The definition I have of Price Action Analysis: Price action analysis is the process of analysing, reading and understanding the price fluctuations of an economy over time, which requires the use of raw price charts for trading in the marketplace (no indicator). Through learning to discern the price movement of a market, we can discern the directional bias of a market and trade on regular price action patterns, or price action patterns that show changes or recurrences in the market's mood.
In simple words: Price action analysis is the application to analyze the normal as well as "raw" price fluctuations of a market to study and then trade it. That means that you're making all your trading decisions solely on the price bars that appear on an "naked" or non-indicator price chart.
Every economic variable creates price movements that is easily visible on the price chart of a market. If an economic variable is refined by a human trader or an automated trader, the movements generates on the marketplace will be evident on a price chart. Thus instead of having to analyse a million different economic variables daily (this is not possible, to do, obviously) it is possible to learn to trade using price action analysis since this type of trading allows you to quickly analyze and utilize every market variable by studying and trading off the price movement caused by these market variables.
First, let me declare Price action research could be utilized to trade on any market in the financial sector, as it makes use of the "core" prices in the marketplace. My personal preferred market to trade would be the Forex market, because of its high liquidity, which makes it simple to access and exit the market. It is also due to the fact that the Forex market is known to have more stable trends and greater volatility which allows for more directional trading, and also lets price action trading truly shine.
My personal method of pricing and teaching about price action trading, is to make money trading using just a few well-tested price action patterns. There is no reason to test trading from the 25 price pattern options. the Forex market operates with a fairly predictable manner almost all the time So all we need is a handful of reliable price action entry techniques to give us a better opportunity to find and enter high-risk trading opportunities.
The first step you must do, in order to implement price action on the Forex market is to clear your charts of all indicators . You will then create an "clean" price-chart using only price bars that are the color you prefer. I prefer basic black and white, or red and blue for my colors, however, you are free to choose any color you prefer (Part 7 will provide the basics of charting). Here's an illustration for my day-to-day chart configuration on the EURUSD:
Let's take a look at one example of simple and simple price chart in contrast to a price chart that is covered with the most popular indicators traders use. Let's examine the two charts and think about which one is easier and more rational to trade off of:
When you examine the two charts above you'll probably think it's unwise to obscure the normal price action of the market by using messy and unclear indicators. All indicators stem from price movements in the end and if we can find a reliable strategy to trade solely on price movements (price actions analysis) It only is logical to employ that method rather than trying to analyse complicated secondary information.
Let's look at how we can make use of the analysis of price actions to identify entry points into the Forex market using a raw price chart. After years of trading on the markets I have put everything I've learned into my unique strategy of trading using price action. This technique includes a variety of particular price action triggers that provide traders with an extremely high-probability entry point in the markets. What we're trying to find is regular price patterns that can tell us what the market will move in the near future.
To keep things short and in respect to my members who pay me I'm not giving away all my strategies for trading and entry triggers on this site, however you can read more about the strategies for trading I share in my course on trading. In the graph below we will examine a very effective price action signal that can be used to trade with trends. It is The inside bar technique.
In the chart below, you can see a single Price action signal I prefer to use when markets are trending; the inside bar setup:
What is the best way to apply price action analysis to identify the trend of a market
There are numerous indicators created to inform you of the direction of a market. However, the most tried and reliable method of determining the trend of a market is to examine the daily charts and look at the market's price movement. To recognize a downtrend is to look for patterns that show Lower highs as well as lower lows. They are often accompanied with "LH as well as LL". To recognize an uptrend we look for patterns that show greater highs, and more substantial lows. These patterns are occasionally annotated with "HH and"HH and".
In the chart below, we observe examples of a downward trend or an uptrend, as well as an uptrend changing into the downtrend:
In my trading class, I focus on teaching my students how to trade using "confluence". When I refer to "trading using confluence" I'm seeking out zones or levels in markets that appear significant. Confluence is the moment when two or more things meet or cross. Therefore, when we're seeking to "trade through confluence" we're trying to create an obvious price action signal at a an important level within the market. There are many aspects of confluence to look for, however on the graph below, I am demonstrating price action strategies that have occurred at the key levels of resistance and support in the market. Support and resistance are both a element of confluence. Also, I've presented two additional price action strategies on the graph below. the pin bar strategy as well as the fake signal for trading.
In the chart below, we're exploring for ways you can trade the price action settings from confluent levels on markets:
This class covered a fundamental understanding of what price analysis is, and the best way you can apply it to the market. After that, you'll be able to move on to the next section of this beginner's class and continue to learn more about Forex as well as price action trades. Always, if you have any concerns regarding trading, you can contact me here. If you're interested in learning more about trading using price action, check out my price action course for more information.