EURAUD chart: 5 elements of price action trading
Price action: trading currency pairs from the little clues left behind
Illustration using EURAUD
One. A rising trend displays a series of rising lows. Rising highs confirm the trend but is not essential since there may be sideways consolidation from time to time.
Two. Rising trends ultimately must produce rising highs in order to incentivise entrants into the long trade. Failure to capture new highs therefore become warning signals, that late entrants increasingly risk running into a bull trap at the same time as bears get rewarded for selling short, fading a false breakout.
Three. A falling trend displays a series of falling highs. And as a sign of reversal, the falling trend following a rising one is confirmed when past lows are breached significantly in a bearish expansion.
Four. In any trend, price may retrace and even test previous levels. In this example, a two week test to the validity of the previous month’s low as a new resistance. Like a sucker’s rally.
Five. For this down trend that started early September to continue, price must resume falling highs and ultimately produce falling lows.