Price Action is a trading strategy based on technical analysis that is quite popular. Especially using charts and price fluctuation models to identify trends. From there, traders can make accurate trading decisions. With its popularity, Price Action is favored and applied by many traders. If you want to better understand What is price action trading and how to apply this strategy effectively, explore Forex Trading through the article below!
Learn the term What is price action trading?
Price action is a stock trading method based on price chart analysis. It uses special tools and strategies. This is quite an effective forex trading method that every investor should master.
Overview of What is the Price Action method.
Price Action is often called by Traders exactly what it sounds like – price action. This method is based on monitoring trend developments and price action on models and charts at each point in time to make trading decisions. More simply, it is about identifying the behavior of buyers and sellers in the market.
Price Action revolves around the principle of price movement under the influence of two market participants. That includes both buyers and sellers. When applying this method, Traders will analyze the behavior of both sides. Aims to determine the next direction of the price.
- If the buyers dominate, it means the buying demand is greater than the selling supply => and the price tends to increase.
- If the sellers dominate, it means the selling supply is greater than the buying demand => and the price tends to decrease.
Traders pursuing the Price Action method will rely on candlestick patterns or special areas on the chart. Such as resistance areas, support areas, or candlestick patterns such as hammer, shooting star… To analyze price behavior and predict the next price trend in the market
See more: Master the Forex “game” with Price action
Explore 3 Price Action patterns in depth
What is price action trading trading method? Currently, this strategy often uses the following 3 main models:
Inside bar pattern
The inside bar includes at least 2 candles. In which the first candle is completely covered by the following candle. It is called the mother candle and the following candles are called the Inside bar.
The inside bar has 2 types:
- Inside bar bullish: Starts with a large candle, followed by a small candle, which is the Inside bar.
- Inside bar bearish: The first big candle is the inside bar, followed by a small candle.
Outside Bar model
This pattern is the opposite of the Inside Bar. The following candle is usually longer and covers the previous candle.
Outside Bar also has 2 types:
- Outside Bar bullish: The first small candle is the Inside bar and the following large candle is the Outside bar.
- Outside Bar bearish: The first small candle is the Outside bar and the following large candle is the Inside bar.
Pin Bar Pattern
Pin bars are characterized by a very short candle body and very long candle shadows. It is concentrated on one side and there may be no shadow on the other side.
Pin bars are also divided into 2 types:
- Pin bar bullish: Long candle tail below the candle body.
- Pin bar bearish: Long candle tail above the candle body.
Procedure for implementing What is price action trading?
To create a detailed and effective trading strategy, you need to follow a trading process and basic Action price strategy . So what is the process of implementing What is price action trading? The basic steps to perform Price Action are as follows:
Traders define their own trading style:
- Signals from Price Action often appear infrequently. So this method is more suitable for medium and long-term traders than short-term types of trading.
Create a trading system: To create a trading system, you need to prepare the following two elements:
- Type of trading asset: Choose an asset type that reflects the supply-demand relationship. At the same time, it reflects the interaction between buyers and sellers.
- Trading time frame: Large time frames such as H1, H4, D1 or W1 are suitable for Price Action strategies. Observing price fluctuation charts is very important to place orders at the right time.
Building a trading strategy:
- Identify important support and resistance zones on the price chart. Also, identify recent high and low prices.
- Analyze current price fluctuation trends and identify price patterns to make trading decisions.
- Open and close orders, as well as set take profit and stop loss levels based on the strategy developed.
Manage capital and minimize risks:
- Capital management is an important process in building a trading system.
Effective Price Action Forex Trading Strategies
With Price Action, there are many strategies that traders can apply to be effective. However, there are 4 most outstanding strategies that every Trader knows. Because they are considered very high-performance methods. New investors can refer to and apply them.
Price action with breakout price Breakout strategy
When prices break important areas such as support or resistance, there is often a strong upward momentum in the direction of a breakout. In this case, observing the price chart is very important. Especially using timeframes from M15 to D1. The purpose is to identify support and resistance zones. When the price breaks the support zone and moves down, you can consider opening a SELL order. Contrary, when the price breaks the resistance zone and goes up, you can consider opening a BUY order.
