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Trading Price Action 1-2-3 method in the Forex Market

Price action is the use of only charts to trade Forex, without the use of technical chart indicators. When trading with this method, candlestick charts are used. This method uses lines and pre-determined patterns such as the 1-2-3 method that either develop from a single price bar or series of bars.

 

Traders use this method to trade because this analysis is very objective and allows the trader to trade based on what they see on the currency charts. The decision to trade is based on market movement analysis alone.

 

Price action strategy is used by many Forex traders; even those that use technical indicators to trade also integrate some form of price action in their trading strategy.

 

The best use of this price action method is achieved when the signals generated are combined with line studies so as to provide extra confirmation. These line studies include Forex trend lines, Fibonacci retracement, support and resistance levels.

 

 

Price Action 1-2-3 Breakout method

The the 1-2-3 method uses three chart points to determine the break out direction of a currency pair.  The 1-2-3 method uses a peak and a trough, these points forms point 1 and point 2, if price moves above the peak the signal is long, if it moves below the trough the signal is to short. The break out of point 1 or point 2 forms the third point.

Price Action 1-2-3 method breakout trading

Price Action 1-2-3 Breakout Method

 

 

Series of breakouts of the 1-2-3 method

Series of breakouts 1-2-3 method

Series of Price Action 1-2-3 method breakouts

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Traders use price action to try and predict where a currency direction might go. The Foreign Exchange Market is either trending or ranging.

 

A trending Forex market moves in a specific direction while a ranging market moves sideways, normally after hitting a support or resistance level.

 

Observing the behavior of price action provides this information of whether the market is trending or ranging or reversing its direction.

 

As with any other Forex strategy this method should also be combined with other confirming indicators to avoid whipsaws in trading. The 1-2-3 method can give good signals in a trending market but will give whipsaws when the market is ranging, it is best to determine if the market is trending or not before you start using this method to trade.

 

 

Combining Price Action 1-2-3 Method With other Indicators - RSI and Moving Averages

Good indicators to combine price action trading with are:

  • RSI
  • Moving Average

 

Traders should use these two indicators to confirm if the direction of price action 1-2-3 breakout is in line with the trend direction shown by these two indicators. If the direction is also the same as those of these indicators then traders can open a trade in the direction of the signal. If not traders should not open a trade as there is more likely a chance that this trade signal may be a whipsaw.

 

Just like any other indicator in Forex, price action method also has whipsaws and there a requirement to use this as a combination with other signal as opposed to just using this trading method alone.

Combining Price Action 1-2-3 Method With Indicators RSI and Moving Averages

Combining Price Action 1-2-3 Method With other Indicators - RSI and Moving Averages

 

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