A Simple Guide to Trading Forex: Price Behavior

About the Author

Samuel Morton is a Forex and CFD, day and swing trader. He is
a master of price action trading and the proud owner of
www.love-the-pips.com. Samuels success in financial trading is
evident through his ability to consistently gain high returns
from trading over-the-counter markets.
Learn more about his style of trading and his trading
performance at www.youtube.com/user/lovethepips
About the Book
This book is one of a two book series released by Samuel
Morton.
The book has been written primarily for novices and those
researching the financial markets, but the book should be
beneficial for any trader, however experienced, to sharpen skills
and make the trading experience more profitable.
The principles in this book are universal they should apply to
a variety of markets and timeframes.
It is important to note that this book alone will not make you
profitable. The principles in this book coupled with experience
and other knowledge can help you to become profitable. It is
suggested that once a good knowledge of trading price action is
gained, traders should read more advanced literature, such as,
Samuels How I Trade Forex and CFDs: An Advanced Guide to
Price Action Trading (available on Amazon).
Legal Info
The author (Samuel Morton) does not warrant that the
information contained in this eBook is free from errors and
omissions. Changes in circumstance after the time of
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A Simple Guide to Trading Forex: Price Behavior

publication may impact on the accuracy of the information.

Samuel Morton is not liable for the accuracy of any information
and shall have no liability to the users of the information for
any loss, damage, cost, expense incurred or arising by reason of
any person using, acting on, or relying on the information
whether or not the loss, damage, cost, expense incurred was
caused by reason of any error, negligent act, omission or
misrepresentation in the information.
Financial and CFD trading is high risk and you will lose money.
This eBook cannot be reproduced or distributed
without the express written permission of the author.

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A Simple Guide to Trading Forex: Price Behavior

A Simple Introduction
Forex is an abbreviation of foreign exchange.
The foreign exchange market can also be referred to as a
financial market, a market being activity of goods bought and
sold. The goods in Forex being currencies.
The Forex market offers traders and investors an opportunity to
buy and sell currencies with the goal of making a profit.
Currency is traded by coupling a currency against another
currency. Coupling these currencies together creates a currency
pair. The EUR/USD (the Euro against the US Dollar),
GBP/USD (the Great British Pound against the US Dollar) and
the USD/JPY (the US Dollar against the Japanese Yen) are a
few examples of the currency pairs traded.
Price is determined by comparing the strength or value of a
currency against another, and is usually shown in magnified
detail down to a hundredth of a cent, penny or equivalent. For
example, the EUR/USD could have a current price of 1.3448,
meaning the exchange rate for every one Euro is 1.3448 US
Dollars. The GBP/USD could have a current price of 1.6911,
meaning the exchange rate for every Pound Sterling is 1.6911
US Dollars. Profit is made possible due to the fluctuation of
price within a currency pair. If traders buy the Euro when it is
worth 1.3448 against the US Dollar and sell the Euro when it is
worth more (1.3498 etc.) traders would make a profit.
Traders have the opportunity to take advantage of price when it
is appreciating (rising in price) or depreciating (declining in
price). Traders can buy currency (going long) and sell it
sometime in the future to make a profit or loss. Traders can also
sell currency first (going short) and buy it sometime in the
future to make a profit or loss.
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A Simple Guide to Trading Forex: Price Behavior

Price fluctuates because of supply and demand. If traders and

investors are buying a particular currency, more than selling
the currency, price should appreciate. If traders and investors
are selling a particular currency, more than buying the
currency, price should depreciate.
Price moves in pips. A pip is usually a hundredth of a cent,
penny or equivalent. If price on the EUR/USD is at 1.3564 and
appreciates to 1.3565 then there has been a movement of one
pip. If price then depreciates to 1.3562 there has been a further
movement of 3 pips.
When traders invest in a currency they open a position. When
traders end the investment they close the position. Price
movement is recorded on graphs which are often referred to as
price charts. Traders use these price charts to determine future
price of currencies. The historical movement of price on these
price charts is usually referred to as price action. Being able to
read and understand price action is the foundation of my
trading and how I make a living.
The overriding principle in trading profitably is being able to
speculate future price correctly, and opening and closing
positions accordingly.
Got questions? Please email me at samuel@love-the-pips.com

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A Simple Guide to Trading Forex: Price Behavior

Price Behaviour
Firstly, thank you for taking the time to read my book on price
behavior.
Currency price does have behaviour, meaning price generally
acts or reacts in certain ways. These ways can be learnt and
applied to trading, which can help traders to have greater
probability of speculating future price correctly and
consequently make a profit.
So how does price behave? Lets first look at very simple price
movement. Some of you may know this already but knowing the
basics is absolutely crucial to your success as a trader (in fact a
lot my success as a trader has come from sticking to the basics).
Price trends up (moves in an upwards motion), trends down
(moves in a downwards motion) or ranges (moves in a sideways
motion). When price trends we usually get what I like to call a
stepping motion. Lets have a look at a few illustrations to make
this clearer.
a.

An uptrend (price is in an upwards direction)

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b. A downtrend (price is in a downwards direction)

c. A range (price is in a sideways direction)

In the following chapters we will discuss price behaviour in

further detail and discuss how this can be of great benefit to
forex traders.

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A Simple Guide to Trading Forex: Price Behavior

Upstairs and Downstairs

In this section we will go into further detail of how price
uptrends and downtrends.
As mentioned in the previous section, price has a stepping
motion when trending. Lets have a look at the uptrend
illustration again:

Notice how price makes steps or a set of stairs as it moves in

an upwards direction? Price is pushed upwards by traders
buying the currency.
If this was the EUR/USD, it could be that traders are buying the
Euro, which could cause the Euro to appreciate in value against
the US Dollar. Price then pulls back or retraces slightly. This
could be due to traders buying the US Dollar or selling the
Euro, which may cause the US Dollar to appreciate in value
against the Euro. This period of time when price pulls back or
retraces causes the troughs in the above illustration. After a
period of time Euro buyers step back into the market, price is
given another push (moves higher) and the cycle starts again.

