2020 is turning out to be a year of volatility. With coronavirus still raging and no end in sight to the ongoing trade war between China and the US, we can expect markets to be jittery and highly-changeable.
In forex terms that opens the door to potential gains. Higher volatility means more spikes in price, making movements less predictable. Risk-averse traders may not be tempted, but with the right strategy in place, there is potential for hitting targets faster.
If you can free-up margin for the next trade more rapidly, you can trade more frequently. If you’re trading well, the end result could be more profits.
That’s where a strategy built around price action trading can be beneficial.
What do we mean by price action?
Price action trading means making all of your decisions from a price chart.
Since forex markets create historical data around the movements of specific pairs, that information can be visualised on charts and provide market signals that collectively allow you to build price action trading strategies.
They provide a way to make sense of a market’s price movement and point to the direction of future movements. Done right, trading on price action can be a high-probability trading strategy.
A price action trading plan for 2020
We find ourselves now in a trend-heavy market, so it makes sense to focus on trades that follow the major trends.
On the geopolitical and economic fronts, the ongoing Coronavirus pandemic, government efforts to slow its spread, and the upcoming US election in the Autumn all need to be watched closely.
With that in mind, these are recommended price action trading setups that offer the most promise:
Breakouts refer to any price movement the goes outside a defined level of support or resistance. The breakout can happen diagonally or horizontally on the chart, depending on the price action pattern.
Breakout strategies are usually used with stop loss. That means setting a buy or sell stop order near your price action strategy’s high or low point. When the price breaks out, your entry order is triggered, and the trade goes live.
Continuation trades are setups that peg the primary trend and seek to maximise the gains from strong runs. They are perfect for hitting target extension as they sometimes result in reaching targets more rapidly.
If you haven’t tried these before, use the demo account on your brokerage trading platform and specifically target extension as you experiment under different scenarios.
Using a counter-trend reversal setup can enable you to take advantage of any pullbacks within a trend.
Because price rarely follows any single direction for long without meeting resistance from the opposing bulls or bears, price pullbacks are a natural and expected outcome in forex price movements.
To take advantage, lower time frames can be beneficial. You need to think about fast execution trades that you’re unlikely to extend the targets on.
Know your targets, act decisively when you reach them, and keep greed in check. It’s unwise to force a trade where the signals don’t support it.
In a time of upheaval, you need to watch market conditions carefully and be flexible enough to change tack if they unravel. These setups and recommendations provide a good guideline to get you started, but adaptability will be a critical factor in success.