Naked forex trading is defined as trading without the help of indicators. It can also be called price action trading. Naked trading can be considered a type of technical analysis because it is the only information a trader has at his/her disposal. In forex, traders commonly use indicators to measure the exchange rate, volume, and the open interest of a currency pair. Indicators help a trader establish entry or exit points on a trade. In naked forex trading, however, traders use techniques that focus on real-time information and price charts rather than on indicators.
What is the naked forex trading?
The concept of naked trading is based on the current market situation. It does not rely on complicated indicators; rather, it focuses on the price in the present. The naked trading is all about what traders can see on the candlestick charts, and then make their trading decisions. Indicators are usually based on past price movements, so naked traders neglect the idea of using any technical indicator.
For naked trading, a trader must understand price action. This is because by learning price action, a trader can try to identify market movements and anticipate future fluctuations.
A keynote to include here is that before implementing naked trading, a trader must have an understanding of different candlestick patterns. This is because a trader is not trading with any indicator, so patterns are his/her only help.
Another important point is the recognizing of market cycles. Financial markets, especially the forex market, moves in cycles. A cycle can be defined as a period. There are many smaller cycles within the larger cycles. For example, the market cycle can start on a downtrend, but with the new economic report, the market cycle could change its course to an uptrend. Although naked forex is a form of technical analysis, these fundamental analyses are essential to understand in naked trading.
How to use naked forex trading?
Naked traders don’t require anything; however, they can consider support and resistance levels. Traders may not always want to try to draw too many support, and resistance levels as this can create confusion. Some traders may plot only those levels that have strong potential.
To apply naked trading, one must understand candlestick patterns. Although all patterns are important, for naked trading, a trader needs to focus on multiple patterns such as:
1. Head and Shoulders pattern
The head and shoulders is a common type of patterns and can emerge on the chart frequently.
It compromises of two shoulders with the head between them. The shoulders represent lower highs, while a head signifies higher highs.
Commonly, this pattern is a reversal pattern that can identify ending on an uptrend. Also, if the pattern surfaces in a downtrend, it can be a signal of an upwards movement.
For naked trading, traders may keep a look out for the head and shoulders pattern.
2. Wedge pattern
A wedge pattern can signal either a bullish or bearish price reversals.
To identify the pattern, traders can look for three main characteristics; first, converging trendlines, second, declining volume, and third, a breakout from one of the trendlines.
There are two types of wedge patterns; falling and the rising wedge. The falling wedge is a bearish reversal pattern and occurs in an uptrend. On the other hand, the rising wedge is a bullish reversal pattern and appears in a downtrend.
These are the common patterns that traders need to look for when performing naked trading. Additionally, they also need to locate patterns like flag or rectangles.
Naked forex trading strategy
Naked trading involves understanding market cycles and trends. Learning price action to help determine which way the market is most likely going to move is crucial.
An integral part of learning to trade forex naked without the aid of indicators involves learning how to read charts and analyze the various candlestick patterns.
All types of traders can take advantage of naked trading, as it is not time-restraint.
Naked forex trading buy strategy
- Locate the continuation pattern in an uptrend or a reversal pattern in a downtrend.
- Wait for the price bar to go bullish before entering.
- Enter the trade after the formation of any one of the candlestick patterns.
- Place a stop-loss near the recent swing low from the entry point.
- Exit the trade when the trend changes.
Naked forex trading sell strategy
- Locate the continuation pattern in a downtrend or a reversal pattern in an uptrend.
- Wait for the price bar to go bearish before entering.
- Enter the trade after the formation of any one of the candlestick patterns.
- Place a stop-loss near the recent swing high from the entry point.
- Exit the trade when the trend changes.
Naked forex trading conclusion
Naked trading is the simplest (and oldest) trading method. It’s simply trading without technical indicators which can be lagging at the best of times. Forex traders who use standard technical indicators focus on the indicators. Traders using naked trading techniques focus on the price chart. This shows you what is happening now, at this very time. After all, it is price that moves the forex market. Many traders use all different types of indicators, but everyone sees the price action on their charts.
Naked forex trading can be implemented by new and experienced traders alike. However, understanding of candlestick patterns is essential for naked trading. There are so many chart patterns to be aware of whilst a clear understanding of support and resistance is important. Fundemental analysis such as following the news can also help give traders an edge.
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