What is Price Action in Forex Trading?

November 27, 2021
by Leon Marshall,

Article Recap

Price action is the change in a currency pair’s price, reflected by the time at which a decision has been made by a participant on the market. PAT, or price action trading, is using a simple candlestick chart with price and time as the only guides to making decisions. It is the backbone of technical analysis but it does not stop there.

Charts and indicators work well by themselves, but together, they can be counter-productive. Whenever you turn your attention to details you are unable to fully grasp, you can lose an important trading opportunity. There are many ways to go about this, including automating your trading, but the best one for many is simply decluttering. Putting on too many indicators, especially whenever you are just starting up as a trader, can often lead to confusion and disorientation. As cool as it looks, once you actually begin trading currency pairs, you can find yourself lost in a sea of lines and graphs. Price action is all about trading simply so as to be effective– no indicators, only charts. 

Price Action Trading (P.A.T.)

Technical analysis comes in different forms and one of them relies on nothing more than the “naked” chart – a candlestick chart without any loaded data. Without indicators, the only thing you can see are key elements like market structure; support and resistance levels; channels, ranges, and trends; price and candlestick patterns; breakouts and fakeouts.

Your primary focus when reading the chart will be what is of most importance – time and price. Historical price movement and pattern-finding help find potential future price changes. Using price action, you look at the history of the chart and recognize what has taken place until now. You analyze the patterns and once you see anything that begins to reoccur in the live market, you are on the lookout for opening or closing a position. In other words, you pin-point repeatable behavior and exploit it to your advantage.

However, it should be noted that PAT does not entail a single strategy. It can be anything. Point being, it is the backbone of technical analysis. As such, implementing it into any trading strategy at some point can prove beneficial. With enough practice, you get to learn the behavior of the market, the session when a signal or event formed, and how close the market is to an eventual trend or turning point.

Less is more – back to basics

PAT pats you on the back for choosing to go minimal. It is simple and it is effective. That is one of the main reasons for choosing PAT. If you aren’t used to all the lines, figures, and colors, then this is a great starting point. Experienced traders also choose it due to the information it can provide once one is used to reading the chart. That in itself is a herculean task for some, but it is undeniably achievable.

If you don’t have an understanding of the most basic chart, then you are running the risk of being unable to read the markets properly by relying on indicators instead. This is not always the case and PAT is certainly not the ideal solution for everyone, but to be confident of your knowledge of the fundamentals, it is a valuable approach to forex trading. 

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