What is the Price Action Method? Also, how do you trade? - One of the trading strategies used in forex is the price action method. What it is and why it is worth studying and implementing the
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Price Action Law is that it can make you profit quickly.In language trading means buying and selling activity.
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In terminology, trading is the activity of buying and selling financial assets such as stocks, foreign exchange, and virtual currencies on the market for short-term profit. A market or marketplace is a place where sellers and buyers meet. In the context of trading, the market is the meeting place for traders to trade the aforementioned financial assets.
The market price is the price that represents the juncture of prices set by sellers and buyers. One of the advantages of the financial asset markets mentioned above is that market price movements are well documented and can be used as material for interested traders to analyze using price action methods.
Defining Price Action Price action is a trading method that uses market price action patterns as its main component. In other words, this strategy only uses trend lines, support and resistance lines, and candlestick patterns as main components.
This method of analysis does not use various statistical indicators such as Bollinger Bands, RSI, MACD etc. as analysis material. So don't be surprised if another name for this method is naked chart trading.
This method is used because in financial markets, the history of market price tracking is often visible in the form of charts. In other words, when the market price rises, so does the image on the chart and vice versa. Especially when using candlesticks.
The Japanese candlestick or candlestick chart not only records today's and yesterday's market price movements, but also today's morning and afternoon market prices, indirectly indicating the trading volume that occurred at that time. . How to use the price action trading method
1. Understand the concept of trend, support and resistance
Market prices change frequently in the trading world for many reasons. Instead of hours or days, price movements in this market often occur in minutes or seconds. The trader's job is to estimate how these changes will occur and be able to take advantage of them.
One way is to create trend lines, support and resistance. A trendline is a line that connects the highs, lows, or midpoints of market prices from several different points in time.
Therefore, if the point AB>C, it indicates that the price may fall significantly. Apart from the two patterns above, there are many other candlestick patterns that you need to learn.
2. Understand Candlestick Patterns
Apart from understanding the above line patterns, you can also understand candlestick patterns to learn this price action method. As I wrote earlier, candlesticks indirectly represent price movement and its magnitude.
As a result, the appearance of this candlestick chart can be used to predict whether the price will go up or down. For example, consider a candlestick pattern with three white soldiers and three black crows.
As the name suggests, Three White Soldiers is a candlestick pattern consisting of three white or green candlesticks labeled A, B, and C. In this pattern, AB>C indicates the possibility of a strong price decline. Apart from the two patterns above, there are many other candlestick patterns that you need to learn.
3. Understand hacks
A breakout is a combination of the above two concepts (lines and candlesticks). A breakout is a situation where the body or tail of the candlestick crosses the support or resistance line. There are two types of hacking: real hacks and fake hacks.
A real breakout is when the body of the candle is what breaks through the support and resistance lines, and a fake breakout is when only the tail of the candle breaks through the support and resistance lines.
In general, a true breakout indicates the potential for a strong price reversal, whether it is an increase or decrease in price (depending on the dashed line). However, the actual post-breakout candlestick can also indicate a trend continuation (continuity), so be cautious.
4. Use long timeframes
In financial markets, the price movements of financial assets tend to be volatile in the short term and more stable in the long term. As a result, traders should analyze long-term charts to ensure that the general trend is strong and not false signals or noise.
The long-term timeframe is 4-5 days (1 week). means a time frame within However, it is not uncommon for traders to use multiple timeframes for analytical purposes to help them get a complete picture of what is really happening in the market.
This is bearing in mind that many trading applications currently offer this functionality. However, traders who use it are usually experienced traders.