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Analyzing the Effectiveness of Confluence of Price Action Disciplines in Forex Market Md

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Analyzing the Effectiveness of Confluence of Price Action Disciplines in Forex Market Md ACCESS Freely available online ock & Fo OPEN St re f x T o l r a a d n r i n u g o J Journal of Stock & Forex Trading ISSN: 2168-9458 Research Article Analyzing the Effectiveness of Confluence of Price Action Disciplines in Forex Market Md. Chhali Uddin* Jashore University of Science and Technology, Jashore, Bangladesh ABSTRACT The purpose of this project is to systematically develop a sustainable and profitable trading strategy based on price action in the foreign exchange market. This study is looking for measuring the effectiveness of confluence of price action disciplines. Price action confluent levels provide the cleanest view of technical analysis in Forex market and help traders make subjective trading decisions based on the recent and past price movements instead of relying solely on technical indicators. In this paper, a trading strategy based on price action confluence is constructed and tested on 10 pairs from July 01, 2020 to 23rd December 2020. We used a 5,000 USD demo account to trade the pairs on the MT4 platform and a total 267 trades were placed during the test period. After collecting all the trading related data, we would calculate the profit and develop a profitable trading strategy. The results obtained from this paper should be applicable to other international markets as well. Keywords: Foreign Exchange Market; Forex trading system; Profitable forex trading strategy; Forex price action strategy; Technical analysis INTRODUCTION difficult. Because no single strategy or indicators ensure consistent and satisfactory results over a subsequent period [6-8]. The foreign exchange market, which is referred as Forex, is the market where a nation's currency is exchanged for that of another. We have addressed this problem and developed a systematic The Forex market is an online, Over-the Counter (OTC) market in approach to trade foreign exchange market based on confluence which the participants can trade 24 hours per day [1,2]. According of price action trading disciplines. Confluence areas of price action to the data from the Bank of International Settlements (BIS) Forex disciplines are defined as levels where more than one pattern shows Market is one of the fastest-growing sectors of financial markets the same direction. The different levels of price action work best in and the daily FX volume accounted for $5.1 trillion in 2016. So, markets with high liquidity. Forex market has the highest liquidity the daily Forex market turnover is multiple times higher than the in the world and it produces some of the best price action levels trading volumes on any capital markets [3]. Nowadays, anyone can than any other financial markets. trade in Forex market through the internet and interbank networks Our method works as follows: at first, we have constructed our which made more people come into this market. own trading strategy using a combination of various disciplines According to report, the majority of Forex traders fail to survive of price action (Japanese candlestick, support & resistance, trend and leave the market within six months to a year [4,5]. The lines, channels and chart patterns) strategy which includes entry French financial markets regulator, (AMF) released a study result and exit rules of a trade, money management and risk management in October 2014 which showed the rate of clients losing money strategy. Then, from July 01, 2020 to 23rd December, 2020, we exceeded 89% (surveyed 14,799 active clients), with an average loss have used that strategy in real market using MT4 platform. We of €10,887 per client. have executed 267 trades with ten pairs-EURUSD, USDCHF, GBPUSD, USDJPY, USDCAD, AUDUSD, EURJPY, NZDUSD, Foreign exchange market is difficult to predict. Developing a XAUUSD, and XAGUSD-to develop and evaluate our trading successful trading strategy for forex trading remains a significant strategy [8-9]. challenge for both traders and economists. One of the most difficult aspects of forex trading is finding a systems, strategies, or We have to acknowledge that the magnitude of analysis needed indicators that might work best for traders. There are numerous to understand forex market is considerably greater than any other ways of speculating the market which makes this journey even more markets. To trade in Forex market with price action, a trader does Correspondence to: Md. Chhali Uddin, Lecturer (Marketing), Jashore University of Science and Technology, Government of the People’s Republic of Bangladesh, Telephone: +8801930580660; E-mail: [email protected] Received: January 19, 2021; Accepted: January 19, 2021; Published: June 23, 2021 Citation: Uddin C (2021) Analyzing the Effectiveness of Confluence of Price Action Disciplines in Forex Market. J Stock Forex Trading 9:570. Copyright: ©2021 Uddin C. