Trading currencies is an important activity. This is why the foreign exchange, or forex, is the largest and most liquid financial market. Although it lacks a centralized marketplace, buyers and sellers trade currencies electronically in an over-the-counter manner that’s available 24 hours a day. The market is highly volatile, but can be one of the most profitable forms of investing.
Given the popularity and demand, traders have developed a vast number of strategies to buy and sell currency profitably. Among them is trading without indicators, or naked forex. The practice is also known as “price action trading” given the emphasis on previous prices. Here’s what you need to know.
Pricing actions and indicators
To start, mathematical operations use a currency’s historic price movement to form an “indicator” that predicts where the price will be in the future. Therefore, an indicator is not more than a derivative of the price of a currency. Using indicators as the sole basis for making a decision to buy or sell any equity is problematic because they only make predictions. However, these can provide some insight and form the basis of an action. When used in conjunction with other pieces of data, traders execute better-informed transactions. And a naked chart provides the same information but in a quicker and more visual way.
One of the main advantages of naked trading is that it simplifies the process and provides investors with a less complex way to analyze movements. This teaches traders how to gain a feel for movements and helps them predict significant moves. For someone buying or selling currency, their focus shifts from looking at numbers to reviewing trends that occur in real-time. However, experience is the ultimate teacher. Therefore, a common issue with price action forex trading is how it involves learning from mistakes and trial and error before it leads to more profitable moves.
How to start trading
The first step with naked forex is to select a currency pair and observe its price action. Although the idea behind this methodology is to not use indicators, at the very least, traders should minimize to a couple indicators at most. As traders see the market move, they begin to develop an intuition for price movements and learn about the typical shifts in a specific currency. These characteristics define the behavior of regular pricing movements, which include impulses and corrections. These create a rhythm to equity that’s visible when using chart patterns.
Patterns are a graphical depiction of movement in price, and they are a great way to identify a condition to either buy or sell. These can mark the beginning or the end of a correction in price while also indicating that an impulse is imminent. And impulses are the fastest way that traders earn a profit. Traders need to learn how to spot and identify patterns to be successful in their transactions — the difficulty here is that there are numerous patterns, and these are indicative of possible upward or downward movements. These patterns all have names like the bear flag, bull flag, contracting wedge, expanding wedge, descending wedge, triangle, pennant, head and shoulders, inverse head and shoulders, and rectangles.
Trading currencies in the global market can be volatile but profitable. The difference between making money and losing money is mostly experience and knowledge. It is critical for prospective investors to learn as much as possible, not only about how to identify patterns but also on the possible outcomes of each pattern. Furthermore, traders should have knowledge regarding the currencies and their macroeconomic conditions to make the best possible investments.