Naked trading is generally popular and often referred to as price action. This trade is where traders analyze and predict the future of the market based on current price movements without the help of forex indicators. Your trading chart will be empty without the help of any indicators and you have to learn what the market is doing to the market movement based on the empty chart you see. Some traders consider this trade difficult and boring because they believe that market movements are very irregular (random). Therefore, they cannot predict where they will go next, whether to buy or sell. It is called naked trading because this option does not have sufficient protection against price risk or loss. If the price of an asset does not move in the direction anticipated by the trader, then the trader must buy or sell the security according to the contract, conversely, if settled using cash, then the underlying value is paid to another party, this can open up unlimited loss opportunities.

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Why Should You Learn Naked Trading?

With the emergence of many indicators in trading, traders are immediately attracted when they get a trading account. They immediately think that indicators are a savior to help them make a quick profit. Worse, they do this in just a matter of minutes! They will choose some free indicators that are promised to help analyze the market and all they have to do is sell or buy when the indicator gives a new signal in the market. On the other hand, naked trading works by observing the market in real time. The charts or graphs are also few and have no indicators, meaning your chart is not left behind by a heavy indicator system. Therefore, naked trading can help convey market events at that time. Naked trading also helps you to know the reasons why the market is consolidating in a certain zone. This provides a lot of profit to predict news and movements that affect the market.

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How to trade with price action

Forex naked trading is clearly not used for novice traders. This method requires in-depth knowledge of the market and how it works because it does not use indicators. Traders who use this method will see candle patterns and charts every day. With naked forex, you use more technical analysis in every movement. Apart from that, naked traders look at the forex economic calendar to anticipate major events more accurately and better. Looking at the forex calendar can also help them see what impacts will be caused by major events in the market. Naked traders understand the market as a whole compared to novice traders or other traders. The way to trade using price action is to look at the cycles that appear on large charts and small charts. The key is to observe the cycle that effective naked traders will know how to follow the cycle rather than fight the cycle.

Types of price action options

  • Call Option
This option on price action allows the contract holder to gain some profit from the upward movement. The buyer of this option has the right to buy the underlying asset, while the writer of this option (seller) has the obligation to sell their underlying asset at the agreed price when the call option buyer exercises this option.
  • Put option
When compared to a call option, a put option allows the buyer to profit from a downward movement in the underlying. The buyer of a put option has the right to sell their underlying asset at a predetermined price. The writer (seller) has the obligation to buy the underlying asset at a predetermined strike price.

The advantages of using naked trading

  • Cost-effective for buyers: The capital requirement for taking a long naked position is lower compared to an option strategy. However, for option sellers, the capital required to sell naked options is higher compared to a strategy that can help lower the margin requirement.
  • Facilitates liquidity: Due to low capital requirements, more traders can participate and even take multiple positions in the market. This facilitates higher liquidity in options.

Risks of using price action

  • Directional risk: If the market moves in the opposite direction to the investor's prospects, he will suffer a loss.
  • High risk: Although the option buyer’s loss is limited to the premium paid, that amount is 100% of the capital used to take the position. Thus the buyer risks losing his entire capital. For the option seller, the potential profit is limited and the potential loss is high. In a naked option, the seller has no pre-existing position in the market to cover any losses incurred. This can result in much higher losses.

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Above is daily information about naked trading. Keep updating the latest information through the GIC journal which will be announced every day. You can also trade on the GICTrade application with its latest feature, an ECN account, enjoy the advantages of the latest features with the lowest spread starting from 0!

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