Introduction
The price movement that occurs in any security over a specific time period is referred to as price action.
One of the most important Price Action Analysis practitioners was Jesse Livermore. In the 20th century, he was the one who created price action trading.
Since the price action approach is based on the fundamental tenet that price never lies, all technical indicators are eliminated and only fundamental price movement data is used to provide trade entry and exit signals. One subset of technical analysis called price action uses only the history and present prices to forecast how much a security will cost in the future.
Price action trading
"Clean Chart Trading" is another name for price action trading. When you base your trading decisions (buying and selling) on the price movement of any security, you are engaging in price action trading.
Price action trading is embodied in a well-known Gujarati proverb that says, "Price is Supreme," or "Bhav Bhagwan Che," which is relevant to the stock market.
Instead of concentrating on "why it is happening," price action traders concentrate on "what has happened" and "what is happening" in the market.
Price action traders place little value on "technical indicators" such as the ADX, RSI, and MACD.
Price action traders primarily employ candlestick or bar charts since they are solely interested in historical and present price data points, such as the open, high, low, and close prices.
Top Price Action Trading Techniques
Using price action signals, these are the best seven price action trading systems.
● Price action trend trading:
Trend analysis is the main focus of price action trend trading. Traders spot and track price movement trends using a variety of trading strategies. One strategy that is frequently used is the head and shoulders trade reversal.
Because it allows novice traders to take advantage of their peers' trading knowledge by following obvious price action trends, this approach is frequently employed by them as a trading tool. When the trend is moving upward, the trader will probably profit from a "buy" position; when it is starting to go downward, the trader will probably gain from a "sell" position.
● Pin Bar
Its unique shape has led to it being referred to as the candlestick strategy. The pin bar pattern has the appearance of a long-wicked candle. The range of rejected prices is represented by the wick or tail, whereas the candle signifies a quick reversal and rejection of a certain price.
The traders use this information to determine whether to enter the market long or short based on the assumption that the price will continue moving against the wick. A longer lower wick or tail on the candle represents a trend that has rejected lower pricing, indicating a rise in price that is anticipated.
● The inside Bar
This is a two-bar technique, where the mother bar's (or outer bar's) low and high ranges are occupied by the inner bar, which is smaller than the outer bar. As a red herring, the smaller bar can also signal a shift in the market and is frequently generated during periods of market consolidation.
● Trend following retracement entry
This is a fairly straightforward price action method in which the trader must adhere to the current trend. If there is a price decline, the trader can consider opening a short position. On the other hand, the highs and lows trend higher if prices rise gradually. Here, a purchase position may be considered by the trader.
● Trend following breakout entry
This trend tracks all significant market movements with the idea that a pullback will probably occur after a price rise. A situation is considered to be a breakout if it involves the market moving outside of a clearly defined support or resistance line. When the stock price is trending upward and breaks above the resistance line, traders use this event as a signal to enter a long position, or when a short position drops below the support line.
● Head and Shoulders reversal trade
● The sequence of highs and lows
Advantages of Price Action Trading
1. It facilitates Real-Time trading:
Price action gives you an advantage in real-time trading because it excludes technical indicators, the majority of which lag because they are based on historical price and volume data.
2. Simple to Interpret :
As previously mentioned, it is simple to interpret price action because all that is being examined are price data points.
3. It is quite easy to trade:
Price action trading will become very easy for you if you can figure out where to plot support and resistance. I've seen a lot of people use a lot of indicators to figure out where to put buy and sell orders, which can be difficult, especially for beginners, because you messed up your trading setup. For this reason, I always think it's important to keep your trading setup as straightforward as possible.
4. It is a time-tested and back-tested tactic:
Trends, support, and resistance are some of the fundamental concepts of price action trading that have been proven over many years, and I have been using these straightforward setups for many of those years. As far as I can tell, it functions rather well.
5. It offers precise levels of entry and exit for trades:
The fundamental idea of price action trading, support and resistance, allows you to recognize appropriate supply and demand zones as well as entry and exit points for your trades.
Disadvantages of Price Action Trading
1. Differing from the general consensus:
Price action frequently sends out distinct signals at different times, which could be confusing to novices. When a specific stock is examined on several time frames, for instance, I might observe a bullish Marubozu and you might see a bullish engulfing, or you might find support from a trend line while I would find support from a horizontal line. Thus, caution is necessary.
2. It provides false signals:
Price action trading does not always provide accurate indications, which is something that neither setup nor method can guarantee. You must learn to stick with incorrect signals because it is unlikely that you would profit from every trade you make.
3. Offers extremely few trading possibilities:
When it comes to price action trading, you will have far fewer opportunities than when you trade using indicators. It is imperative that you ensure that you will wait for the appropriate moment before taking action. As a result, it's common knowledge that price action trading necessitates patience and waiting.
4. Sometimes signals are hard to predict:
Price action trading, which uses bullish and bearish candles or chart patterns instead of indicators, might be challenging for someone who is entirely new to trading or technical analysis.
Conclusion
Whenever you trade in the stock market or any other financial market, keep in mind the words of renowned American trader and author Howard Marks:
“There’s no magic formula for being on top.”
It is ultimately up to you to determine which trading style—price action or indicator-based trading—is more effective for you after determining which method and approach are working best for you.
I'll wrap up by giving all novices some crucial advice:
"Never think of becoming a billionaire or making tons of money overnight because that is never going to happen."
Excellent article
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