Things you need to know about price action trading method
We’ll look at the concept of price action trading in this post. We will cover various trading methods as well as how to read charts. This will also help you read futures, commodities, and index movements, as well as helping you to develop your trading methods. This method largely depends on the technical analyses. However, the eventual decision is for each individual trader to make.
The condition of an asset’s rate movements against a certain duration is expressed by price action. This fluctuation is frequently analyzed in light of the recent price course.
Price action, in its simplest term, is a strategy that lets a trader read the market and reach subjective trading decisions. They make these decisions based on recent and actual market movements rather than depending solely on technical indicators.
This trading technique is reliant on technical analysis tools since it ignores fundamental analysis components and focuses more on recent and historical movements of the asset’s rate.
There are many methods to trade price actions. Below are some major ones:
Different Price Action Trading Strategies
A trader must first observe the market movement. Then he can identify whether it’s an uptrend or bullish trend. Here are some of ways you can find them.
Bullish Head & Shoulders
This depicts an early sell-off followed by a phase in which buyers and sellers exchange control. Active shorts eventually close their positions, and panic sellers flee. Buyers gradually reclaim control of the situation, eventually breaking past the neckline resistance.
The first contract price rebound can be attributed to “bottom-fishing.” That refers to sellers who didn’t act quickly enough on the initial drop profit. It’s also an appreciable idea to know trading volumes while looking at this type of chart pattern.
Huge volumes are frequently seen toward the bottom of a downward trend. This declares the advent of an upturn. In Forex, you should pay special attention to these ups and downs in the market as it will determine your profit factors. Look for reliable head and shoulder patterns so that you can predict the market direction before the executions of any trade.
The twin bottom pattern is simple to understand. It has as much to do with technical analysis as it does with human nature. Those who are closing short positions and seeking a short-term bounce will be enticed by the significant initial drop in currency rates.
Those sellers who missed the past downturn get desperate not to miss out again after the initial bounce. To produce a double bottom, they lower the price. With a slow rebound back towards the resistance level, there is a hint of support around the level of the two low points.
Typically, the first sell-off goes overboard, and purchasers return shortly thereafter.
Traders refer to this chart pattern as a bullish wedge since the rate of an asset eventually breaks out into new territory and climbs higher. It is, however, a strong sign of a bearish period in its early stages.
As you can see, the gap between the short-term highs and lows begins to narrow once the rate turns following the initial climb. The support line is at the bottom, while the resistance line is at the top.
They will eventually meet due to their angles, with one of them assuming control. The downward limited trading range will frequently continue until the support and resistance trend lines are practically touching.
A crossing in the support line will indicate a sell-off, while a resistance level breakthrough will be a new uptrend. To get the confirmation you may also rely on the technical indicators. But make sure you know the proper use of such indicators.
There are many other strategies a Forex trader can use to trade price action. Some mentionable names are Bullish Rectangle, Bullish Island Reversal, Rounding Bottom, and so on. They all have their way of highlighting an incoming upward trend or a downtrend. Beginners should learn as many of them as possible by investing enough time and remaining patient.