How to read and trade the price of Forex stock

Forex trading can be as difficult or easy as you want. Indicators and strategies can make trading much easier. Being able to read and understand prices on Forex is one of the most useful ways to trade currencies.  

Price performance analysis was first introduced by Charles Dow, who laid the foundations for modern technical analysis. From the very beginning, it has been extremely developed and advanced. Understanding pricing gives you that extra advantage you need to cross the profit line. This is one of the reasons why more and more currency traders are interested in using forex pricing strategies as one of the main tools for making trading decisions.

Since price trading does not predict the future like many other indicators, it never lies; it will tell you how the market will behave during different time frames and periods of volatility.

What is the stock price?

The effect of prices is the fluctuation of the price of a financial instrument, whether it is shares, commodities or currencies. In order to be able to predict future price movements, it is necessary to observe price oscillations for some time. This is an integral part of understanding how price reacts to economic events or certain technical levels.

To an inexperienced currency trader the movement of forex stock prices may seem chaotic. Different people interpret this in a unique way, and many find the task of finding a productive strategy to act on forex prices unattainable. Nevertheless, price action can be easily read through the basic tools of technical analysis. Candlesticks, recessed power, broad-spectrum candles, gripping patterns, doji, needles, and narrow-range candles are just a few examples of barometers with occasional price action.

Stock price trading means reading / analyzing past or present price behavior to build a trading plan for the future. Strategies based on price performance analysis can be divided into two groups:

  • Strategies in which you must continuously observe price oscillations to identify the point of entry / exit to the market
  • Strategies in which you need to look at past price movements on a chart and quantify a pending order

Each method is useful for building a valid strategy of action on forex prices.

Constructing a strategy of action on the Forex price: finding a swing

When a currency pair follows a trend, it is much easier to trade the trend if you recognize possible levels of swing / follow-up. The price never goes up or down following a straight line. Instead, it makes the leg higher during the uptrend before making a pull to start the next leg. It is a good idea to determine where the endings will pull or the low level of the swing will fall during the uptrend. This identifies the ideal price to place a pending purchase order.

First, you should recognize which indicator the trend is aimed at. Is it a trend line? Is it a moving average? Fibonacci level? If the trend follows the Fibonacci pattern, you should identify Fibonacci levels. This will help you find the swing / retraction level, as Fibonacci numbers act as support / resistance.

As you can see from the GBP / USD weekly chart below, Fibonacci numbers provided three options to trade in the direction of the trend and two more options to trade in the direction of the opposite trend.

Oscillation levels based on Fibonacci numbers of golden ratio

When a forex price action relies on a trend line or moving average, these indicators reject the price when it touches them, acting as a fluctuation of low levels in an upward trend or vice versa in a downward trend.

The strength of the trend may not always be the same throughout the course. When the trend is weaker, you should use higher periodic moving averages or less sloping trend lines to create a strategy of acting on the forex price. When the trend accelerates, you should use a smaller period period or a more inclined trend line as a low / high level fluctuation.

As you can see in the image below, when the trend is stronger, 20-MA acts as a price resistance, and when the trend loses strength, 50 MA becomes the price rejection line.

Swing level analysis

Once the momentum levels have been identified, you need to do a risk / reward analysis of the current monitoring. You never know how long the trend will last, so when buying retraces / swings you should put profit next to the top of the last high swing. But if the trend is based on a trend line or moving average (MA), you should check how far the last momentum has come. Is it far enough to provide you with a good risk-reward ratio, thus justifying a possible trade?

Your store is also more likely to be successful if there are a few candles on top of the last swing. However, if there are a lot of candles at the top, it means that the resistance is very strong because many times he tried to break through above that level but failed. Therefore, it is safer to enter when there are fewer candles on top.

In the chart below we can see that the price easily broke above the peak of the last swing which was made of only two candles. We can also see that on another occasion, where the top was made of several candles, the action of the forex price could not break above it.

