Price Action Trading is a method based on price fluctuations and does not depend on any signals. If you are interested in discovering the meaning of what is Price Action and how to implement an effective strategy, don’t miss the content in this article of Learn Forex Trading!
General information about what is Price Action.
Price action is a method of trading stocks based on observing price charts. Along with the use of special tools and strategies. This is an effective method of stock trading that every investor should learn.
Trading What is Price Action?
In the field of stock investment, there are many different methods to trade stocks. One of the popular methods used by many investors and traders is the Price Action method. This is essentially price-action-based trading.
With this method, traders can choose to buy or sell based on information from the price chart. Along with using moving averages to identify trending support and resistance zones.
The parameters above the price chart represent the beliefs and trading actions of all market participants during a specific period of time. News and events also act as stimuli for price movements.
Because the market changes rapidly, this method often makes little use of lagging indicators. Examples are Stochastic Oscillator, RSI (Strength Index), MACD (Moving Average Convergence). Sometimes, using these indicators can be an unnecessary waste of time.
Often, investors will focus on researching support and resistance lines. Look for candlestick patterns and price patterns to determine reasonable entry points. Trading on price action, price chart analysis is considered highly accurate.
However, it requires experience and a deep understanding of what is Price Action as well as how to analyze this type on the part of the trader.
See more: Way to turn yourself master what is trade forex?
Characteristics of the Price Action method on forex
According to the theory of the Price Action method, price action can be considered as a money trail. Because every exchange transaction leaves a trace on the chart. Prices reflect influences from both buyers and sellers. Besides, it also reflects the price movement trend that often repeats. Therefore, price path analysis can be used to predict the next trend.
Seeing this, traders will perform an analysis of the behavior of buyers and sellers. Determine which faction is dominant and controls the market. From there, they can predict the next direction of price movement.
- If buyers control the market (i.e. demand is greater than supply). At this time, the price is likely to increase => Traders can consider opening a BUY order.
- Vice versa, if the sellers dominate (i.e. supply is greater than demand). At this time, the price may decrease => Traders can consider opening a SELL order.
According to the Price Action School, traders will focus on the shape and pattern of candles. As well as the special price zones where the candle appears. This is to analyze price behavior and predict whether the next direction will be up or down.
Tools used when trading what is Price Action?
The main tools frequently applied on what is Price Action? These are Resistance and support lines, price patterns, and candlestick pattern tools. These tools play an important role in analyzing price behavior and helping to determine who is in control of the market.
Price Action trading is based on 1 candle information
Based on a candle, traders can obtain information about the opening price, closing price, highest price and lowest price of the trading session. As well as being able to track the behavior of both the buying and selling sides throughout that session.
- Candle body color: Indicates whether the price has increased or decreased compared to the opening level.
- Candle body length: Shows the strength of the dominant buyers or sellers.
- The longer upper wick of the candle >>> represents strong selling pressure. While the long lower wick >>> indicates strong buying pressure.
- The length of the entire candle reflects the level of price fluctuations during the trading session. Can be strong or mild.
Support and resistance levels when trading Price Action
Price Action often relies on using support and resistance lines to make decisions. These are extremely important price zones. This is where it is expected that the trend may reverse or slow down before continuing to move. So what do support and resistance levels affect when what is forex trade? Let’s follow that influence in the content below:
- If the price is rising and hits the Resistance zone, there will usually be a slowdown. Or it can reverse down (if the selling force is strong enough) >>> you can consider opening a SELL order.
- On the contrary, if the price is falling and touching the Support zone, there will usually be a slowdown or a reversal up (if the buying force is strong enough) >>> you can consider entering a BUY order.
Candlestick pattern
Predicting price trends is often done by observing common candlestick patterns. Here are some candlestick patterns you can use:
- Trend continuation candles: Rising Three Methods, Falling Three Methods, Bullish Gap Tasuki or Upside Gap Tasuki candlestick patterns, Bullish Harami candlestick patterns…
- Bullish reversal candles: Hammers candles, inverted hammer candles, dragonfly Dojis candles, morning star candles…
- Bearish reversal candles: Tombstone Dojis candles, evening star candles, Hanging mans candles, three black crows candles…
Price model
When many candles combine to form special patterns such as 2 tops, 3 tops, cup with handle model, 2 bottoms, 3 bottoms, head and shoulders, rectangle, wedge model, bunting, triangles…
Each model will provide different forecast messages about price trends. Therefore it is important to memorize each pattern and recognize it as soon as it appears on the chart.
Some strategies of Price Action trading
What is the Price Action strategy that can support your investing process in the future? Let’s follow some trading strategies with Price Action:
- Trading the pullback: This is a popular strategy. Where investors take advantage of price adjustments contrary to the main trend. In addition, you can retest the resistance or support zone. For example, when the price is falling and the market continues to appear as a support area. If the price breaks the support level and reverses, this is a good time to execute a sell order.
- Trading with a reversal strategy: This method is popular but also carries risks. Traders need to identify strong support or resistance areas where the market finds it difficult to break through. When the market is concentrated at a support or resistance level and is difficult to overcome. This is a favorable time for investors to enter orders at attractive prices.
- Trading the breakout strategy: There are two main ways in this strategy. Including opening orders when the price breaks out of the support or resistance line. Or maybe when the price breaks out of an important price range.
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In-depth Price Action general review
Price Action is one of the trading strategies that can help users profit effectively. However, trading with Price Action still has some disadvantages. Let’s evaluate some advantages and disadvantages of Price Action through the following information:
What are price action strengths?
- Simple and easy to use: Price Action is a simple trading and analysis method. Investors do not need to use complicated technical indicators. They just need to observe and make decisions based on the fluctuations of candles on the chart.
- No latency: This method uses the price chart, which is a continuously updated tool. To help investors quickly grasp trends and make reasonable decisions.
- Stimulates thinking: Using Price Action requires investors to proactively self-evaluate and make investment decisions. Instead of depending on indicators and trading mechanically. This helps develop the ability to observe, analyze, and evaluate the market.
Weaknesses when trading Price Action
- Subjective: Price Action can work to the advantage of experienced investors. But at the same time challenging for beginners. Because every decision depends on the personal perspective of each investor.
- Accuracy is not absolute: In a volatile market, relying solely on price fluctuations to make decisions can lead to mistakes. Price manipulation can confuse investors and cause losses.
- More time-consuming: This method requires investing more time to monitor and capture market fluctuations. This can be disadvantageous for many investors.
Besides grasping and understanding what is price action. Investors should consult and learn more about the what is margin trading strategy. This can help you optimize your profits and trade more effectively.
Conclude
Above are shares from Learn Forex Trading about information about what is price action. We hope that this information can assist you in building your own style of analyzing and trading stocks. From there, make effective trading decisions and optimize profits.
Frequently asked questions
Common strategies in what is price action?
Strategies include pullback trading, reversal strategies, and breakout strategies.
How to learn to trade Price Action?
Learning Price Action requires mastering candlestick patterns, support, and resistance lines, as well as constant practice in real markets.
Is Price Action suitable for everyone?
Although Price Action has great benefits, it is more suitable for investors with experience and the ability to read the market.
