Meet PAT, everyone
Price Action Trading (PAT) is a powerful Forex technique that works by reading the market and informing one’s trading decisions based on the chart’s actual price movementrather than on mere indicators of past behaviour.
Forex traders should remember that indicators are just that – they are indicative patterns derived from past price movements and thus do not supply information relevant to the price movement today or how it could be tomorrow.
PAT strategies facilitate our interpretation of both current market activity and likely future market activity.This is of course where profitability lies for the Forex trader as there is no money to be made in past trades!
The concept of price action is, simply put, an examination of how prices alter over time and makes projections over a present and future continuum in this way. So, it follows that a shrewd Price Action Trader would advise against relying solely on a lagging indicator with out-of-date information and would instead encourage us to focus on determining likely activity over the next couple of future bars on our chart.
Why is PAT such an effective tool? I think there are a few key reasons for this.
First, it is accessible even at its most simple incarnation.PAT can be used alone or in combination with other methods which makes it suitable for both the novice and experience trader. A new trader can learn how to simply read a chart and examine formations and behavioural patterns to utilise the PAT strategy successfully, while a veteran trader can combine the PAT methodology with a more complex system of indicators, creating his or her own unique Forex trading approach.
Second, PAT really is a forward-thinking strategy that makes the most sense logically given that we trade in the present and future, not the past. Many Forex traders become overly dependent on trends andmiss the nuances of changes in daily trades or become totally blindsided by “sudden” volatility that would have been noticed using a more dynamic Forex strategy such as PAT.
Finally, in my opinion, the sheer versatility of PAT strategy is what makes it the real winner. It can be applied to any chart and in any market, making it an in indispensable tool to the Forex trader working within the global markets.Anna Mosse is a consultant with Sunbird Forex and has been trading currencies since she was a teenager. She has freelanced and been a consultant for a number of firms specializing in forex, and encourages everyone to get involved with the market.