Trading Price Action in Forex Markets
To become a successful trader if you are new, you should immerse yourself completely in the subject in order to find your edge. If you already a winning at trading than you should know exactly what your edge is.
Even the most advanced traders find it difficult to understand, interpret and trade the sharp moves often seen in the forex markets. By learning to read and interpret price action, you can develop a huge advantage for you as a trader.
In a steep decline, one should be careful to measure the reaction of the longs. You must know if the move has the chance to turn into a rout.
You should look at the reaction of the longs as soon as the rate begins to go south, this way you will be able to determine if the market is sitting on a large number of long positions and whether traders want to dump their positions. In case of a spike followed by a sharp V recovery, you should avoid shorting the pair.
Masses of buyers entering the market at lower levels tell you that the market is not particularly long. Lower prices mean bargain prices for those wishing to accumulate long positions.
Moving averages (MAs) are among the oldest, true and tested indicators. Widely used moving averages are the 50, 100 and 200 day MAs.
As said before, moving averages are lagging indicators. They relate with the past price action in the market. MAs can be used effectively in intra-day trading for entering and exiting positions in one way markets that are trending.
During times of sharp price moves, it becomes difficult for the traders to enter a position as retracements are far and few. This makes most of the traders confused and forces them to start taking arbitrary decisions.
MAs can be used as dynamic resistance levels in such situations. This can give better results than the static support/resistance levels used by majority of the traders.
The advantages of using Moving Averages like this gives you dynamic levels to trade off and gauge price action taking place in the market. This will help you avoid using arbitrary levels in entering or exiting a position.
