. Thank you so much!

  7. Dragan comment display photo
    Dragan
    Hvala Dale,pozdrav iz Srbije. Thanks Dale,greathings from Serbia!!!

  8. John Smit comment display photo
    John Smit
    Great article! Thanks for sharing your knowledge.

  9. Travers Harris comment display photo
    Travers Harris
    I have started reading this article but I am a long way from finished. I signed up with IQ options as they were the cheapest with a $20 deposit and I am an old man without an income. I deposited more a bit later as I lost the $20 dollars and lost the rest of my deposits as well. So I opened a free account with IQ and used the information provided by the Forex Guy and won 7 out of 8 times., that's an 87.5% strike rate, the best I have done. And I think why I lost the one time because I did something wrong.I am going to really study all the information provided as it is brilliant. Thanks Dale

  10. enke comment display photo
    enke
    my trading mind full changed from find your site. pat is great. thank you so much changing my opinion and life. best wishes for you

  11. Grant comment display photo
    Grant
    Dale thank you for taking the time to write this article.

  12. Generaal Goudvis comment display photo
    Generaal Goudvis
    Hi Dale. You showed again....Price Action rules

  13. abdul wasay khan comment display photo
    abdul wasay khan
    Hi Dale Your article is very useful and very informative.you did a great job.thank you very much.

  14. Sikiru comment display photo
    Sikiru
    Hi Dale, This is another kind gesture from your humble self and it's quite commendable.Thank you Dale and keep it up,but quickly want to chip in a piece of advice,try to include a snap shot of your performance on demo account using all your itemized strategies on Price Action so that we will be rest assured the strategies on P.A really work.Once again thank you.

  15. Thomas T Brown comment display photo
    Thomas T Brown
    Dale, Thanks so much,It was presented so clearly and I learned a lot! TB

  16. ahmad comment display photo
    ahmad
    thanks frind on this really sporting artical

  17. kmzahirul islam comment display photo
    kmzahirul islam
    It is very easy to understand .thank a lot .

  18. javier comment display photo
    javier
    thank Dale for share your knowledge with us.. Stay blessed.jvfx

  19. Juhairi JJ comment display photo
    Juhairi JJ
    Hello Dale ... Like your articale above ... thanks. Need to know .. can I Copy Trade you? ...

  20. Rondell comment display photo
    Rondell
    Bless your soul for existing. God knows where we would all be if our tutelage was left in the hands of some of these other trainers.

  21. Victor comment display photo
    Victor
    Such an intriguing insight

  22. DayTrader comment display photo
    DayTrader
    You have inspired and helped a lot of new traders, like myself. Great work sir! Your efforts and time are greatly appreciated! Bless.

  23. Pchai comment display photo
    Pchai
    Thank for good article, it is easy to understand.

  24. Tseliso Ramoeletsi comment display photo
    Tseliso Ramoeletsi
    Really inightful! Thnks n great work Dale

  25. Rajesh comment display photo
    Rajesh
    Wow, great simple reading. Is the content available as an e-book?

  26. Dennis comment display photo
    Dennis
    Awesome. Thank you for what you have shared. An explanation that really helps one grasp what is going on. Yes, I will have to continue to study and get the correct mindset but very encouraging and helpful.

  27. Stefano comment display photo
    Stefano
    Thank you! Very helpfull

  28. jemingcrz comment display photo
    jemingcrz
    good info price action for trader beginner like me,gak kalu ada kot bahasa klate lagi molep,bnyk teknik hok ore buat melalui price action sajo,cth hh,lw break lebih kure cb1 break,triple inside candle lebih kure dominen cs break,jadi paham2 je laaa

  29. Howard comment display photo
    Howard
    Love the way you explain price action. With understanding comes patience and discipline. Thank you Dale. Much appreciated.

  30. John Sambo comment display photo
    John Sambo
    I went through your price action tutorial and made $5 with no sweat. Thank you for explaining PRICE ACTION in a simple non-technical way. I will go through the tutorials over and over again. thanks once more.

  31. Sajayan comment display photo
    Sajayan
    Thank you very much Mr. Dale for this valuable informations

  32. 23Traders Tutorial comment display photo
    23Traders Tutorial
    Thank you for your great post. It's really very informative and really helpful. Please Keep posting. Thanks again. 23Traders Tutorial

  33. Bernard comment display photo
    Bernard
    This is a great intro to price action trading. I enjoyed the content and hope it helps form a rock-solid trading strategy as I check on your other posts.

  34. Dahrel comment display photo
    Dahrel
    Almost ready to quit trading Forex but thank God i found your video in youtube and catch my attention. I'm learning a lot from your articles and trying to apply what I've learned from you. Thanks a lot for sharing your talents! Keep it up and stay blessed!!!

