📘 Day 3 – Article 2: Price Action Basics in Forex Trading
One of the most powerful and widely used strategies in Forex is price action trading. It’s simple, effective, and doesn't rely on complicated indicators. Price action focuses purely on how price behaves on the chart — helping you make confident decisions based on real market movement, not guesswork.
Let’s dive into three major concepts you must understand to trade price action effectively:
📉 1. Support and Resistance – The Backbone of Price Action
Support and resistance levels are key areas on the chart where the market reacts. Think of them like invisible walls:
Support is a price level where the market tends to stop falling and may bounce back up.
Resistance is a level where the market tends to stop rising and may reverse downward.
How to Identify Them:
Look at where price has reversed multiple times in the past — those areas are likely strong support/resistance zones.
Use horizontal lines on your chart to mark these zones clearly.
The more times price touches a level without breaking it, the stronger that level becomes.
💡 Why they matter:
Support and resistance help you decide where to enter and exit trades, place stop losses, and set profit targets. Most big market moves happen around these levels.
🕯️ 2. Candlestick Patterns – Reading Market Sentiment
Candlesticks are the language of the market. Once you learn to “read” them, they can tell you when a trend is starting, ending, or stalling. Two of the most powerful candlestick patterns in price action trading are:
✅ Pin Bar (also known as a rejection candle):
A candle with a long wick (tail) and a small body.
It shows rejection of a price level and is often a sign of a reversal.
A bullish pin bar (tail down) appears near support, signaling possible upward movement.
A bearish pin bar (tail up) appears near resistance, signaling possible downward movement.
✅ Engulfing Pattern:
A two-candle formation where a larger candle completely engulfs the previous one.
A bullish engulfing occurs at the bottom of a downtrend — a sign that buyers are taking over.
A bearish engulfing happens at the top of an uptrend — showing sellers are gaining control.
💡 Pro Tip:
Use these patterns in combination with support and resistance for higher accuracy. A pin bar or engulfing candle near a major level is often a high-probability trade signal.
📈 3. Trends and Trendlines – Following Market Direction
The saying goes: “The trend is your friend” — and for good reason. Trading with the trend increases your chances of success dramatically.
Types of Trends:
Uptrend: Higher highs and higher lows (bullish)
Downtrend: Lower highs and lower lows (bearish)
Sideways: Price moves in a range without a clear direction
How to Draw a Trendline:
In an uptrend, connect two or more higher lows with a straight diagonal line.
In a downtrend, connect two or more lower highs.
Trendlines act like dynamic support or resistance and help you identify pullbacks and continuation opportunities.
💡 Why this matters:
Entering trades in the direction of the trend gives you a higher chance of winning. Trendlines help you find good entry points during pullbacks or retests.
✅ Conclusion
Mastering the basics of price action trading — support and resistance, candlestick patterns, and trendlines — is essential for anyone serious about trading Forex successfully.
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