A lot of traders, especially those who are just starting out and are still mastering all the basics behind the trade have yet to know all the benefits and the advantages of each strategy. Not a lot of traders are keen to the idea of using indicators even with enough knowledge and background and one-way traders can create and understand technical analysis is through the knowledge of price action. The concept can also provide traders manage the risks whether good or bad and even after the trading opened; price action can help them to manage their positions effectively.
The idea of price action trading is analyzing the movement of the price changes in the past to help the trader read the market better and to base their choices on not just the present but also with the recent price movement. Aside from the recent and current price movement, price action trading also uses other tools such as technical analysis materials including charts, price bands, trend lines, and technical levels among other tools to be used in the trader’s strategy and decision.
The approach is used on different securities such as forex, commodities, bonds, and equities and is used by a lot of people in the trading community An analysis of the price action will give the trader an idea if the buyers or the sellers are in control of the stock. Price Action also does not intend to predict or create a forecast on the stock movement. It instead builds a reaction every time there are sudden market movements.
Advantages of Price Action Trading
1. It doesn’t cost anything to learn. The availability of demo accounts from different brokers will not cost you anything so there’s no need for software purchases to get started.
2. The flexibility of the technique. Trading through price action analysis can be used in time frames from 1-hour, 4-hour, daily, weekly and monthly charts. Keep in mind that using longer time-frame charts will be able to give you clearer and more accurate signals.
3. Covers a wide range of markets. The technique can be used in different market trading like forex, bonds, equities, commodities and futures under any circumstances.
Basic Guidelines in Price Action Trading
-Identify the support and resistance level. This might seem a little bit off to traders since a lack of the knowledge of the two concepts is one of the most basic ideas in a technical analysis but it is oftentimes neglected. It is important to know the support and resistance area on the stock chart, are not specific prices.
-Pay attention to short-ranged candles. These long intervals in a rally or drop in stocks show important events and changes in the chart and usually
-Look for a sudden drop in price levels. Candles which show long shadows or a hammer-like candlestick pattern will lead to a bullish price at one point in one trading session following a rejected price level.
Positive Risks through Price Action Trading
The ability to identify positive risks to rewards through a Price Action Trading will increase the likelihood of traders focusing only on stock opportunities that will give them more chances of profit than getting lured into a negative risk and suffering a loss especially if they have been practicing and have mastered the technique right.
Traders should always take note of the highs, lows, and the sudden turns in the chart which will lead to an analysis that can give a lot of information regarding the strength of the trend, the market direction, and even anticipate possible end in a trend or reversals beforehand. It is also important to know the support and resistance area to focus on the areas that will not lead to points where traders lose money most of the time. Also, avoid the mistake of taking every chance of promising signals and take trades only at the most important price levels.
Building a good knowledge using price action can save some time since there is no need to analyze a number of indicators for a prolonged period of time. The technique can be adapted by part-time traders. But each trader should take note that with every success rate is an equal level of failed attempts using price action trading where the probability of the success lies in each trader’s understanding of its concepts and the approach.