  35. Alden comment display photo
    Alden
    Hello dale, just started learning how to trade for the last month and your articles are very helpful to trade without indicators. Im planning to open a real account next month but im not quite understood how to see when a sideways chart hit the support/resist going for a breakout or reversal. When the chart is going to hit a support/resist should i wait for the next candle whether its going to make a fake breakout and hop in when its going reversal? Thank you very much! Hope to get an insight from the best
    1. Dale Woods comment display photo
      Dale Woods
      It's not usually a good idea to trade through levels to try and catch a breakout. That is true, you are risking getting caught in a fake out, which occur a lot around main levels. I wait for the breakout candle that shows a decisive close above/below the market, so the price action clearly shows you it's going for it.

  36. Fabian Drurie-Brewer comment display photo
    Fabian Drurie-Brewer
    I have been analysing yours and others strategies. Yours is easier to understand, makes sense and so far has made me cash. I only lost one trade out of the four I placed but that was due to my own faulty analysis and not enough patience to ensure the set-up is correct. I will never make that mistake again! Lol. Thank you for the information and guidance.

  37. David Mottram comment display photo
    David Mottram
    Hi Dale, I've spent the past couple of months reading everything I can on FOREX, opened up demo accounts to practice, but haven't quite got there. And then I found your website, your articles are brilliant and seem to answer that nagging doubt in my head about how to trade FOREX. I'm seriously considering signing up for the war room membership. Keep up the good work. David (UK)

  38. Carlos Fernando Dazzi comment display photo
    Carlos Fernando Dazzi
    Dear Dale, I've learned a lot from your videos and articles. I really appreciate what you've done for us fellow traders.Thsnk you very much. Fernando Dazzi

  39. Paulo comment display photo
    Paulo
    thanks for sharing happy trading be well

  40. Siyabonga comment display photo
    Siyabonga
    You are simply the BEST FOREX TRADER ALIVE. Thank you so much for all that you do.

  41. Mohd Khairul Nizam bin Rumli comment display photo
    Mohd Khairul Nizam bin Rumli
    very good article broūüĎćūüĎć

  42. Hasli comment display photo
    Hasli
    Hi Dale.... thank you for your tutorial in price action. It's really simple and workable. Hope you can continue to share more of your knowledge to the world of traders. Thank you....thank you...thank you.

  43. Martin Davids comment display photo
    Martin Davids
    Very impressive. I learned quite a lot. Thanks Dale

  44. Musa comment display photo
    Musa
    Quite insightful information. Much appreciated brother.

  45. mzwandile comment display photo
    mzwandile
    Hi Dale I have no words except to say I am impressed and how can I get a copy of this guide ...I will slowly learn the market. Thanks

  46. satish comment display photo
    satish
    how to identify buy sale ZONES using RANKO CHARTS. Are their any rules/ strategy for such zone trading using RANKO charts

  47. Rox comment display photo
    Rox
    HelloThis is wonderfull, i wish i had seen it nefore i lost my money. thanks for the article

  48. zedi comment display photo
    zedi
    Very Informative! Super Article! Thanks for sharing and article hv improve my intraday techniq. thankQ

  49. zedi comment display photo
    zedi
    Very Informative! Superb Article! Thanks for sharing and article hv improve my intraday techniq. thankQ

  50. Rayol comment display photo
    Rayol
    appreciate brother, you give a clear insight into PA trading.

  51. Alonso Martinez comment display photo
    Alonso Martinez
    grasias por tan comprendente articulo y no solo eso abre las puertas a un nuevo orisonte que esta lleno de erroneas interpretaciones pero su modo de esplicar hase que sea mas facil de comprender gracias

  52. Md Shohrab Hossain comment display photo
    Md Shohrab Hossain
    Very nice post bro..

  53. Qalu comment display photo
    Qalu
    Thank u so much for sharing this helpfull information really the best artical i have ever seen thanks again

  54. jessie comment display photo
    jessie
    great stuff dale :)

  55. Xolani comment display photo
    Xolani
    This is amazing am so will to start this.. Iwanna learn more, thank you

  56. Pavel Kokavec comment display photo
    Pavel Kokavec
    Thank You Dale, great work. Grettings from Slovakia.

  57. NOBAHLE MANELI comment display photo
    NOBAHLE MANELI
    Thank you for the information shared. However, I learn better in pratical than in theory. What can you advise for a person like me?

  58. Craig Cassell comment display photo
    Craig Cassell
    Thanks Dale, I found this whole article very informative and easy to grasp. I am new to your war room and have had 6 months of learning elsewhere, so trying to push that aside to enable me to fully understand and grasp your price action trading. Craig

  59. ujjal ray comment display photo
    ujjal ray
    just awsome

  60. Musa Mwanshuli comment display photo
    Musa Mwanshuli
    you are very good. I would like to learn more from you

  61. SANJAY SHARMA comment display photo
    SANJAY SHARMA
    Explained with simplicity. Could add more value by adding more charts.Keep up the good work

  62. Mamoun Ali comment display photo
    Mamoun Ali
    It is excellent many thanks for your efforts
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