Both experienced and new traders make a common mistake that the amount they win when they make right decision is very small compared to amount they lose when they make wrong decision which is a huge amount.
It is considered one of the most common and big mistakes made by forex traders that they are unable to manipulate money and risks, or in other words risk-to-reward ratio, which makes them get into trouble.
In the following lines, traders can find information regarding the use of Price Action, an indicator which can help a lot in realizing risk-to-reward ratios. When a trader can realize this correctly, they can win more amounts with right decisions and loss less amounts in wrong decisions.
The traders can thus look for the opportunities that just make them win profits rather than investing money in wrong places where they can lose.
How to Identify Resistance and Support using Price Swings
Previously, we have seen in article regarding Price Action Swings that how traders can take information about recent price trends to predict the possible Resistance and Support for coming trend. To identify price swings, simply look at the points of candle in that specific time period. While looking at the swing lows, you will notice in chart that market swings down before moving to higher points from lower points.
Similarly, swing highs have market swinging to higher points before starting to move again to lower points.
How to identify market condition
Price action can play a vital role which depends on current market conditions. If you see patterns of higher-highs or higher-lows in prices, it means market is moving higher. Similarly, market will be moving down if prices show patterns of lower-highs or lower-lows.
In case when market shows no such trend, price action probably will stay in some specific range. Although this case is different but it can still be used with some different mechanism. You can see swings in price action in ranging market in chart below:
From the above chart, you can see that all printed prices on chart are staying within the purple box.
Once you know about market conditions, you can start analyzing risk-to-reward ratios while making trading decisions.
How to match you Strategy with Prevailing Market Condition
You can start arranging your trade after you have analyzed market conditions of your currency pair. You must however keep this important thing in mind that if you have doubts about the information from the chart, you should avoid carrying out that trader. It is one of the most ideal points of currency markets that traders have a lot of choice to trade. If NZDUSD pair is showing some doubtful information in chart with hard to understand market conditions, you can easily choose to trade in some other currency pair like AUDUSD, GBPUSD and EURUSD. Once you are able to identify market condition, you can begin your strategy for trading according to that market condition.