The article is devoted to the price action trading strategy. The author discusses its advantages and disadvantages before he shares some advice. It is dependent on technical analysis tools.
Where is Price Action Used?
Since price action trading is an approach to price predictions and speculation, many retail traders, speculators, arbitrageurs and even trading firms use it. It can be used on a wide range of securities including equities, bonds, forex, commodities, derivatives, etc.
What words describe the ideal strategy for the online trading? The first one is simplicity. The traders hate to be confused by dozens of indicators and signals. The second word is informative. Trading requires quick decision-making: a second can make or break your profit. The third word is effective. The strategy has to bring the results delivering 70% profitable trades.
Price Action Strategy was invented and applied by a banker C. Dow. Since price action trading relates to recent historical data and past price movements, all technical analysis tools like charts, trend lines, price bands, high and low swings, technical levels (of support, resistance and consolidation), etc. are taken into account as per the trader’s choice and strategy fit.
You can apply and customize Price Action in your account at Olymp Trade: you can see it as graphs or candles to follow and predict the trends.
Keys to the Price Action Strategy
Traders apply many theories, strategies and patterns. Some of them are complicated while others are simple. We think that simple strategies are the best so let’s talk about “absorption” and “rails.” You will easily identify the candles by their shapes and arrangements. We recommend to use SMA of the 20 bar to determine the trend. Find the indicator at your account at Olymp Trade in the list.
Consider the chart below depicting upward trend. The length of the individual trend waves is the most important factor for assessing the strength of a price movement.
During an upward trend, long rising trend waves that are not interrupted by correction waves show that buyers have the majority. On the other hand, smaller trend waves or slowing trend waves show that a trend is not strong or is losing its strength. The figure below shows that the trending phases are clearly described by long price waves into the underlying trend direction.
“Rails” represent two approximately identical sized candles and you can determine if it is bullish or bearish market.
When to buy and when to sell?
Interesting correlations can be made together with the concept of length: A trend is intact if we find long trend waves or trend waves that become longer with a moderate or increasing angle. On the other hand, a trend with trend waves that become increasingly shorter, and which is simultaneously losing its steepness, indicates a possible imminent end.
The length of the individual trend waves is the most important factor for assessing the strength of a price movement.
During an upward trend, long rising trend waves that are not interrupted by correction waves show that buyers have the majority. On the other hand, smaller trend waves or slowing trend waves show that a trend is not strong or is losing its strength.
Long trend waves confirm the high trend strength. The trend comes to a standstill as soon as the waves shorten. Right: The downward trend is characterized by long falling trend waves. However, the length decreases downwards and the trend reverses shortly thereafter
Conclusion: As you see, the strategy is extremely simple. Remember that Price Action patterns do not work with short bars. Trade with the trend, it is either an up trend, down trend, or it’s ranging. Don’t trade if you can’t identify the trend the market is in. Trading isn’t hard.
You just need to trade with the trend and nothing else. Best of success!