Before going into the importance of price let us first see what is meant by price
What is meant by price action?
As we all know trading involves a lot of number crunching. From where do these
numbers come from? These are the prices available in the market. Depending on
these prices the traders determine whether to buy or sell the stocks. The traders buy
the stock when the prices are low and sell the stocks when the price of the stock
increases. This increase and decrease of stocks prices come under price actions. In
simpler words the momentum of the prices in the stock markets is called price
action. To know more about price action click here.
Now coming to the advantages of price actions:
There are many advantages respective to trading with price action. Few of them are
It is a simple approach to trading:
Trading with price action is considered to be the simplest form of analyzing the stock
market trends and trading. The concept of price action is highly important for
trading. It is also a concept that is very simple to understand. There are no
complications in it. It is quite straight forward. It gives wholesome information of the
market trend in a simpler fashion and this will give all traders equal opportunity to
trade in the market.
There are no complicated indicators:
As mentioned above, trading with price action is the easiest way to trade, it is
because there are no complicated indicators to determine this. Price actions are
generally captured in various forms of charts and these charts are easy to read and
understand to analyse the market trends. Indicators in trading are generally
mathematical algorithms that help to derive a wholesome analysis of the market
trend which helps the trader to decide when to sell and buy stocks. Trading with
price action helps you to determine the same in a simpler approach. To get an idea
about what indicators are like click on the link. This will give you a perspective on
why having no indicators is an easier approach to trading.
Following news is not compulsory:
In financial sector the more information you gain the better are your chances to
succeed. For gaining more information regarding the current and constantly
changing market trends the best way to do is to follow news. But at times when the
traders are not full time traders it could be a little difficult for them to follow the
trading news continuously. Even though they follow once in a while the other
approaches that involve indicators can be cumbersome as the algorithms for the
indicators are quite difficult to work upon. One cannot ignore points as well because
as market trends keep changing the values of the indicators also change and if a point
is missed there could be whole lot difference in the indicator. But, thanks to price
action charts that give all this information in a wholesome way without any
complications and so there is no necessity to keep watching the news.
Easily understandable signals:
The signals that are involved in price action trading are quite easy to understand.
This is because the isolation of prices in price action is quite easy due to the methods
that are involved in representing the price ranges. This gives the traders complete
information that is required for making the right decisions in an easily
understandable manner. To get an idea about price action trading signals visit the
Price Action and its role in trading
Price action has a literal meaning i.e. study of the actions or movements of prices in the current market trends. It gives you a picture about whom the stocks are benefiting, the sellers or the buyers. This will help you to trade better. To know more about price action click here
Here are few tips and tricks that will be useful when trading using price actions:
Analysis of support and resistance levels:
This analysis becomes quite easy if you already have model to determine the price action of the market trend. A model can be anything from something as simple as a pie chart to something which has a detailed approach such as bar charts. The resistance and support levels are the areas of these charts which represent the sustainability of the stocks. To know more about the support and resistance level’s importance in trading click here.
Analysis of the pivot points:
Pivot points are those areas in the stock charts that represent the short term reversals of price action that have happened in the market. These pivot points are also known as swing points. It is important for a trader to consider the previous swing point to determine whether he or she as to buy a pull back stock or not. To know more about pivot points in trading click on the link.
Analysis of wide range of the candles:
The candles in the price action charts represent the important changes that might have occurred in the sentiment in every time frame of the chart. These wide range candles will give you a picture of when the trade might turn completely. This will give you a heads up for your following trade. There are chances where the stocks are reversed before the occurrence of wide range candles in the charts. This might be because the trader probably missed the prominent move. Now once the wide range of candles occur on the chart it basically means that the trader got another chance to take that prominent move and succeed.
Analysis of narrow range candles:
Like wide range candles there are also narrow range candles that represent the change in the momentum of the price action in the market. Generally they represent the decrease in momentum as the name suggests. This will help you realize that the sellers and the buyers are in equilibrium with each other. But one of them will take the charge of the stocks soon. To know more about candlestick patterns click here.
Analysis of rejected price levels:
The shadows on the candle stick charts represent the price levels in the price action charts which have been rejected. These rejections can take place for various reasons such as they might be too high or too biased to one sector such as the buyer or the seller. These candle stick patterns with shadows are also known as the shooting star candle stick or the handle candle stick pattern.
Understanding the rule of 50%:
This rule will help you determine whether the particular candle is significant or not. A candle is called to be significant if it moves a minimum of 50% into the previous day’s range. It is considered to be highly significant if it closes at minimum of 50% of the prior days candle range.
Analyzing the trap and gap price range pattern:
While trading with price action and analyzing the patterns one pattern that is considered to be of utmost importance is the trap and gap price range. This represents a highly cliched situation when the stock initially gaps down giving itself out to the buyers. The buyers thinking it’s on a lower note on the price range so they come an buy it and finally at the end of the day due to the high demand of that particular stock the closing price is higher than the opening price. To know more about gap and trap pattern click here.