Are you aware that price action trading strategies are one of the most widely used tools in the stock market today? Whether you’re a short-term or long-term trader, analyzing a security’s price can be one of the easiest, but also the most effective, ways to gain a market edge.
Price action is the key to a successful technical analysis it is based on something essential in trading: The price. Many traders forget the price is the best technical indicators for day and positional trading strategy.
Trading for market activity involves basing the trading decisions on an asset’s price fluctuations. You will not use metrics or other analysis tools, but if you do, in the trading decision process, you will give them very little importance. A market action trader argues that the market itself provides the sole valid source of information. That shows the price action trader whether customers are purchasing if a stock goes up. The trader then decides whether it will possibly proceed, depending on the aggressiveness of the purchase.
Price action traders usually don’t care about whether anything happens.
The price action trader searches for a favorable entry point for their trading using historical charts and real-time price details such as bids, offers, amount, velocity, and magnitude. One that allows danger to be regulated, but still provides a future benefit, is a desirable entry point.
PASR is a total method. It revolves around PRICE ACTION at SUPPORT and RESISTANCE.
It is not just PRICE bouncing off SUPPORT and going to RESISTANCE or vice versa.
It is about WATCHING what PRICE does at these important PRICE levels.
Understand why these levels exist and why they are there.
They are levels were, at some point in history, BUYERS and SELLERS took control.
They are levels where the BUYERS and SELLERS, in their own right, support or cannot support PRICE.
These PRICE levels are created by supply and demand during certain economic conditions. Supply and demand changes with each economic and political situation. What was once a PRICE level in a certain economic scenario may not be important or supported in a different economic situation.
Supply and demand will drive PRICE to those levels which are supported by the current economic and political conditions. Usually, these are levels identified in history but occasionally, each condition creates its own PRICE level.
PASR at its simplest is PRICE bouncing from SUPPORT to RESISTANCE and vice versa.
Unfortunately, that’s not a rule, just a condition.
PASR is also watching what PRICE does, and how it does it, at these levels.
PRICE always respects PRICE levels previously defined as SUPPORT and RESISTANCE. Read that again with correct understanding.
Price ALWAYS respects price levels previously defined as support and resistance.
Just because PRICE slices through support and resistance doesn’t mean PRICE doesn’t respect that level. It DOES respect that PRICE – it just means that, at that point in time, it is not as important.
The supply and demand conditions have changed such that the BUYERS and SELLERS are moving to different levels.
So, PRICE breaking through SUPPORT and RESISTANCE tells us as much as PRICE bouncing off SUPPORT and RESISTANCE.
However. it is not as simple as price breaking through a level and going to the next PRICE level. There
are many factors to consider.
How did PRICE break through the level? The most important and significant question is, Where did
PRICE close? Did it close above or below the level? Was it just a spike through the level?
What was the market sentiment when PRICE broke through the level? Was the bar just an average
range bar or was it a bigger range bar? What were the bars before it – average or bigger?
Where is the next PRICE level?
PRICE breaking levels is not as easy to trade as basic PASR where we trade PRICE from SUPPORT
to 1st RESISTANCE and RESISTANCE to 1st SUPPORT.
You MUST learn basic PASR before moving on to other aspects of PASR. This will be and IS our basis for everything we do. This is instilling into our brain, mind, and sub-conscious the equivalent of learning to ride a bike. Having learned to ride a bike we can move on to different types of bikes and maybe competitive bike racing.
So it is with trading. Learn basic PASR until you can do it upside down, inside out while hanging upside down from the Eiffel Tower with one hand while playing the whistle with the other hand.
The point is, basic PASR MUST be drilled home until it is embedded in your subconscious just like any other motor skill.
After learning basic PASR, understanding the next levels becomes easier. Try and do more and you will confuse yourselves probably resulting in losing trades.
Price action is essentially how the market responds to certain opposition or help levels. This approach to technical analysis will help you learn from the price background to recognize the swing high/swing low, trend lines, and past areas of support or resistance.
Today, this may be the price checking of a field of support or resistance. This may also happen that the market movement creates a high swing or low swing.
To distract you from the price, price action needs no lagging indicators or moving averages. The chart has a smooth look to it. Having a clean chart, with no markers, is refreshing. Indeed, some traders do a live trade without ever looking at an indicator.
These price action trading strategies work in all markets because they use the footprints of other traders to determine where the market has been, and where it is likely to go in the future.
Price action is actually the movement of the price of a security. For example – currencies, stocks, bonds, commodities, futures – etcetera. We can see a securities price action or its price movement using the numbers and figures.
But when we see the price movement of certain security using graphical illustration like line charts, Standard bar charts, or The Japanese candlestick charts, then we call this whole setup as price action chart.
In the forex and stock market, candlestick based price action charts are very famous since its graphical representation of the price movement of a security is very easy and simple to understand.
In candlestick based price action chart, every single bar is called as a candlestick, since its basic figure looks like a candle.
How price bars form on a certain type of chart is considered by other price action strategies. For example, traders use candlestick tactics, such as the swallowing candle pattern technique, by using candlestick charts. In accordance with all of the above, traders use regions of price support and price resistance that could offer strong trading opportunities. Areas of help and opposition exist when the price has appeared in the past to reverse. In the future, those levels will again become important.
A candlestick of security represents its price movement in a certain period of time. As you can see on the above EURUSD chart, this is a daily chart, so here every single candlestick represents the movement of the price of EURUSD on a specific day.
Now, – the traders, who trade the market by analyzing the candles of a price action chart to forecast the future price, we call them as price action trader, and the analysis process of trading the price action is called the technical analysis.
Many various types of shapes, including ranges, triangles, head and shoulders, and flag shapes, generate breakouts. A breakout does not mean that the market will proceed in the direction expected, and sometimes it does not. This is considered a false breakout because, in the opposite direction of the breakout, it also provides a selling opportunity. Breakouts may be either massive or tiny. Breakouts within a pattern will have outstanding profit opportunities when hunting for minor consolidations, or fleeting moments where the market swings sideways.
Many trading strategies have been developed based on technical analysis.
So in this, you will learn a very popular and reliable price action based strategy which has been adopted by most of the professional and successful price action traders, and the strategy is called the swing trading strategy. In swing trading, we focus on the trends, either it’s an uptrend, or downtrend in a price action chart.
So, basically, we will be concentrating on how to identify the trends on a price action chart of security, and then the methods of trading the trends to get maximum profit from the market.
Trading with price action can be as simple or as complicated as you make it. While we have covered 6 common patterns in the market, take a look at your previous trades to see if you can identify tradeable patterns. The key thing for you is getting to a point where you can pinpoint one or two strategies.
What is a Price Action Indicator?
The price action main indicator is Price only.
1. Price goes up because there’s more buying pressure than selling pressure.
2. Price goes down because there’s more selling pressure than buying pressure.
But some key methods to add and find the best entry and exit the price.
You can call this price action trading, order flow of the market, supply & demand, Trendlines, patterns, candlesticks, and zone levels.
Pricing is not flawless. Much when you’ll have to risk trades for some forms of trading tactics, you’ll even have to use market action to risk trades. While market behavior in principle sounds fantastic, you can really appreciate what the market has been doing before you get into a trade. If the price moves higher and you buy, the price will continue to decline shortly afterward. In these situations, you will never stop. The only thing that matters is that you are winning more than you are losing. It needs time and experience to learn to do so.