Strategy

If you place your trade during a downturn, keep it open until the trend changes. Price action tells when to quit a position by identifying when the price is turning. If you are nearing a supply zone, consider exiting at demand. If you're going to be entering a demand zone, consider leaving close to supply.


Describe the price action

Technical analysis is not complete without the "price action" technique, which is used by traders who make all of their trading choices solely based on an asset's price. Due to the fact that prices represent profits or losses on the financial markets, they are among the most trustworthy measures of a security's performance.

Understand price action

Analyzing trending and pullback waves, also known as impulse and corrective waves, is an important component of trading on price movement. When trending waves outnumber corrective waves, the trend is said to be moving forward.

In order to determine the trend's direction, traders keep track of the duration of the trending and retracement waves, also known as "swing highs" and "swing lows." The price must follow the guidelines and produce greater swing highs and lower swing lows during an upswing. When the economy is in decline, the opposite is true. On a price chart, trendlines' peaks and valleys lie between lines of support and resistance.

Additional lines are added to the following Amazon (AMZN) candlestick chart to illustrate the primary up and down waves, as well as the reversals of the uptrend and downtrend.

In addition to ranges (equal-sized waves up and down), triangles (price waves increasing smaller and smaller), and rising ranges, price waves can be grouped in a number of ways (higher swing highs and lower swing lows). The fundamental principles of price action trading are trends and patterns. Traders can use candlestick charts to look for supply and demand patterns and ratios.

Forex price fluctuations

All markets, including the FX market, employ price action trading. Despite the fact that currency exchange happens constantly, some forex pairs are less likely to move when their respective markets are closed, even if a price action signal develops. To illustrate how price action trading functions, this article offers examples from all markets, including the forex, share, index, and commodity markets.

 

How to use price action to trade supply and demand

In some supply locations, pushy vendors joined the market and lowered prices, which have not yet been recovered. When the price starts to rise once again, traders keep an eye out for them since sellers could still be around and ready to resell, which would drive the price back down.

In locations where buyers have actively joined the market, demand zones have expanded. Price increased and hasn't decreased since. Traders will be looking to see whether purchasing takes up again to push the price back up, regardless of whether the price recovers to that level.



Patterns of price action trading

Consistent patterns of price fluctuation

During a trend, patterns of continuance manifest. Assume the triangle has formed and a rising trend. The price has a little better possibility of breaking out to the upside because of the uptrend. The same reasoning holds true when a pattern develops during a market decline.

Trend reversals in pricing

When an uptrend or downtrend's rules are broken, price action reversals take place. As soon as one of these crucial guidelines is broken, the trend is doomed. According to the waves being watched, the trend will shift if both regulations are broken.

Take a look at a trend that is exhibiting rising swing highs and lows. This raises a cautionary flag when it swings lower than normal. A reversal is occurring if the price continues to make a lower swing high. This does not completely eliminate the possibility of a reversal, which would enable the uptrend to continue. Simply expressed, the data suggests that a reversal is likely. The price action reversal from an uptrend to a downtrend and back to an uptrend can be seen in the Tesla [TSLA] chart below.