• Posh English Trader

Trading Forex Without Indicators

Updated: Apr 18, 2019

This method of trading is also known as Price Action Trading.

This is a school of thought that bases trading purely on price action. Fx Traders that use this method are of the opinion that, indicators are just mathematical formulas that are based on previous price actions in the market.

Therefore, they always lag behind current price action and do not offer any new data that can't already be seen in the chart.

They also believe that charts cluttered with indicators often confuse traders and can lead to "analysis paralysis"!

Thus, Price Action Traders will trade using candlestick analysis, chart patterns and levels.

They believe that future price action can be determined by these factors, allowing them to time trades and profit from market movements.

So, what steps do Price Action Traders take to trade in the markets?

1. Identify the market conditions

Markets can be said to be either in a trend, range or choppy condition. Ideally, a trader wants to trade with the trend, as the trend is your friend! This is because, if you have identified a direction that price is moving in, it is theoretically easier to profit from the continuous direction of price.

Downtrend -signalled by lower highs and lower lows - price may move lower

Ranging markets are harder to profit from, as they are always less defined than the textbook examples, meaning it is very hard to find good entry and exit levels.

Range Bound - hard to determine where to enter due to different levels

Choppy markets, or markets with no discernible pattern, should be avoided by the novice trader.

2. Look for possible turning points

After you have identified which direction you think price is likely to move in, you need to ascertain a good level at which to trade.

Price Action Traders will use a combination of support and resistance lines and trend lines to determine where the best place to enter a trade is.

Support lines are simply an area where price has come down to before and then "bounced" off - so price may well repeat that same pattern.

Resistance lines are the opposite - they are an area where price has reached before and then "bounced" off - so price may repeat this pattern as well.

Trend lines join the lower lows in an uptrend and the higher highs in a downtrend. When following a trend, if you get a buy or sell signal at a trend-line then this could be a good place to enter the trade.

3. The Trade Signal

When using Price Action Trading, the only things on the charts to give you a signal to enter or exit a trade, are the candlesticks.

Certain candlestick patterns indicate changes in price action, which can be used as a trade signal. This technique originated in Japan, and was used in trading the rice markets. There are entire books written on the subject of Japanese candlestick patterns, and how you can use them as trade signals, and are obviously far to numerous to cover in this article.

Needless to say though, Price Action Traders will place a trade or exit their trade on the basis that a certain candlestick, or candlestick pattern, has formed at a particular, normally pre-determined, level.

If you are interested in reading more about this subject you can read our article:

Top 5 Forex Chart Reversal Candlestick Patterns

We hope you enjoyed reading the article. Please comment with any questions or queries below and click like to let us know what you thought!

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