WHAT IS PRICE ACTION?

WHAT IS PRICE ACTION?

This is the basic definition of price action trading:

When traders make trading decisions based on repeated price patterns that once

formed, they indicate to the trader what direction the market is most likely to

move.

Price action trading uses tools like charts patterns, candlestick patterns,

trendlines, price bands, market swing structure like upswings and downswings,

support and resistance levels, consolidations, Fibonacci retracement levels, pivots

etc.

Generally, price action traders tend to ignore the fundamental analysis-the
underlying factor that moves the markets. Why? Because they believe everything
is already discounted for in the market price.
But there’s one thing I believe you should not ignore: major economic news
announcements like the Interest Rate decisions, Non-Farm Payroll, FOMC etc.
From my own experience and from what I’ve seen, I say this “the release of
economic news can be both a friend and an enemy for your trades.”

Here’s what I mean by that:
• If you did take a trade in line with the result of economic news release you
stand to make a lot more money very quickly in a very short time because
the release of the news often tends to move price very quickly either up or
down due to increased volatility.
• But if your trade was against the news, you can walk away with all your
profits wiped out or a loss and the loss can be huge because markets can
move so fast during that period that there’s also the chance that your stop
loss cannot be triggered.

The chart below shows and example of what can happen when there is major
forex fundamental news release:

This is one experience I will never forget. I traded a perfect price action setup, the
trade went as I anticipated but a few minutes later, the market dropped down
very quickly.
My stop loss was never triggered at the price level where I set initially.
I tried to close that trade as many times as I could but it was impossible to close
because the price was way down below where my stop loss price was! Price
jumped my stop loss.
I just stood there and watched helplessly. After what seemed like an eternity, the
trade was closed by broker at the worst possible price way-way-way- down
below!
That single trade nearly wiped out my trading account. Instead of losing 2% of my
trading account, I lost almost half of it. I did not understand and did not know
what happened that night to make the market move like that. I could not sleep
that night.
Later I found out that it was a major economic news release that moved the
market like that.
Now before I place a trade, I head over to this website here to check the news
calendar: https://www.forexfactory.com/calendar.php?day=today 
If there’s a valid trade setup but If I see that the time is close to a major news to
be announced, I will not enter. There are exceptions where I will take a trade if I
see that I can place my stop loss behind a major support or resistance level.
The high impact news are colour coded in Red. That’s what you look for(see figure
below):

Here’s what you can do:

1. If a valid trade setup happening, check with forexfactory.com to make sure

there are no major news announcements to be made soon that can impact

your trade.

2. If there’s news to be released you can do these 2 things: don’t trade until

after the news release and wait until markets starts trading normally again,

or if you decide to trade, trade small contracts because the market is very

volatile when the news is released. This can works for you or against you.

You need to know what you are doing during these times.

3. If you already have a trade that has been running (prior to the news release

time) for some time and in profit, think about moving stop loss tighter or

taking some profits off that table in case the market goes against you once

the news is released. In an ideal case, you would have taken this trade a

while ago and that the current market price is far away from your trade

entry price and you would have locked some profits already and if the

market moves in the direction of your trade after the news release, you will

make a lot of money.