What Is Price Action And How To Deal With It

Many traders don’t see the technical analysis and trading generally without technical indicators – after all it seems easier than trying to look through some figures on the chart. However exactly «clean» chart can often say about the further trend in the market much more than the commination even of the most effective automated tools, and such approach to the market forecast is called Price Action. Here we elaborate for you what is it, where this analyzing method is applied and how its signals look like.

Well Price Action is not only the market forecast approach indeed, but the entire separate analyzing category, with a great number of consistent patterns and techniques for estimation of the next moment market move. Literally the combination of words Price Action is translated as «price move», and exactly on it all the regularities of this approach are based – on analysis of quotations moves for a certain time period. The key aspect of such method is that no technical indicators are applied, as the signals are given by price itself, in form of certain candlestick combinations, or so called «patterns».

The matter is that the history repeats in the market continuously – the asset market constantly shows certain behavior models on the chart, which can tell almost for sure where the quotations will move the next moment. The trader just needs to learn seeing and applying them.


Where and how Price Action is used

This technique is applicable in any market and financial tool, in other words it is usually applicable both in retail Forex, and on forward contracts. At that Price Action consistent patterns are among daily tools of any professional trader and such amateurs like you and we.

There is much speculation that for the effective analysis of «bare» quotations schedule one need to learn implausible amount of patterns. But that’s not true. To learn distinguishing some very secured candlestick combinations and continuously improve dealing with them will be enough. Sure, the more price patterns you will know, the better, but for the short haul a small set of the simplest patterns will be enough.

Price Action systems work just with quotations displaying «Japanese candlesticks» — this is the main condition for this approach application. It’s preferable also for the chart itself to be big in size, with scaling option – it will let you to spy any given candlestick model and not confuse it with something else. On the example below you see the quotations chart with the particularly given features. It’s represented by Binomo company (site) on its platform:

The quotations chart with the particularly given features


Price Action signals

Well, the secured market entry points may be searched with regularly recurring patterns. How to do that? We won’t describe you the hardest price models now, which are difficult to define even for an experienced trader at times. First we will describe the simplest apparent price triggers, in case you didn’t yet get what is РА, then proceed to more complex ones.

You see the trading signal below, which may be used if there is a trend existing in the market – such pattern is called «internal bar» and speaks for the trend duration:

Such pattern is called «internal bar» and speaks for the trend duration

Same way the trend reversal of such pattern as engulfing may be defined, which appeared at the market max. In the example below you see the bear engulfing as two differently directed candlesticks, and the latest of them engulfed the first one:

Bear engulfing as two differently directed candlesticks

Applying PA principles you may also define the market trend. Sure it may be done also simply «by eye», but this approach will let you make clear where the market is really heading to. If any new price least values and ceilings are higher than the previous ones, that means the ascending trend, if they are lower, then the trend is descending:

Applying PA principles you may also define the market trend

You also may distinguish the graphical elements of different kind: triangle, rectangle, pennon and look for the trade entry point on figure break by price. Such approach is called trading on consolidation zones, which happen in the market on the regular basis:

You also may distinguish the graphical elements of different kind: triangle, rectangle

Anyway, the signals of the price itself are most effective, and if you go deep into Price Action, you may well dispense with technical indicators or receive the additional signal confirmation using indicator strategies.

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