What is Price Action Trading? - Strategy, Books, Course, PDF, and System
Updated: Jul 27, 2022
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Did you know that most of the technical indicators are derived from the price? Besides, price action trading plays a crucial role in all types of trading? Be it scalping, intraday trading, breakout trading, or positional trading.
This article will cover all the aspects of price action trading, starting from the basic definition to the application part, which is beneficial to forex, commodity, equity, and derivatives traders.
Contents
What Does Price Action Mean in Trading?
Price Action Trading vs Indicator Trading
What does a candlestick chart show?
The 6 Most Powerful Candlestick Price Action Patterns
Price Action Trading Strategies
What is Price Action?
'Price Action' means price fluctuations of a script in the given market.
On any trading day, from open to close, the price keeps on changing. This variation is nothing but price action (market action).
What is Price Action Trading?
It is a trading technique in which traders make trading decisions by looking at the naked price chart
Price Action traders don't use any technical indicators
They look at only 'Price' and 'Volume' information on the chart
PA is a powerful trading technique
The famous trader John Murphy has mentioned in his book "Technical Analysis of the Financial Markets", that technical analysis is the study of market action using charts, aiming to forecast future price movements.
He also suggests the best way to learn about the stock market is using only two components - 1) Price and 2) Volume.
Why Price Action Trading is the Best?
Price dictates indicators and not vice-versa.
The price contains all the information.
Even after knowing fundamental knowledge of stock, traders have to trade with the price.
Indicators Ignore Human Psychology.
Indicators Overcomplicate Trading.
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What Does Price Action Mean in Trading?
Have you ever taken a chart in Tradingview or Zerodha and:
Removed all of the Moving Average (MA), Bollinger Band (BB), PSAR indicators?
Removed all the underlying indicators like RSI, Stochastics, MACD, ADX?
Do you think you would be able to trade? Some traders may ask how to trade in the stock market then?
It might look impossible, but don’t forget most of the indicators derive their existence from one thing – ‘PRICE.’
A fluctuation in the price will also bring variations in those indicators. Isn’t it?
Then which is better to study? The PRICE, or Indicators? one can think for some time.
The three essential components in share market trading are (in the same order):
Price—it advertises all the opportunities.
Time—it regulates all the opportunities.
Volume—it measures the success or failure of all the advertised opportunities.
Volume is essential as 80% of the trading volume is given by 20% of the big players.
Price Action Indicator
Technical Analysis in the stock market starts with the analysis of ‘Price Action’ as the first step. Then it begins with many technical indicators as a supportive element to the price action.
As the name suggests, any ‘Indicator’ gives the indication. But they don’t dictate the price. In fact, any changes in the price will cause variations in most of the indicators.