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trading:price-action-basics

PRICE ACTION BASICS

The price action trading is a style that is based on naked charts (no indicators). Decisions to open and manage the positions are mostly based on chart patterns, trend lines and levels of support and resistance. The most positive feature of this method of analysis and trading is that we trade what actually is going on the market and we are able to react quickly and appropriately if the situation changes. Furthermore, you should not try to predict where the price will be, but rather use the natural mechanics of the market, as reflected on the charts. The only indicator that is used is the moving average, but it serves rather as a dynamic trend line or level of support or resistance. The rules are pretty simple and clear enough regarding the exact levels for entry and initial protective stop. Problems can arise only from the discipline of the trader and its ability to comply with the trading rules, but this is not price action's fault.

Price action trader observes the relative size, shape, position, growth of the bars or candles as well as the volume (when it is available). Tools for analysis could be as simple as a single bar or chart patterns from the classic technical analysis. The use of price action analysis for trading doesn't exclude the use of other methods for analysis. However, a price action trading strategy can be built solely on the behavioral interpretation of price action. Price action analysis, as I mentioned above, provides you with all the tools for identification of the set up, as well as the exact entry price and the initial stop level.

The various authors who write about price action, like Al Brooks or Joe Ross, give names to the price action chart formations and behavioral patterns they use. You can see similar patterns with different names. Don't try to remember the exact names. Learn the basic principles of the price action trading and analysis and you can create your own trading system. That's exactly what I did.