Price action refers to the movements in the price of the security plotted over time. It forms the basis of every technical analysis of stocks, commodities, or asset charts. Several short-term traders tend to rely on the price action and the trends and formations generalized from it to make appropriate trading decisions.
In short, price action indicates the relative ups and downs in the security’s price plotted over a time span. Technical analysis is an excellent practice as a derivative of price action. It makes use of past prices for calculating and making informed decisions. Want to know this concept better? Try enrolling in a price action course today.
What does price action indicate?
It is seen and interpreted using charts – plotting the price movements over time. Different traders make use of different price action chart patterns for improving their ability to spot and interpret market trends, reversals, and breakouts.
Standard tools used for the understanding price action of the market
Some of the tools to better make use of price action trading are mentioned below. Any reasonable price action course would make use of these tools and techniques for trading.
Traders also make use of price action candlestick patterns to better visualize the price movements displaying, high, low, open, and close values in up and down sessions.
Candlestick patterns like Harami cross, three white soldiers, and engulfing patterns are commonly used for visual interpretation of price action. Other candlestick formations are used to generate off-price action, set up to meet the expectations of what may come next.
Besides, trading using triangle patterns is also very common. Many technical analysts make use of the available price action data for calculating technical indicators. Triangle pattern formations created by applying deadlines to a given price action chart are used for predicting any potential breakout on different occasions. This, in turn, helps to gain momentum over time.
Benefits of price action trading
- Relatively more minor research time is necessary.
- It offers more favorable entries and exits in comparison to indicator trading.
- This type of trading is easily testable on simulators.
- It allows traders to make use of their own strategies and experiences for reaching a decision.
Reasons why price action traders fail to succeed
- Low availability of appropriate trades
- Waiting for appropriate stock levels to meet
- Poor or miscalculated placement of stops
- The available size of the reversal sticks
So how to fix this problem? Written below are some of the steps which can be followed to avoid failing as a price action trader in the booming stock market.
Steps to undertake for price action trading
Experienced traders follow different price action movements to keep up with the multiple options and to recognize the available trading patterns, their entry-level, exit level, stop losses, and other relevant observations.
Keeping one strategy on multiple stocks is never sufficient for making use of most of the trading opportunities. Instead, it is a general two-step process:
- Identification of the scenario – Understand a stock price that is getting into a bear/bull phase, channel range, breakout, among others.
- Identification of the trading opportunities – Once the stock is in the bull run phase, it may either overshoot or retreat. It is completely a subjective choice and may differ from one trader to another under any identical scenario.
How to use price action?
Usually, price action isn’t considered as an indicator. Instead, it is considered as a data source on which trading tools are built. Generally, swing traders and trend traders work with price action avoiding any fundamental analysis. The focus is solely on the support and resistance levels of predicting breakouts and consolidation.
Traders must pay attention to all the additional factors that are beyond the current price level. The volume of trading and the available time span is used to establish levels, all having an impact on the likelihood of the accuracy of interpretations.
The popularity of price action trading today
Price action trading is suitable for traders who opt for short to medium-term limited-profit trades rather than long-term investments. Traders follow a common notion that the market keeps following random patterns and therefore, there aren’t any clear and systematic way to define a strategy that will definitely work for him.
Combining the technical analysis tools with the current price history helps to identify the available trading opportunities based on the trader’s price interpretation. In addition, such a self-designed strategy offers flexibility to traders, multiple asset class application, ease of using trading software, trading portals, applications, and the possibility of back-testing any identified plan.
In other words, traders feel a sense of charge of themselves, their strategies allowing them to dictate their actions instead of a blind set of rules ruling their decisions. Taking a technical analysis course can offer better insight into price action trading as well.
Want to know the best course for price action?
Learn to buy good stocks in the stock market with this best price action trading course. It is the Master Course in Price Action jointly offered by NSE Academy and Elearnmarkets. This course is aimed at predicting the upcoming movements in the stock market. It is done in advance with the help of candlestick chart patterns. This course is available in Hindi. Hence, this is going to definitely fascinate our Indian stock market traders.
In this program, the enrolled individuals will understand how to make use of chart patterns and price action patterns used in the stock market. After completing the course, the individuals will easily carry out swing trading, intraday trading, and positional trading.
The objective of this course is to understand the price action in the stock market. On its basis, the trader can understand which stocks are to be sold and which are to be bought. Besides, get to understand the target price of every share and what are the possible ways to stop loss.
A trader may come across several strategies, techniques, and tools to master price action trading. However, they must be aware of surviving the mass as only success is printed in the news. Trading, when initiated appropriately, has high chance of returning handsome profits. To become more knowledgeable about price action and its strategies, join Elearnmarkets today.