Price-Action based Trading

Behavior of candles

Here we identify candles behave in different way and we take entry accordingly

In the above chart we can see that market is bullish Still short position could be made.

In first attempt buyers tried to pull the market however could not do so, 2nd attempt was also a failure.

and then we can easily see a breakdown there and huge movement. In price action based trading huge patience is required since it take time to make a successful pattern. It does not mean It will not be there , It is almost everyday.

Price action trading is a popular trading strategy that relies primarily on analyzing and making trading decisions based on the actual price movements of a financial instrument, such as stocks, forex pairs, commodities, or cryptocurrencies. It involves studying historical price data through charts and identifying recurring patterns, support and resistance levels, and other key technical indicators without the use of traditional technical indicators or oscillators.

Also Read: Dow jones futures near its previous swing high

Key principles and characteristics of price action based trading:

1. Focus on Price: Price action traders focus on the raw price data displayed on a chart. They do not use lagging indicators like moving averages or stochastic oscillators. Instead, they analyze candlestick patterns, chart patterns, and trendlines to identify potential trading opportunities.
2. Candlestick Analysis: Price action traders often use candlestick charts as they provide valuable information about the price movement within a specific time frame. Candlestick patterns, such as Doji, hammer, engulfing, and pin bars, are used to detect potential reversals or continuations in the market.
3. Support and Resistance: Identifying key support and resistance levels is essential in price action trading. These levels represent historical price levels where the market has reacted in the past. Traders use them to anticipate potential price reversals or breakouts.
4. Trend Analysis: Price action traders look for trends and trend changes in the market. They may use trendlines and trend channels to determine the direction of the market and potential entry or exit points.
5. Chart Patterns: Price action traders analyze chart patterns like head and shoulders, double tops and bottoms, triangles, and rectangles. These patterns can provide insights into potential price movements.
6. Naked Trading: Price action traders often refer to their approach as “naked trading” because they do not use any indicators on their charts other than the raw price data.
7. Objective Analysis: Price action trading aims to keep analysis objective and free from emotional biases. Traders focus solely on what the market is showing through price movements and patterns.
8. Timeframe Flexibility: Price action trading can be applied to various timeframes, from short-term intraday trading to longer-term swing or position trading.

Price action based trading requires a deep understanding of market dynamics and extensive chart analysis. Traders using this approach often rely on their experience and observation to recognize recurring patterns and signals.

As with any trading strategy, risk management is essential in price action trading. Setting appropriate stop-loss levels, managing position sizes, and adhering to a trading plan are critical to protecting capital and ensuring long-term success.