Most trading methods use a lot of indicators, so traders are often confused in the sea of information. Therefore, in this article we will introduce you to price action trading method – This is a method of trading according to price movements without relying on any news or indicators.
Table of Contents
- 1 What is price action?
- 2 Pros and cons of the price action method
- 3 Some effective price action trading strategies
- 4 Conclude
What is price action?
Price action is a method to identify the market based on the analysis of price movement over time (candles). Trading based on price action means relying on the price movements of an asset to make trading decisions.
Although, price action is a simple but extremely effective forex trading method , especially in a highly liquid and volatile market.
Price action traders will only care about candlestick charts and ignore indicators (indicators) and news in the market. In fact, candlestick charts are the most powerful of all technical analysis tools.
In the view of Munehisa Homma, the father of Japanese candlesticks and legendary speculator: “ The psychological aspect of the market is very important to a successful trade and the emotions of the trader have a significant influence. to the price ”. This saying implies that price is the most true reflection of human psychology and this philosophy is still valid to this day.
Pros and cons of the price action method
After understanding the concept of price action, the next requirement is for investors to analyze the pros and cons of price action. The main purpose is to help traders have an overview of the price action trading method, thereby taking advantage of the advantages of price action into their strategies to the fullest extent.
Advantages of price action
This is an easy to learn, readily available and well documented trading strategy .
Indeed, price action has appeared for a long time, about 250 -300 years ago, the time Steve Nison created the Japanese candlestick was also the time when price action started to form.
Through such a long development process, the price action method has attracted the most interest and trust of all traders; at the same time also built a huge amount of documents over the years.
Moreover, saying price action is an easy method to learn because when you trade in this method, you only need to look at the price chart without worrying about any other indicator tools. Charting is something that is freely available on the trading platform and you can start learning and practicing at any time.
Price action makes your trading simple .
Usually, we always tend to the complexity of trading because we think that using sophisticated and diverse methods is professional and accurate. But forget that, simplicity represents the most refined and pure. The simpler it is, the easier it is to dive into market sentiment analysis.
Reflect quickly and promptly the price movements in the market.
Price action can give investors a chance to catch a wave. This is also the biggest advantage compared to indicators because basically indicators always have a certain lag compared to market fluctuations.
Price action is a logical method that helps investors easily determine the exact entry, stop loss and take profit points. Thereby predicting the long-term direction of the market.
Disadvantages of price action
Price action is subjective:
Each trader has a different way of identifying support and resistance. Therefore, trading according to the price chart is more subjective and depends on the ability of each person to analyze the market.
Probability of risk is inevitable :
The “sharks” can completely manipulate the market to create fake price patterns that make many investors fall into the trap they set up.
In summary, you should keep in mind that it is all just probability and no investor can predict 100% of the market trend correctly. Price action is merely a method to help speed up the process to success, not the deciding factor in all your success or failure.
Therefore, besides a good method, investors need to manage their capital and practice good trading psychology to increase their percentage of winning the market.
Some effective price action trading strategies
Price action, however, brings a lot of benefits to traders when trading. But not everyone can trade successfully. The content below will help you have a more detailed and in-depth look at some of the price action strategies that help you trade effectively.
Trade on pullbacks
Most of the trend-following price action method that investors use is the Pullback strategy . That is, investors will rely on the price correction to go against the mainstream and retest the resistance or support area.
Assuming the price is in a downtrend and the market has formed a support area, when the price breaks that support and comes back to retest it again, this is the right time for you to enter. sell. Thus, investors can identify entry signals easily through price behavior analysis.
Trading with a reversal strategy
The price action reversal strategy is also a popular trading method that many investors prefer to use. This method requires traders to identify areas of strong support and resistance that the market is unlikely to break through. This is also an opportunity for traders to find the advantage of entering orders at a good price.
Compared to trend trading, reversal trades are said to be more risky. However, traders who trade according to this method do not need to worry too much, as long as you understand the rules of the game and follow important principles, you can completely control the risk according to your goals.
It is important to note that the market will often experience false breakouts. Therefore, investors need to know how to spot all these false breakout points to avoid huge loss when trading. Specifically, traders need to keep a close eye on how the price returns to retest the trendline.
For example, if the price moves one circuit to the resistance line, there is a high probability that a pullback will not occur. On the contrary, when the price moves near the resistance area and shows signs of slowing down, it shows that the selling force is very strong. At this point, traders can enter a sell order. The rate of successful trades will be even higher if at this price area there is a 3-peak pattern in a downtrend.
Break out strategy has never been “hot” in the hearts of investors. There are 2 ways to trade price action breakouts as follows:
Enter the trade as soon as the price breaks out of the support or resistance line. At this point, the market has formed a clear trend, traders need to identify this trend and wait for the price to break out of the trendline to look for opportunities to “eat” high profits.
Enter when the price breaks out of an important price area. This way the trader only needs to find an important resistance level such as support and resistance . Then wait for the price to confirm a break out of that level and look to trade with the trend
Through the above article, I hope you have understood the concept and nature of price action . as well as effective trading strategies for price action. Finally, we want to share with you that, treat forex trading as a passion, do not put too much emphasis on making money in this market.
If there is too much psychological pressure, the ability to beat the already difficult market will become even more difficult. Surely success will smile at you.