Looking for the best price action indicator? Plotting a security’s price with respect to time gives what is commonly known as price action. The movement is usually up and down or upward or downward trends. Price action thus helps traders to understand the changes in the price of a given commodity. A premium price action indicator can be called the best forex indicator if used properly. Price action is the principle behind the technical analysis of a wide range of assets such as a commodity and stock.
The information from the analysis comes in handy for traders, most of who depend on the result of the price/time analysis to make informed trading decisions that will boost their profit potentials.
Price action is crucial to technical analysis because the analysis is dependent on the security’s past market prices that will help them to arrive at informative conclusions that can help them to trade like a pro. Without price action, you can’t calculate moving averages and other technical analysis tools.
Thus, a trader can analyze a market using the price movement. With the information garnered from the analysis, the trader can decide to trade the market or not. Simply put, price action provides you with the information you need to make trading decisions on an indicator-free or naked price chart.
Most traders don’t use distant price history but use the market’s price movement of the last six months or less. If you prefer auto trading then you can check out this best ea forex site. The price history includes some components such as swing lows and swing highs in the market. Resistance and support levels are the other components.
Although price action shares some similarities with other forms of technical analysis, unlike other forms, it doesn’t consider an asset’s second value but focuses primarily on the relationship between the current and past market prices.
Many hedge fund managers and institutional traders use price actions to predict the price of a financial market or security.
The price action offers traders great trading opportunities, provided they have a full grasp of the concept and its application.
Support & resistance, trend, and market reaction are the three tenets of price action that every trader must learn, understand, and incorporate into their trading.
Support and resistance are two important tenets of price action. Support refers to a point where buyers’ input supports the price while resistance refers to a stagnant point in the market. At this point, the market simply stops moving higher.
Traders can choose from an array of indicators to trade trends and their strengths. However, a simple technique that helps to define a price standpoint’s trend is the market’s position: whether the market is an uptrend (higher-lows and higher-highs), downtrend (lower-highs and lower-lows), or range (neither downtrend nor uptrend).
Finally, you have the market reaction. This refers to how the market reacts to a trend’s price levels. As a trader, study the market behavior here. Know whether the market’s behavior invalidates or confirms the chart. That knowledge will prove invaluable to your trading decisions.
Candlestick analysis will help you to identify the market’s condition, whether it adheres to a given level or fluctuate between different levels. With the help of candlesticks that demonstrate engulfing bars, key-reversal bars, and other related bars, you can easily identify a rejection from the given price level. You can also read an interesting article about the xmaster formula forex indicator. The information will also enable you to identify a change in momentum, an indication of the market’s tendency to change direction from the levels you’ve previously identified. The levels’ reversal may not be swift and easily pronounced, however, it will be pronounced enough to show the sellers and buyers.
From here, you have the information you need to determine the best place to place stops. You have two options: swing-low if you are targeting longs or for shorts, swing-high.
Pillars of Price Action Indicator
A price action indicator is built on four pillars. These are:
Uptrends in the market price constitute bullish trends. You have this market trend type where consecutive higher highs and higher lows are formed.
A bearish trend is the opposite of a bullish trend. Thus, the trend is downwards and refers to where consecutive lower highs or lower lows are formed.
Candlesticks are graphical representations of a commodity. It provides some pieces of information about a given period such as the low, the high, and the close. You have a green or bullish bar when the security’s closing price is higher than its opening price. It is bearish if the closing price is lower than the opening price, in which case the bar will be red or bearish.
So, the candle is upward for a bullish bar and downward for a bearish bar.
Unlike the bullish and bearish trends that indicate upward and downward trends respectively, the flat market refers to a situation where the market structure follows different paths. Hence, you have a flat market when the locations of the highs and lows aren’t consistent. Thus, the action won’t be upward or downward but sideways. The movement is usually between a resistance level and support.
The price action isn’t of any value if you can’t use it to boost your chances of making a profit from trading assets. Using the best-priced action trading strategy will make a huge difference in your trading result.
Here are some outstanding price actions trading strategies you can implement:
The shooting star is a bearish signal. It’s a type of price action that signifies that the market has a higher probability of moving below the higher. Traders use it in the down-trending markets.