Pulling force

Once you recognize fluctuation levels in a trend, you should find out how strong the return flows are. If we plan to buy a retrace in an uptrend, we want it to be weak because a strong retrace can take the price deeper, which will trigger a stop loss. In fact, strong queues often turn into trend reversals as bulls get scared by closing their long positions after the price breaks through several areas of support. So we should see how the price respects the indicator on which the trend is based.

If the price has often broken the trend line or MA in the past, it means that the changes are very strong. In this case, it is better to stay away because a reversal can happen at any time. We should also see how quickly the price has changed in the past. If during past retraces the price has reversed quickly without adhering to the trend line or MA, then the bulls have an appetite for risk and the retraces are weak. It is therefore safe to buy at repeat customers.

The chart below shows the two phases of the forex price trend: in the first phase, the price respects the 50 MA that the trend relies on. The price reverses down whenever it touches MA or approaches MA. The return is weak and it is safe to sell it. In the second part, the price obviously violates 50 MA in yellow. Although it goes back below it, it is not advisable to sell repeated steps anymore, as the trend could be reversed anytime now, when repeated stakes have become stronger. We see that the downward trend was later reversed.

Current pricing action strategies: Rejection time

This is the primary strategy of acting on forex prices. It is crucial for trading because the rejection time shows us how quickly certain levels decline the price.

After several attempts at 1.0930-55, the EUR / USD chart below gives the impression of rapid rejections due to long wicks. In truth, that may not be the case. The price may have stayed on top of the wick almost all the time, only to fall at the last minute before the candles closed. That’s why you need to observe the price in real time to see how quickly it flipped from the top. It takes a little time, but you have to work hard to succeed in this business. If the price just jumps to the top for a moment and then reverses quickly, that means a lot of sellers are waiting to sell at that level. This makes it a very strong resistance and thus a very safe place to open a sales position.

You need to watch the price of the Forex stock carefully to see how quickly the price turns from the top
Large opposing candles / Doji / Pin / Hammers

Candlestick formations are current price action strategies that require you to observe the price and trade during the course of the sample. This is unlike previous pricing strategies where you have to recognize a low / high level and leave a sell / buy order on hold.

During the trend, candles can be of different sizes and shapes. However, when the trend started its course, one of the signs that a reversal is imminent is a large opposing candle. Often at the end of a trend we see a large candle unfold in the direction of the trend followed by an opposite candle of similar size. What does that mean? That means the falling bears were level last time, pushing the price further. In response, the bulls jump in immediately and raise the price to the level at which the previous candle opened. This means that buyers have finally parried the sellers. In this case, sellers added more shorts or made money on those that were already open. Both of these actions led to a reversal of the trend.

The same logic applies to breastfeeding, needles and hammers. In the case of a downward trend, when the opposing candle is larger than the previous one, the pattern is called a bull-swallowing pattern. This is a strong signal of a reversal of the pending trend as buyers have outperformed sellers. Carefully observe the movement of forex prices when you see that one of these patterns is unfolding. Then prepare to buy or sell because the turnaround is happening right in front of you.

Narrow range candles

When the price moves in a narrow range it creates small candles. On such occasions, buyers and sellers have not yet made up their minds and have let go of their positions after making small profits. When that happens, you should watch the price, because those patterns lead to some explosive moves and you don’t want to be absent when that happens.

Once one party decides and breaks the range at least a little, the others get scared and remove all orders. This creates a liquidity gap that allows the price to move directionally without any resistance. You can make two stores according to this pattern; or enter as soon as a narrow range break occurs and / or enter when the price comes back to test the range.

Start using Forex Price

These are some of the most common methods for understanding, reading, and trading based on prices. Price stock trading tells you about the way the market thinks and how basic human emotions, such as fear and greed, play out in forex trading. It shows the important levels at which buyers or sellers do not have the courage to take the price above or below.

Stock price trading, combined with several other indicators, can be a very profitable way to engage the market. We hope the strategies explained in this article will help you identify some good trading opportunities and provide your trading account with plenty of green points.