Technical traders, who make their choices by looking at Price Action charts, generally trade from a different perspective. Their choices are not based on mere basic analysis. With their strategies, there are thousands of traders, but they are all narrowed down to three main sectors. They are:
- Indicator traders
- Price action traders
- Combined traders (using both tactics)
These are also inched approaches including order flow, seasonality or statistical order flow. Price action trading is one of the most effective and easy to learn in order to make trading simpler. For beginners, price action trading can be a good starting point.
A smart outlook for price action trading
With price action trading, the features or characteristics of price movements can be easily described. Generally, this approach is analysed from the perspective of price changes and is therefore the best technique through which traders can accurately read the market. In addition, price action trading enables subjective decisions to be made on the basis of actual and recent price movements.
Since the methodology ignores the fundamental analysis factors, it is dependent on different tools of technical analysis. Price action trading strategies are most often implemented by day traders to quickly generate profit in a very short time frame. For example , searching for a simple breakout from the session high and entering a long position while using strict money management strategies can generate smart profits from the session high.
What are the tools used for price action trading?
It is obvious that trading in price action is linked to past price movements and recent historical data. It therefore uses all technical analysis tools, such as trend lines, graphs, high and low swings, price brands, technical levels, and others, based on the choice and strategies of the trader.
The best part is that the patterns and instruments observed by traders can be seen in simple price bars, break-outs, bands, trend lines, channels, volatility, and many others. Price action trading, along with subsequent actions, is also known for trader-based behavioral and psychological interpretations. In the same approach, it is not possible for a couple of traders to interpret a specific price action, as each will have to define rules, behavioral understandings and interpretation.
All in all, price action trading, supported by recent price history and technical analysis tools, is one of the most systematic trading practices. Here, traders will be able to make their own decisions based on a particular scenario to achieve trading positions, eyeing the behavioral , psychological and subjective states.
Why it is the best trading option for beginners?
Once you are aware of the strategies of price action trading, there will not be much time to research. All you need is to concentrate on the pricing conditions, find an asset or just wait for it to develop. An additional benefit of this method is that, when compared to other indicator-based methods, traders gain more favorable entries and exits. Therefore, by simply focusing on price traders, instead of waiting for information given by a lagging indicator, real-time information can be obtained. Bear in mind, that price action trading provides more wins than loses.
The concept of breakout
Breakout is one of the most common price action strategies. When the price of the trend of an asset breaks, an alert to the traders opens up new possibilities for trading opportunities.
For example, if a stock trades for the last couple of weeks from $11-$ 10 and then starts moving up to $11, the traders will be alerted to the change in trend. It will show that there is a greater likelihood of moving to $12 as the sideways movement is likely to have ended. There are various types of patterns through which there can be breakouts. Triangles, ranges, flag patterns, and head & shoulders include these. In particular, breakouts provide exceptional profits, when looking for small consolidations or short periods.
There are other types of strategies, apart from the breakout, that provide good trading opportunities.
Compatibility for price action trading
For speculators, retail traders, several trading firms and even arbitrageurs, price action trading can be the best option. A range of securities, including bonds , equities, forex, derivatives, commodities and others, can use the methodology. The fundamental steps include:
- Identifying the scenario: when a stock price moving to bull/bear phase, breakout, channel range etc.
- Identifying trading opportunities within the scenario: When a stock hits the bull run, it has the chances of retreating or overshooting. This is a subjective choice and thus, varies on traders even with the same trading scenario.
The best learning opportunity offered by price action trading is available to all beginners in the trading profession. It will enable traders to learn how price chart movements are read and interpreted. This also helps to reach a decision on the implementation of other analytical tools, such as indicators, statistics or seasonality.