After going over what is forex support and resistance, it's time to move onto price action.
Price action is how price moves around levels of support and resistance. It's displayed visually by the candles on your chart, with different candle patterns showing us who's in control between buyers and sellers at any given time.
As I’ve said previously, the closest you’ll get to predicting the future, is in the here and now of price. All technical analysis indicators derive their formulas from price, so why not just go to the source and use price itself to trade?
To read price action, we use Japanese candlestick charts as a visual representation of price.
Each candle display price action within a specific timeframe.
For example on a daily chart, each individual candle displays an entire day's worth of price action.
But when it comes to explaining what is a forex Japanese candlestick, let’s just say that a picture is worth a thousand words:
As you can see in the diagram above, each candle has an open, close, a high and a low. Between which, you have a body and two wicks.
As an example, let’s say you’re watching the EUR/USD daily chart. This means that each candle represents 1 day's worth of price action.
If the candle opens at 1.2000 and moves up by 100 pips to close at 1.2100, the candle’s body will be bullish (green) and exactly 100 pips high.
But lets say that within that same 1 hour of price action, price traded as low as 1.1975 and as high as 1.2025. The candle would then have two wicks above and below the candle body’s open and close, reaching the high and low point of that hour’s price action.
For the candle’s body to be bearish (red), simply reverse the open and low so that the candle opened higher than when it closed.
Always keep in mind that candle patterns are useless on their own. For them to mean something, you must always consider the market environment and levels that they have formed around.
If you have any questions around what is forex price action, then leave a comment below and I'll be happy to have a chat.
Best of probabilities to you,
FOREX BROKR | LeoFinance Blog
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