- Order placement point: Usually placed at the closing price of the candle that breaks out through the support/resistance zone.
- Stop loss point: For BUY orders, it can be set below the resistance line or a number of pips below the nearest bottom. For a SELL order, it can be placed above the support zone or a few pips above the nearest peak.
- Take profit point: Usually placed at a distance equivalent to the segment between the support and resistance zone. It is calculated from the point where the order is placed.
Retest Strategy
To increase safety, traders can wait for the price to retest the new breakout zone before opening an order. The purpose is to minimize possible risks. In this situation, to open a BUY order, you can wait for the price to break the resistance zone. Then return to exposure to that zone in a Retest, with confirmation by a green candle. For SELL orders, you can wait for the price to break the support line. Then return to contact that line in a Retest, with confirmation from the red candle.
- Stop loss point: For BUY orders, usually placed at the nearest bottom of the chart. For SELL orders, it is usually placed at the nearest peak of the chart.
- Take profit point: This can be set at a long distance from the order opening point. Depending on the distance between the support and resistance lines, or on the desired R: R ratio.
Pullback Strategy in Price Action
First of all, it is necessary to idewhat is price action tradingntify important support and resistance zones. Wait for price action to take place in these zones before proceeding with the trade.
When the price approaches the resistance area and begins to go down, if there are short green candles or a bearish candlestick reversal pattern, you can consider opening a SELL order.
On the contrary, when the price approaches the support zone and begins to go up, there are short red candles or a bullish reversal pattern. That shows that the strength of the sellers is decreasing, you can consider opening a BUY order.
Note that, if approaching important zones the candles do not decrease in size but instead have an increasing tendency. This shows that the buying or selling force is very strong. In this case, it is necessary to limit opening orders and wait for other signs to ensure safety in trading.
Trade with price patterns
To implement this strategy, you need to understand price patterns well so you can recognize them as soon as they appear. There are three main types of price patterns: continuation patterns, bullish reversal patterns, and bearish reversal patterns.
Based on the appearance of price patterns to analyze the chart. Determine what type of pattern is appearing to open appropriate orders. Each type of price model will have different take profit and stop loss points.
See more: Exness – Trade With The World’s Leading Broker Exness
Conditions to use the What is price action trading strategy?
The Price Action method is easy to apply due to its simplicity and accessibility. However, to achieve high efficiency, traders need to meet the following conditions:
Master basic knowledge:
- The Price Action method focuses on simplicity. But to apply effectively, Traders need to clearly understand the basic concepts. Including candlestick patterns, price patterns, resistance, and support zones, tops and bottoms .
- By understanding this knowledge, traders can identify price trends and make logical decisions to buy or sell. As well as profit and risk management.
Remove trading indicators when necessary:
- After understanding the basic tools, traders need to consider removing trading indicators if any.
- If you still need to use indicators, traders need to ensure that they are suitable for the Price Action method. Do not distract from observing and analyzing charts.
Spend time observing the daily chart:
- Given the volatility of the markets, it is extremely important to spend time every day observing the charts.
- In addition to developing analytical skills, traders need to accumulate experience and improve their observation ability to apply the method most effectively.
Conclude
The above are shared from Forex Trading to answer many traders’ questions about What is price action trading. Hopefully, they can help you develop your own style of analyzing and trading stocks. From there, make effective trading decisions to optimize profits.
Frequently questions asked
Why is the Price Action method important?
Price Action helps traders better understand price action. Understand more about supply and demand in the market. It allows identifying price patterns and trends. From there, make well-founded trading decisions.
How to apply the What is price action trading strategy?
To apply Price Action, traders need to master price patterns. Figure out support and resistance levels, and know how to read price charts. They will use signals from price action to make decisions to buy or sell.
Is Price Action suitable for everyone?
While Price Action may be suitable for many traders, it is not the right method for everyone. Some traders may find it difficult to read charts or need other technical tools to aid their trading decisions.
