Price action, which can be translated as “price action,” is a trading method based on the analysis of price movements. It is, therefore, a method of technical analysis (as opposed to fundamental analysis), and it adapts to any market and all trading profiles (swing, daily, scalping).
In practice, price action consists of identifying the support and resistance levels respected by the price. The price action trader will use these levels to identify:
- Areas on which the price can rebound;
- Key levels that the price can break out.
It is the behavior of the price as it approaches these levels that will or will not give the trader a signal to enter a position.
A minimalist approach characterizes the price action. In its purest form, only the price appears on the charts. It is possible to add one or more technical indicators to provide additional information. Nevertheless, those given by the price will always be preponderant. To know more about Price action trading it is recommended to do Simplified Price Action Trading course.
Price action enthusiasts will tell you… What matters is price, price, and price!
Understanding Price Action
Price Action Trading is a technique in which all trading options are usually based on the price action of the price chart. There is no need for indicators to help determine consensus in support and resistance areas and trends for trading in this way. The reason being the resistance and support areas already exists on the chart. This discipline in making business decisions is based on the fact that financial markets generate data on market power changes over time.
This complete data will be displayed on the price chart. Ultimately, the price chart is used to show the behavior and beliefs of trading participants and is eventually represented in the market price chart in the form of price actions. Each price chart is different to convey the difficulties buyers and sellers have experienced in the past, and day traders make decisions based on these results.
The advantages of price action
The first advantage of price action is its reactivity. You enter a position at the start of the movement, unlike technical indicators. Indeed, these are always late because they are a derivative representation of past price movements. This means a certain amount of time between when the price begins to move and when the indicator gives a signal. Thanks to price action, you, therefore, have greater earning potential.
The second advantage of price action is that it dramatically reduces contradictory signals. With a strategy based on technical indicators, one indicator gives a buy signal while another shows a sell signal. The price action protects you from this risk because, by definition, you only look at the price.
Finally, the price action delivers a clear message. The multiplication of technical indicators on the charts makes the market analysis longer and confusing due to the flood of information given by all these indicators.
Price action is a trading method that focuses on the essential: the price. It is suitable for all profiles, from swing trading to scalping, and works equally well on indices, forex, or commodities. It makes it possible to take a position as early as possible in a movement where technical indicators lag.
Despite its simplistic appearance, price action requires an undeniable learning curve to master its subtleties. But if you manage to pass this milestone, price action could become your best asset to build your profitable strategy.
If you want to know more about Price Action trading, it is recommended to do a Simplified Price Action Trading course.