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. J Stock Forex Trad Vol. 9 Iss. 4 No: 270 1 Uddin MC. OPEN ACCESS Freely available online not need to be informed about the world’s social, political, and Key forex definitions economic situations, because price action trading strategy ignores The following are the key forex-related definitions: the fundamental factors and emphasis solely on price movements. Every minute, hour and day, the Forex market is paving its own Pip: The lowest increment in which a currency pair is priced. road. If we know how to read it then this road can become our road EURUSD is 1.1820, when it moves to 1.1821 then it calculated map to predict the future price movement. By studying the highs and 1 pip move. lows of the recent and past prices and support and resistance levels, we Spread: The difference between the Bid price and Ask price for a can construct a general idea of what price may come next [10]. currency pair. We believe this detailed guide of price action strategy would help Leverage : It allows a trader to trade with higher amounts with less Forex traders to identify profitable trades, and control risk by capital. A leverage of 1:500 means a trader only need 200 USD to utilizing appropriate strategies. The result of this research can be place a 1,00,000 USD trade. useful for Forex brokers, dealers and any financial institutions. Exchange Rate: It is the value of a base currency against a quote BACKGROUND currency. What is forex? Bid: The price at which the market maker/broker is willing to buy The Forex market which is usually known as “forex” or “FX, is the currency pair. a global decentralized market for the trading of currencies. It Ask: The price at which the market maker/broker is willing to sell includes all aspects of buying, selling and exchanging currencies the currency pair. at current or determined prices and remains open twenty four Forex trading sessions hours a days, five days a week (Sunday 5pm EST through Friday 4pm EST) and all year round. Trading starts from the Asia-Pacific The 24 hour Forex market can be broken up into four major trading region followed by the Middle East, Europe, and America. It is the sessions. Below are the open and close times for each session: most liquid market in the world and in terms of trading volume; • New York Session: Opens at 8:00 am and Closes at 5:00 pm it is by far the largest market in the world. The main participants EST (EDT) in this market are the larger international banks, central banks, institutions, governments, hedge funds, corporations and private • Tokyo Session: Opens at 7:00 pm and Closes at 4:00 am EST speculators and retail investors. Since currencies are always traded (EDT) in pairs (EURUSD, GBPUSD), the Forex market does not set any • Sydney Session: Opens at 5:00 pm and Closes at 2:00 am EST absolute value of a currency but determines its relative value by (EDT) setting the market price of one currency with another. • London Session: Opens at 3:00 am and Closes at 12:00 noon Forex Market is one of the largest financial markets in the world EST (EDT) with $5.0 trillion average daily turnover which is more than 12 And so, there are some hours when two sessions overlap each other: times higher than the average daily turnover of global equity markets. The volume is 50 times higher than the average daily • New York and London Session: 4 hour overlap between 8:00 turnover of the NYSE and the annual turnover is 10 times higher am-12:00 noon EST (EDT) than the world GDP. The spot market accounts for over one-third • Sydney and Tokyo Session: 7 hour overlap Between 7:00 pm- of daily turnover. 2:00 am EST (EDT) Like any other market in the world, the prices of the currency • London and Tokyo Session: 1 hour overlap between 3:00 am- are set by the supply and demand of sellers and buyers. However, 4:00am EST (EDT) there are other macro factors that play in this market. Demand for The best time to trade forex market is when there is an overlap particular currencies is also influenced by political events, economic ongoing between the sessions. During overlaps, the volatility in the growth, inflation and other economic factors like interest rates, market increases which results in greater opportunities. More than central bank policy etc. Many events and reports like GDP growth, 70% of the total trades happen during the U.S./London markets unemployment levels and retail sales detail the levels of a country’s which is the heaviest overlap within the markets.
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