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
- 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
- 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.
- Danger lurks when price makes false non-committal breaks. These give a semblance of reversal but could be wash N rinse movement.
- 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.
- 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.
- 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
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
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"I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."