Forex Technical Analysis Strategy: Price Action – Reacts to the Past Prices.
Since price action tells about what already happened,
there is no false promises on the information that we can benefit from it.
The price movement patterns shown in support and resistance is a good place
to start brainstorming what extent a trader must utilize the known variables.
The market is bound to be oscillating,
because the traders make their trading position in response to the current market trend.
- When the market is reaching the recent low, traders are attracted to cheap price and will buy.
- When the market is reaching the recent high, traders will think that it’s a good selling point.
This is the basic psychological common sense in Forex trading.
The recent highs and lows are the sign for entry and exit point.
The bullish trend will show pattern of higher-highs and higher-lows
The bearish trend will show patterns in lower-lows and lower-highs
Next thing to do is “reading” swings in the market. The price swings can be identified by reading support and resistance in the market. A swing is the inflection point in the market that demands outstripped supply (in case of swing low setting support) or the supply ran over demand (making a swing high of resistance before price moves low).
Support – a price level where a downtrend is expected due to a lot of demands
Resistance – a price level where a uptrend is expected due to a lot of sell-offs when price increases.
Support and resistance levels are simply a common consequence of the traders’ psychology. The support and resistance line means that the traders anticipate certain price action at these points. As a result, their actions can contribute to the market behaving as they had expected.
The up-trend is defined by higher swing-highs and higher swing-lows. These swing-highs are a good point of support where the traders can outlook to buy into the up-trend rally.
There are two approaches in technical analysis in Forex: Following trend and Counter-trend.
- Trend-following systems aim to profit from the times when support and resistance levels break down.
- Counter-trending styles of trading are the opposite of trend following—they aim to sell when there’s a new high, and buy when there’s a new low.