Learn a powerful Fibonacci Retracement method FREE that pulls 500+ pips per trade. Watch this 24 minutes Forex Profit Multiplier Presentation FREE that show show to identify high probability trade setups on the 4 hour charts in just 60 seconds. Discover Quick Fix Forex System. Price action is one of the most important thing when you trade forex or for that matter any type of market. Price action is infact the best indicator when it comes to trading. Some traders just use price action when trading. Using only price action in making the trading decisions is known as trading naked.
So why is the price action so important in the market? Price is just the point where the demand for a financial contract, instrument, stock, currency pair or the commodity becomes equal with the supply. Price keeps on changing second by second and minute by minute as the demand and supply vary in the market. This change in the price over time is known as price action.
Price action is important as it tells you about the mass psychology that governs the market. You see, when the demand for an instrument outstrip the supply, the price will start to increase and increase till such point that demand and supply become equal. So, when you see the price rising, it means that the demand for that stocks, currency pair or the commodity is outstripping the supply in the market.
When the demand and supply becomes equal, the market tries to consolidate for sometimes. But soon finds itself in inbalance again. Whatever, this changing price tells you about the investor mood in the market after all markets are just people buying and selling. When there are more buyers in the market, the market is said to be bullish and when there are more sellers in the market, the markets are said to be bearish.
When the markets are bullish, you will see the price action going up and when the market is bearish, you will see the price going down. Now, there are certain types of charts that are used by the traders to predict the turning in the market. The most commonly used charts are the bar charts and the candlestick charts.
Traders use these charts to understand when the bullish mood in the market will turn to the bearish mood and vice versa. This is very important because you use these turning points in the price action to buy and sell. The point where there are more buyers in the market as compared to the sellers is also known as the Support. Support is where the prices stop dropping and start rising once again.
On the other hand, the point where there are more sellers in the market as compared to the buyers is known as the Resistance. Resistance is the level where the prices stop rising and once again start dropping.