Generally speaking, most markets are inherently contrarian. This means that they are regressive in nature and have a natural tendency to pull back to the mean price. This is a big reason why so many beginning traders blow out their trading accounts and give up. The fact is that most of the time if it feels safe to enter the market it is probably not. When a move in the market is greatly extended in one direction and looks like it will keep going this is usually the precise time it is about to fall back and correct itself. This extension also happens to be the time most beginning traders tend to enter the market. It often takes multiple years of losing money before traders learn that they have to wait patiently for the market to contract before entering, and many traders give up before they finally realize this truth.
Most indicator based forex trading systems simply do not work in strongly trending markets. They will give you a sell signal long after a market has started correcting back down and the correction is almost over. Many times they give you a sell signal at the very time the correction is over and you should be looking to get long again, or vice versa. If you know how to tell based off pure price action when a market is exhausted or when it is ready to break out then you have the keys to building a highly profitable and consistent trading method.
Price action analysis is the best technique for educating yourself on how to profit from the forex market. There are usually tell-tale signs a market is ready to regress or the trend is ready to resume that are readily apparent through the analysis of price action. All you really need to know are a few simple patterns and basic chart support, resistance, and trend lines and you have enough information to put together a profitable trading method. Some people try to program indicators and even develop new ones because they mistakenly believe if they put more math and study into their forex trading technique they will be further ahead of other traders. This is just simply not true. While you do need some sort of education in technical analysis and price action, it does not need to be complicated or involve programing expert advisors and other fancy non-sense.
Once you develop a keen eye for price action setups you will be able to tell if it’s unsafe to enter a trend or that the trend is ready to resume. It’s all right there on the price chart, you just need to be shown the way by someone who has walked in your shoes and made it down the path to trading success. Price action can be a great aid to developing your market discipline and shaping a relevant market perspective. If you are just starting out and this is one of the first trading articles you have read than I strongly urge you to check out an education in price action. Go to YouTube and look up “forex price action” or “forex price action strategies” and see if you like what you find; there are many good free sources of price action information on YouTube. Price action analysis has been the key to my success in the markets and I hope it will be the key to yours.
