Many various ways of trading exist. Traders can choose, among others, from following the trend, observing the colors of the candles on the chart, or using Price Action Trading.
We will take a closer look at the latter in this ultimate guide. Although Price Action trading is usually associated with currency trading, it can be successfully applied in any other market.
Price Action review
Price Action is nothing else like a trading technique. The essential component of this technique is the asset’s price. Traders read the chart and make a decision based mainly on the current price of the asset. They are convinced this is the most valuable piece of information required to make a transaction. Sometimes they even believe, this is the only one needed, so they don’t use extra help of the indicators.
Reason for Price Action
The biggest advantage is that in Price Action trading you don’t need to complicate the chart with multiple indicators. You just need to focus on the actual price.
Those engaged with Price Action claim that the markets are predictable, there is nothing that wasn’t there before. History likes to be repeated. So the price will fluctuate within some range. Taking the above into account, Price Action traders can predict the price’s behavior over a given time.
Therefore, they will search for the patterns that repeat themselves. And they want to answer the question about the direction of the price at a certain point. When they do, their decision may be very accurate.
Price Action trading at Olymp Trade
Traders have their preferences on the types of the chart. I think the candlestick chart is the most transparent one, but the bar chart will do as well. Both contain the same price information which is necessary to trade successfully. You will distinguish the open, higher, lower and close price for a given timeframe.
As I already mentioned Price Action traders don’t like additional indicators. The reason for this is mostly the indicators’ delay. Nevertheless, the support and resistance lines may be desirable.
And this is because the price’s behaviour is commonly predictable after the moment of touching the support/resistance level. Here is an example of how Price Action trader can read the chart. We have here support line. You can see how nice price reacts with this level. Number 1 is a bullish pinbar. It is a clear signal to enter a long (buy) position. Number 2 is a bullish engulfing candlestick pattern. It is also a signal to buy GBPUSD. It is all about reading the price behavior, identifying key levels of support and resistance, and knowing how to react to repetitious price patterns such as candlestick formations.
Pros and Cons of Price Action Trading👍👎
- 💡 Simplified decision-making process: Focus on the asset’s current price without the clutter of multiple indicators.
- 📈 Versatility: Can be applied to any market and any timeframe.
- 🔍 Clear charts: No need for multiple indicators, allowing for easy chart analysis.
- 📚 Learnable patterns: Identifiable patterns and price behaviors can be learned and applied effectively over time.
- 🧪 Requires experience: Mastering Price Action Trading takes time and practice.
- 📉 Limited information: No additional indicators may lead to overlooking crucial market information.
- ⚖️ Balance: Finding the right balance between relying solely on price action and using other technical indicators can be challenging.
|Price Action Patterns||Description|
|Bullish Pinbar||A single candlestick pattern that indicates a potential reversal from a downtrend to an uptrend. The candle has a small body, long lower shadow, and little or no upper shadow.|
|Bearish Pinbar||A single candlestick pattern that indicates a potential reversal from an uptrend to a downtrend. The candle has a small body, long upper shadow, and little or no lower shadow.|
|Bullish Engulfing||A two-candle pattern signaling a potential reversal from a downtrend to an uptrend. The second candle engulfs the body of the first candle, with the second candle being bullish.|
|Bearish Engulfing||A two-candle pattern signaling a potential reversal from an uptrend to a downtrend. The second candle engulfs the body of the first candle, with the second candle being bearish.|
What is required for effective trading with Price Action on Olymp Trade?
First of all, you have to learn about the price charts. You will need to get familiar with different types of the chart and signals you can read from them.
Next, you have to develop a skill of identifying price patterns. That means you also have to master drawing the support and resistance lines.
With time, you will grow more intuitive awareness of how the prices behave when they reach certain trend points. You will be more confident with drawing trendlines and recognizing trends in general. You will see that levels which were previously resistance for price movements become support after being broken.
Analysing sequences of tops and bottoms gives you additional insights into trend structure. This helps Price Action traders to identify when the market is changing direction.
You can use Price Action on any timeframe. Use higher intervals to see the so-called big picture with major and most important price levels. Then you can use lower timeframe to identify exact position entry points.
And the only thing left to do is to trade and check Price Action for yourself. Although, you should be careful if you’re using real money. Even if it’s a reliable and useful strategy, Price Action Trading isn’t risk-free. Always be prepared to face losses.
Tell us how do you find it. There is the comments section down below.
Price Action Trading: Frequently Asked Questions❓
- Q: What is Price Action Trading?
A: Price Action Trading is a technique that focuses on the asset’s current price for decision-making, identifying patterns and support/resistance levels without the use of multiple indicators.
- Q: Can Price Action Trading be applied to any market?
A: Yes, Price Action Trading can be applied to any market, such as stocks, commodities, and currencies, among others.
- Q: How do I become proficient in Price Action Trading?
A: Becoming proficient in Price Action Trading requires practice, experience, and understanding of different chart types and price behaviors. Study different price patterns and practice identifying them on charts.
- Q: Is Price Action Trading suitable for beginners?
A: While Price Action Trading can be suitable for beginners, it requires time and practice to master. It is recommended to start with a demo account or use a small amount of real money while learning.
- Q: Can I combine Price Action Trading with other trading techniques?
A: Yes, Price Action Trading can be combined with other trading techniques and indicators to create a more comprehensive trading strategy.
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