Price Action describes the characteristics of a security’s price movements. This movement is quite often analyzed with respect to price changes in the recent past. In simple terms, price action is a trading technique that allows a trader to read the market and make objective and highly profitable trading decisions based on the recent and actual price movements, rather than relying solely on technical indicators. As a Price action trader we rely the judgement or prediction of market over the market’s movement itself (Price is a reflection of market movements)
(This blog article is a dedicated response to one of my old time client, who questioned me recently on the topic)
Common tools used by Price action trader..
Since price action trader relates to recent historical data and past price movements, all technical analysis tools like charts, trend lines, price bands, high and low swings, technical levels(of support, resistance and consolidation), etc. are taken into account as per the trader’s choice and strategy fit.The tools and patterns observed by the Price action trader can be simple price bars, price bands, trend-lines, or complex combinations involving candlesticks, volatility, channels, etc. But take this into consideration- Price action trader is a proficient chart reader, tools are just tools not trading systems. They just aid us in decision making. As a Price action trader we need to make decisions based on Price movements. “Trade what you see on the naked chart”
Tools I use for myself and suggest my clients..
These are the following Technical- I use for understanding the mindset and behavior of financial markets. I always keep things simple and easy for objective trading. Adding zillions of indicators over the price chart and hoping for a holy grail isn’t my style.
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Trend-lines
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Supply/Demand levels
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Candlestick charts for reading.
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Momentum Indicator
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Volume
These are the only 5 tools I personally use for better implementation of price action and hope it is necessary for a trading routine. I suggest the same thing for both my clients and students. Keep things simple. Financial markets are them self confusing, then- what is need to confuse yourself with unwanted indicators?
Advantages of combining simple tools with Price action..
Price action trading can be used for any type of trading including short term,medium term and positional trading. By combining these technical analysis tools with the recent price history to identify trade opportunities based on the observation,I have made quite decent profits- regardless of anytime frames.It’s a bold statement to make in this blog, but it’s necessary. That’s the reason (it’s profitable since it depends on Price action trader mindset) why Price action trading has a lot of support in the trading community.
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