Price action trading strategy is widely popular among the retail traders. Starting from the professional ending with the expert traders, everyone prefers price action trading system due to its high level of reliability and simplicity. This system is based on the formations of the Japanese candlestick pattern and the professional traders use them to trade the key support and resistance level. Understanding all the complex price action signal is a very challenging task for the novice traders. It’s very easy to get confused and make a deadly mistake in live trading. But if you know the psychology behind the formation of each candlestick everything will become crystal clear to you.
Before you start learning the price action trading system, you have to gain clear knowledge about the support and resistance level. Support and resistance level are often considered as the most important element in currency trading. You can’t make any real progress unless you understand how to find the key reversal point of the market. And when you draw the support and resistance level, use the higher time frame to get the major levels.
Trade only the major price action signals
Though there are many different kinds of candlestick pattern yet you should only trade the major price action confirmation signals. For instance, in order to trade with the bullish trend, looking for bullish pin or bullish morning star pattern. Some traders often use the bullish engulfing pattern to ride the long-term bullish trend.
For the downtrend, you need to look for bearish pin bar or bearish evening star pattern. These are the two most powerful bearish reversal price action signal in the market. But when you use them, you need to use a tight stop loss to protect your trading capital. Never trade with huge risk to make more money from a single trade.
Focus on the daily time frame
As a professional price action trader, you need to look for price action confirmation signal in the daily or weekly time frame. Some retail traders often use the lower time frame in their trading platform. But lower time frame trade setup is always very risky. You will always have to filter the best trades in lower time frame trading. Being a new trader, it’s important that you only trade the daily and weekly time frame trading signals. When you trade the market, always remember that losing nothing but a part of this profession. So make sure you have done the precise risk assessment before placing any live trade. Under no circumstances, you should risk more than 3% of your account capital in any single trade. Limit your risk exposure and trade with low leverage.
Assess the fundamental factors
Do you know the most common mistakes of the price action traders? Most of them don’t do the fundamental analysis. They simply trade this market based on the technical data. But without doing the fundamental analysis you will never understand the strength of the market momentum. You have to understand the importance of fundamental analysis to become a better price action trader. For instance, let’s say you have spotted a bullish price action signal at the key support level of USDJPY pair. But after few minutes the NFP data came out negative. So do you think it would a great decision to trade the bullish price action signal? In such case, you need to stay on the sideline. Since the fundamental factors are not supporting your technical analysis, you need to understand something is wrong with the setup. Just by following this simple method you can easily save yourself from lots of false trade setup.
By now you know the three most important tips to become a successful trader. Regardless of your trading system, you should follow this advice as it will boost your trading performance.