This price action is the opposite of the shooting star price action. As such, it is a bullish signal that indicates that the market has the potential to move higher than lower. Uptrending markets use the hammer-priced action extensively.
The harami price action is a two-candle pattern. It occurs whenever the market can’t determine a specific price level. Thus, it’s the major price action strategy for breakout trading.
This price action can be bullish or bearish. The former is formed when the high lo low range of a buyer candle develops within a previous seller candle’s high and low range. Since a new low can’t be formed at that instance, the bullish harami gives no specific information about the market. It represents indecision that may trigger an upward breakout.
Conversely, when the high to low range of a seller’s candle develops within a previous seller’s high and low range, you have a bearish harami. In this case, a continuation for forming a new high doesn’t exist, indicating market indecision. Unlike in the bullish harami, the breakout, in this case, is to the downside.
The inside bar patter consists of two bars: the prior or mother bar and the inside bar. The inside bar is located within the mother bar’s high to low range and is smaller than the mother bar.
This bar type is usually formed during market consolidation, although it can serve as a red herring, showing a turning point. Thus, the strategy is preferred for breakout pattern when trading trending markets.
With your knowledge, you shouldn’t have any difficulty predicting the inside bar’s identity: a shifty or consolidation of the prevailing trend. The inside bar’s position and size will determine the price’s movement: up or down.
5. Trend Following Retracement Entry
The trend following retracement entry strategy is relatively simple. It only requires a trader to follow existing trends while trading.
You must be observant of the price situation to use this strategy. Consider taking a short position for a downturn price and creates lower highs consistently. Otherwise, if the price rises incrementally while the lows and highs trend increases, you may consider buying in.
This is a market movement characterized by inconsistent price movement. The price may rise, fall, rise and fall again. Before experiencing a modest drop, the price will rise to a lower high. The series of price depreciation and appreciation makes the price market inconsistent.
It is a popular price action trading strategy that allows traders to choose an entry point and set a stop loss with ease. With the strategy, you can leverage a temporary peak for profitable trading.
The result of an inside bar pattern’s false breakout is commonly referred to as afakey pattern. The pattern occurs when an inside bar pattern reverses after breaking out briefly. The reversed pattern will also close back within the inside bar or the mother bar’s range.
As the name implies, this pattern deceives traders into believing that the market is breaking in one way. However, it returns in the opposite direction, thereby setting off a price movement in the opposite direction.
Traders can map out their market’s emerging trends if they implement the sequence of highs and lows strategy. An upward trend occurs if a price trades at higher lows and higher highs. For a downward trend, it trades at lower lows and highs. With this knowledge, traders can easily choose an entry trading point at an upward trend’s lower end.
A single candlestick makes a pin bar pattern. This pattern shows provides two major pieces of information: a reversal in the market and price rejection. The pin bar suggests price movement in the opposite direction to where its tail is pointing because the tail shows a reversal and price rejection. It shows the rejected range of price.
The usual assumption is that price will move in the opposite direction to the tail. Traders expectedly will use the information to determine whether a short position or a long position is the best. For instance, a long lower tail in the pin bar pattern shows that a range of lower prices has been rejected. Thus, price appreciation may be imminent.
It’s a great trading pattern in range bound market and a trending market. Traders can also trade it counter-trend from a resistance level or key support.
The trend following breakout entry tracks the market’s major movements. It’s assumed that a retracement succeeds a price spike. Hence, a breakout occurs when a market moves outside a defined resistance or support line.
With this information at their disposal, traders can act. For a stock that breaks above a defined resistance line or in the upward trend, they may take a long position. For movement below the defined support line, a short position is advised.
Your knowledge of these trading strategies and their application holds the key to your success.
While price action signals help traders trade wisely, the focus shouldn’t be primarily on the signal itself. The signal’s source on the chart is another important factor to consider. For instance, bars have distinct qualities and offer different information. Thus, the source of a price action signal will determine whether to trade it or look for an alternative.
Price action signals formed in the market’s confluent points are the best for trading. Confluence refers to a location on the chart where the price action entry signal isn’t alone but accompanied by a couple of things. The price action signal is said to have confluence at this point.
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Price action is undoubtedly a powerful trading tool. Numerous trading strategies adopted by traders from across the globe are based on this tool. Understanding the concept of price action and its associated strategies will make a significant difference in your trading skills and outcome.