DEFINING PRICE ACTION TRADING FOR BEGINNERS

The concept of Price action trading as a method-it uses the analysis of basic price movement as trading strategy for profitable trading. It is used by many Prop-traders and often institutionally, where auto trading is not employed. It ignores the fundamentals of a security and looks primarily at the security’s price history.

Is Price action trading a part of technical analysis?

Price action trading considers value derived from past price history (mostly in form of Patterns and setups) — so it is a part of technical analysis. What differentiates Price action trading from most forms of technical analysis is, its main focus is the relation of a security’s current price to its past price as opposed to lagging values from that price history. This observation of past history includes swing highs and swing lows, trend lines, and support and resistance zones.

Price action trading can be included under the umbrella of technical analysis but perceived in a separate stance because it incorporates the behavior of market participants as reflected in price movements. Behavioral analysis is vast analytical field incorporated in behavioral economics and finance.  Price action trading includes a large part of the behavioral analysis employed by floor traders and tape readers. It also incorporates the analysis of order flow.

How a trader applies it?

Price action trading starts from observing the relative size, shape, position, growth (when watching the current real-time price) and volume (optionally) on candlestick charts. Starting as simple as a single bar, most often combined with behavioral interpretation. The use of price action analysis for trading doesn’t exclude the simultaneous use of technical indicators, but on the other hand, a minimalist price action trading can rely completely on the behavioral interpretation of price action instead of indicators.

Price action Trading strategy utilizes the price charts as it is interpreted by price action traders, they signal likely future market direction, and tells the trader-how to place orders correspondingly to profit from that (and where protective exit orders would be placed to minimize losses when wrong). Price action trading combine bars, patterns, formations, behaviors and setups together with other bars, patterns, formations. Due to this fact it is often misunderstood that price action trading is all about trading patterns.. But the fact is not.Price action trading is more than that.

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