Price action trading PAT is a form of technical analysis which invokes awe and confusion at the same time. If you have been around trading forums a lot, you might have come across a few traders boasting of how they trade purely with price action. So what is price action and why is this form of analysis always looked up to? Read this article further to understand what price action is and how you too can trade with price action.
Price action trading is a form of technical analysis devoid of any technical indicators. Price action analysis is built upon the tenet that price reflects everything and therefore price is considered to be the, and only indicator that traders need. It is a study of price in relation to the past price or price history. Therefore, price action is nothing but a study of how price changes. It is common knowledge that any technical indicator, be it moving averages, or oscillators such as Stochastics or RSI, all these indicators tend to use price as the base.
For example, a simple moving average is constructed as an average of price over a specified period of time.
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Therefore, proponents of price action believe that it is better to use price as an indicator itself and trading with price directly rather than having to use any indicators. The chart above is typically reflective of how price action traders trade. As you will notice, there are no indicators on the chart, but rather some trend lines , support and resistance and so on. What are the basic building blocks of price action trading?
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Price action trading is built upon the analysis of the following:. The candlestick approach of price action deals with a certain behavior of price depicted in the candlestick charts. Of course, at times the OHLC bar chart is also used. Although both the bar chart and candlestick charts tend to reflect the same sentiment, candlesticks are used as they are easy to recognize. There are many more candlestick patterns but the above are some of the important price action patterns that traders often look to and are also easy to identify with.
Although the candlesticks come with different names, they basically reflect the market sentiment. The example below shows a bearish engulfing candle.
In other words, this two candle price action formation indicates that the sentiment in the market is bearish as price failed to make a higher close and the lower close was much lower than the previous open. One approach, however, calls for attention: the Quasimodo pattern, or QM.
The QM is a straightforward configuration, offering both bullish and bearish scenarios. The past decade witnessed a new type of trading strategy surface that has become widely popular with forex traders. The energy behind supply and demand zones is well documented. You are fully responsible for your investment decision, including whether the Online Trading service is suitable for you.
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