Trading along with major trends can be one of the most effective strategies for making profits in the forex market. One of the simplest and most powerful ways to do this is by using price action patterns. This approach relies on price movement without needing complicated indicators. Let’s break down how you can use it!
What is Price Action?
Price action is a trading method that focuses on analyzing price movements on the chart. Instead of using various technical indicators, price action traders look at candlestick formations, support and resistance levels, and ongoing trends. In short, you’re reading the market’s “language” through price movements.
Why Trade with Price Action?
Why is price action so popular? First, it’s simpler because it doesn’t rely on many indicators. Second, price action provides signals directly from the price movement itself, making it quicker to respond. Third, by understanding these patterns, you can identify major trends and follow the market’s direction more effectively.
Price Action Patterns for Following Major Trends
Here are some price action patterns you can use to follow big trends:
1. Pin Bar
The Pin Bar pattern is one of the most common candlestick patterns that appears near support or resistance levels. A pin bar signals rejection from a certain level, indicating that the trend is likely to continue in the previous direction. If a pin bar forms during an uptrend, the trend will likely keep moving up.
2. Inside Bar
The Inside Bar pattern occurs when the second candlestick is completely within the range of the previous candlestick. This indicates a consolidation phase in the market, where traders can wait for a breakout to follow the next trend direction. If the breakout follows the major trend, it’s a strong signal to continue trading in that direction.
3. Fakey Pattern
The Fakey pattern is when the market attempts to break out of an inside bar but fails and returns to the previous range. This is often a strong signal that the main trend will continue after this “false breakout” occurs. Following the major trend after spotting a fakey pattern can be an effective strategy.
When Should You Enter and Exit a Trade?
When using price action to follow major trends, the key is to enter at the right time and exit at key levels. Here are some tips:
- Enter After Confirmation: After spotting a price action pattern, wait for confirmation that the trend will continue before entering a position. This could be a breakout or a confirming candlestick.
- Use Support and Resistance Levels: Identify support and resistance levels to set your entry and exit points. Trading near these levels usually offers better risk-reward ratios.
- Always Use a Stop Loss: Always set a stop loss to protect your position from unexpected market movements. This is crucial when following major trends that can reverse at any time.
Conclusion
Following major trends using price action is a simple yet effective strategy. By understanding patterns like the Pin Bar, Inside Bar, and Fakey Pattern, you can identify the best opportunities to enter or exit the market. Always remember to follow good risk management rules and make sure every entry is backed by clear confirmation from price movements.