Price action trading can be as easy as drawing boxes

Drawing boxes on MT4 is a great way to visualise trend. The principles involved here: price action at period highs and lows, actions such as expansion, wash n rinse. In this example of EURCAD, it is great to take note that this price action trading technique works extremely well and is a very easy well to understand market movement without indicators or black boxes. It is also rule-based which means anyone can use without letting emotions dictate judgement. (What is price action trading?)

A rule-based approach to price action trading

1. The start of a new trend is marked by price expansion in the opposite direction; previous lows (for bearish reversal) or previous highs (for bullish reversal) are penetrated
2. Downtrend is a series of lower highs and lower lows (marked by red line). In this daily chart, understanding highs and lows using monthly levels make it easy even for beginners.
3. Danger lurks when price makes false non-committal breaks. These give a semblance of reversal but could be wash N rinse movement.
4. There are instances when a period such as this inside month where price does not move out of both North and South boundaries. Instantly traders may recognise a consolidation pattern. Trading should switch to a range trading approach. If in doubt, trend riders should stick to previous trend i.e. down.
5. When a genuine reversal happens, it is marked by price expansion again. In this bullish reversal, price breaks the previous month high. Decisive breaks are often clear to recognise and not ambiguous.
6. As long as the previous low is not violated, the trend remains up.

This is an EURCAD illustration of using boxes in Tflow® Analysis to identify trend

EURAUD tackled with price action trading

Tiong Hum Soh

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.