Trading Patterns on Price Action

Info
16/06/2019

The price Action pattern is understood as a candlestick pattern acting as a ready signal to buy/sell a currency pair. Thus, the trader does not use indicators and complex formulae within the framework of this technique, but he makes conclusions based on the situation on the net price chart.


Traders’ interest in Price Action is also fuelled by the fact that this approach is regularly updated by simple traders, i.e., people themselves explore the market, find repeating formations and share their discoveries with colleagues on the forums.

In other words, this is the first strategy in the world, which rules are created collectively and not monetized through the sale of textbooks. It follows that it can be trusted because no one is interested in aggressive advertising and distortion of facts.

Market analysis with Price Action methods is an incredibly promising direction. It is essential that these candlestick patterns are seen by other market participants, including major players who work well on them.

The problem with using Price Action is that there are many nuances that many traders do not know and therefore are doomed to losses. Thus, in this article, we will consider the crucial nuances that you need to know when using Price Action.

All we need is a minimum and a maximum

Analysis of lows and highs gives us much information about the strength of the trend, its direction, and sometimes can even signal the end of the trend and the beginning of a new one. Analysis of highs and lows can be combined with traditional trading methods, and this is one of the secrets of Price Action. Here are a few nuances that will help you understand these highs and lows:

Do you see a long wave with small pullbacks? (it indicates a strong trend) Is the price slightly above the highs or lows? (it indicates a weakening of momentum) Do you see an increase in volatility (candle wicks are getting bigger) and is the price making new highs and lows? (volatility indicates a high probability of reversal) An uptrend in which the price cannot easily make new highs should alert

In general, the main important thing is how the highs and lows are formed within the candlestick pattern. That’s what you should always pay attention to.

Support and resistance zones are better than lines

Support and resistance is the most popular concept that all traders adhere to. However, the problem is that not everyone can make money on it. Also, the reason is simple, although at first glance not obvious.

The fact is that many traders use two lines: the first is the resistance line, the second is the support line. These lines are visible on historical data, but not in real time. Much more information will be given by the use of support and resistance zones.

Timeliness of market entry

It so happens that we see the signal to enter the Price Action and immediately decide to enter the market. But do not hurry. Even if the signal is good, it is better to enter the market at important price levels.

First of all, we need to find important areas of support and resistance, and then wait for the price to go there. We enter the market only when the signal is formed in a pre-marked area. This, firstly, won’t make you worried, because you will enter at the beginning of the movement, and, secondly, will allow earning more.

Comparison

A big mistake of beginners is when they learn about the patterns of Price Action, and then begin to apply them everywhere as a blueprint. But when using Price Action, you should definitely look at what has happened before.

Solve the puzzle

This paragraph links the previous 4 and shows the importance of using them in conjunction to avoid uniform thinking. This will make it possible to avoid mistakes for those who are looking for a model as a blueprint.

The length of the wick. If we see a lot of long wicks, it means that volatility and uncertainty are increasing, especially at market peaks or dense aggregations of these candles.

Bull and bear wicks. A long wick near the top of the previous candle can signal a change of mood. For example, a long wick up can signal bullish pressure.

The position of the candlestick body. If the body of the candle closes nearer to the top of the closing of the previous candle, this often indicates the presence of bullish pressure, especially if the candle has a large bullish shadow (wick).

The body of the candle. The ratio of the wick and the body of the candle can tell us a lot. A candle with a large body and a small wick signals the strength of the pressure, while candles with a small body and a large wick signal indecision

Knocking out stop orders

Some price Action patterns are very obvious, so newcomers enter the market, put stops, and then when those stops are knocked out by the market, they think these brokers are specifically hunting for their feet.

In fact, everything is simple. Professional traders know where beginners will place stop orders. Therefore, we need to take into account one simple caveat: brokers do not hunt for our feet. Well, unless you do not trade through a Frank kitchen. The big players in the market deliberately knock out the feet of newcomers, generating more liquidity, that’s all.

Therefore, opening a deal on Price Action, we either wait until all the stops of beginners are knocked out (this will be approximately clear, analyzing the behavior of the price in the support and resistance zones), or we place our stops a little further from the support or resistance zone.

Advantages and disadvantages of Price Action patterns

In today’s review, we’ve decided not to describe the algorithm of search and marking of specific figures, so as a final part we will list the main advantages and disadvantages of the “clean chart.”

In particular, its strengths include the following features:

Price Action patterns are almost not late, i.e., the signal is formed with a small lag, while the indicator entry points sometimes appear even when it is necessary to exit the position;

It is easy to set stop losses by candlesticks — it is enough to designate only local High or Low;

This analysis works on any platform, as it does not require the installation of additional software.

As for the shortcomings, the obvious disadvantages of the price Action patterns are not peculiar; the only not good thing about them is the lack of clear targets for taking profit.

 

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