Hi readers

Today I wanted to cover the topic of discretionary price action trading, what it is, what it isn't and most importantly why you should be using it.

As most will have heard or know from experience most indicators are lagging indicators, lagging indicators use previous price behaviour to paint a more visual image of what the market has already done. People trade these lagging indicators with the assumption that the market will continue in its current direction just because their 13 period Exponential Moving Average has crossed over their 50 period Exponential moving average for example.

Another example of lagging indicators being Stochastics and the Relative Strength Index, these indicators simply tell you that there has been a lot of buying or selling of a particular currency during a particular timeframe. Again traders will trade these lagging indicators on the assumption that price can only move a particular distance before becoming "overbought" or "oversold" and run out of momentum.

These lagging indicators are all based on assumptions, mathematical formulae, inflexible systems and give you no idea of what the market is actually doing in that point of time, Lagging indicators give you no indication of where you should place suitable take profits or stop losses, they simply attempt to predict the direction the market is going to move.

There are many reasons why these systems just simply wont work in the long run.

The forex market as with all financial markets are forever changing and we as traders need to learn to adapt to this, be flexible and willing to constantly read what the market is telling us.

Technical systems based on lagging indicators don't have the capability of doing the above, as i mentioned earlier they are inflexible and cannot be programmed to adapt everytime the market has a shift in sentiment or volatility.

OK So now we've established all the Moving averages, MACD, Bollinger Bands and all the other technical indicators in the world arent going to make you a successful trader what will?

Discretionary Price Action trading!

For those of you that don't know what this is, its definitely time you learnt, and fast or you will inevitably blow your account chasing the elusive holy grail forex system.

Discretionary price action trading is not a technical indicator, its not even a combination of indicators, its reading what the market is telling you about price behaviour and movement in the PRESENT.

It can tell you when the current move is running out of momentum through candlestick patterns! It can tell you when the current move is going to continue at a rapid rate on the break of important support or resistance!

It can highlight possible retracement areas with the fibonacci ratios!

It can warn you of a major move even before it happens with breakout chart patterns like flags and pennants!

So if Discretionary price action trading is so great why isn't everyone using it and why is it not all over my forex brokers website!?

The simple answer is you cannot buy Discretionary price action trading in a packaged, advertised and marketed commercial trading system. Learning to trade Discretionary price action requires skill, education, patience and time.

Discretionary price action takes years to master, and by master I don't just mean understanding and being able to use price action, I mean being able to feel the market, being able to use your own discretion when it comes to judging the strength of support and resistance, whether or not that particular fib level will hold, whether the preceeding trend is strong enough to trade that particular inside or pin bar, whether that potential candle pattern your watching will form or fail.

Discretionary price action trading requires you to constantly think, analyse and adapt along with the market and this is why it is so powerful!

So from this day forth throw away your lagging indicators, pull up a naked chart and start looking at what the market is telling you right now, I guarantee you will not regret it!

If your not quite sure where to start when it comes to trading price action take a look over at my website, over at the daily technical analysis blog everyday I post my technical analysis and potential set-ups for a range of different currency pairs.

Happy trading, Lee J Brown


Author's Bio: 

My name is Lee J Brown and I am a full time forex trader from London, UK. I have been trading forex a little over 4 years now and would like to share my experience with the world through my website which offers informative and educational articles and reviews.