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A Simple Guide to Trading Forex: Price Behavior

An illustration may make this clearer:

Lets have a look at the downtrend illustration again:

Notice the stepping motion again? If this was the EUR/USD it

could be traders are selling the Euro or buying the US Dollar,
which is depreciating the Euro. This gives price a push down.
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After a time buying or selling power reverses, this causes price

to reverse and creates a pullback or retracement.
Here is another illustration to make this clearer:

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A Simple Guide to Trading Forex: Price Behavior

Trend Momentum
The momentum of a trend will give us an indication whether a
trend will continue to trend or if the trend is likely to soon stop
trending. For example, the momentum of an uptrend can be an
indication if price will continue to uptrend in the near future or
if the uptrend will soon change direction, such as down
trending or being range bound (moving sideways).
To identify trend momentum we need to be able to recognize
the pushes and pullbacks of a trend as already taught.
Once we can recognize the pushes and pullbacks of a trend our
next step is to recognize the highs and lows of a trend. The
highs and lows of a trend is the area where price reverses from a
push to a pullback or when prices reverses from a pullback to a
push. On an uptrend the end of a push is identified as the high
and the end of a pullback is identified as the low. On a
downtrend the end of a push is identified as the low and the end
of a pullback is identified as the high.
Please see the next page for illustrations of highs and lows of a
trend.

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A Simple Guide to Trading Forex: Price Behavior

Do you notice on the uptrend illustration that each high and

low is higher than the previous high and low? Do you notice on
the downtrend that each low and high is lower than the
previous low and high? The concept of higher highs and lows is
a significant characteristic of an uptrend. The concept of lower
lows and highs is a significant characteristic of a downtrend.
Knowing this can help traders to identify trend momentum.
Here is an illustration of an uptrend. This time the highs and
lows are identified as being higher.

When price is on an uptrend and creating higher highs and lows

this can be a signal to traders that the momentum of the trend
is strong the uptrend may continue. When price does not
make higher highs and lows this could be a signal to traders
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A Simple Guide to Trading Forex: Price Behavior

that the uptrend momentum is weakening the uptrend may

be coming to an end.
Here is another illustration. This time a downtrend is
illustrated.

When price is on a downtrend and creating lower lows and

highs this can be a signal to traders that the momentum of the
downtrend is strong the downtrend could to continue. When
price does not make lower lows and highs this could be a signal
to traders that the downtrend momentum is weakening the
downtrend could be coming to an end.
Trends will eventually come to an end. The concept of higher
highs and lows for an uptrend and lower lows and highs for a
downtrend can be a reliable technique to identify when trends
are coming to an end. When a trend comes to an end price
usually trends in the opposite direction (a downtrend finishes
and an uptrend begins or vice versa) or price ranges (moves in a
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sideways direction).
Take a look at the illustration below. It is not uncommon to see
price behave like this.

In the illustration price was in a downtrend and creating lower

lows and highs. Eventually, price creates a higher low. The
higher low is followed by a higher high and an uptrend begins.
Lets look at one more illustration before we finish this section.

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A Simple Guide to Trading Forex: Price Behavior

In this illustration price was in an uptrend creating higher

highs and lows. Eventually, price creates a lower high. The
lower high is followed by a lower low and price goes into a
range (sideways movement).

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A Simple Guide to Trading Forex: Price Behavior

Range Tennis
As mentioned near the beginning of this book price does not
always trend, price can also range. When price ranges price
bounces between two areas of the market, creating a sideways
movement.
This price bouncing behaviour, from one area of the market to
another, could be compared to a game of tennis. Price is being
hit from one side of the court to the other, and then hit back
again.
Here is an illustration.

Unlike trends, where highs and lows can show us future price
movement, ranges work by areas of support and resistance.
These areas are where a significant amount of buyers or sellers
are waiting to open positions and push price in their favour.
The resistance area being where a significant amount of sellers
are waiting for price to move into their territory so they can
depreciate price and the support area being where a significant
amount of buyers are waiting to hit the price back to the sellers
just like tennis.
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A Simple Guide to Trading Forex: Price Behavior

It is important to note that the support and resistance are areas

are not specific prices on the price chart, they are areas or
zones, though drawing a line on the chart may help traders keep
a visual image of the areas.
So how can this help traders? If there are a vast amount of
buyers and sellers in support and resistance areas, enough to
smack price to the other side of the court, then this can be used
by traders to determine where future price may be.
Price moves in directions depending on how much buying and
selling pressure there is. If the majority start selling the Euro
then it is likely the Euro will depreciate. If the majority start
buying the Euro then it is likely the Euro will appreciate. If
price has reached a resistance area this can indicate to traders
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A Simple Guide to Trading Forex: Price Behavior

that price is going to reverse and head back down to the buyers.
If price has reached the support area this can indicate to traders
that price is going to reverse and head back up to the sellers.
In ranging markets traders play tennis with price and they can
play on both sides of the court! Being a seller and pushing price
back down to the buyers and then becoming a buyer and hitting
price back to the sellers! It is important to note that this is not
always going to be the case. Eventually every range comes to an
end and either the support area or resistance area is not going
to hold, meaning price will break through it. This is referred to
as a breakout and can look something like this:

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A Simple Guide to Trading Forex: Price Behavior

Thank you for reading A Simple Guide to Trading Forex, Book

1: Price Behavior.
Other books in the series:
Book 2: Reading Japanese Candlesticks
To learn more please visit Samuel Mortons official website:
www.love-the-pips.com

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