Candlesticks Patterns For Price Action Forex Trading
Using candlesticks patterns for price action forex trading is a very simple method of currency trading. It requires very little technical analysis and yet traders who follow price action trading methods will often say that it has turned around their trading experience and allowed them to make profits that they could never have achieved when using other systems. Why is this, and how does price action trading work?
Firstly, traders using this approach will avoid the stochastic indicator, MACD, RSI and others which they say are lagging indicators. Of course this is true, but it does not necessarily mean that these indicators are useless for everybody. Still, if you find them confusing or unnecessary it may be good news to know that there is another way.
Instead of these indicators, the price action forex trader will just study the price movements on his currency trading charts. He may draw trend lines or support and resistance lines but he will use no calculation of moving averages or other complex indicators. Often, he will just use a single candlestick; sometimes, a small cluster of candlesticks. Bar charts may be used but candlesticks patterns are more common.
A single candlestick can be considered to indicate a bullish market when the close is above the open and also above the middle of the full low to high range. For a strongly bullish market the close would be in the top quarter of the range. In other words, you would be looking for a white candle with a fairly short upper wick, or even no upper wick.
The trader would infer that other things being equal, the next period will see an improvement or at least a test of that closing price. He would probably wait for a fall of a few pips and then open a trade expecting the market to reach or go beyond the closing price of the previous period.
You can also look back at the previous candlestick to check whether the same movement was also indicated there. If the earlier candle was also bullish (white) and closed at a lower price that the close of the more recent candle, this gives you a dual indicator in candlesticks patterns.
Price action trading can save a lot of time and cut out much of the complexity of systems that are based on multiple indicators, where sometimes you might find that by the time you have finished checking all of your indicators, the movement you hoped to profit from has happened and gone.
However, despite its technical simplicity it does require a certain amount of experience and a good understanding of the market. Traders need to take account of fundamental factors and check their signals against candlesticks patterns for different time periods before opening a trade.
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