Disclaimer: The views on the posts and charts are for educational and illustration purpose only, as past performance is not necessarily indicative of future performance. They are provided for general information only and therefore should not be taken as any offer or solicitation to do any investment or trade.
Note: Non-Members are strongly recommended to sign up for the online free course to have a better understanding of the setups as discussed below:
What Is Price Action Trading?
Have you wandered how the weather man forecast the weather for the next few days? They collect data from satellites and computers to study past data to make forecast in the weather, whether is it going to be sunny or rainy in the coming days. Price Action Trading is like weather forecast too. We study past data on our charts to predict whether the stock is going to go up or down. If we are right in our prediction, we make a profit but if we are wrong (like our weather men forecast in Singapore), then we lose.
Rain or Shine, know it before you go. Up or Down, know it before you trade
Images Sources: Depositphotos
Price Action Trading Tools
In Price Action Trading, we use price action chart that is displayed in Japanese candlestick form, ie Candlestick chart. It is much easier to see visually who has won the battle between the Bulls and the Bears by the body shade of the candlestick.
Beside candlestick, we also use confluence levels of support and resistance to help us plan our trade to give us a higher probability setup.
Advantages of Price Action Trading
1.Simplicity As an Edge
Trading is complicated enough and making things simple is a better approach that can give you an edge. Price action trading is the purest form of data analysis with just price action on the chart. There is no lagging indicator like MACD or RSI that cluttered the chart.
Furthermore, price action traders do not use fundamental analysis to make trading decisions as we believe everything is reflected in the price action. However, traders need to be aware of major events coming like FOMC interest rate decisions, companies earnings results, etc to plan his trade such as staying sidelined before the news or initiating or adding tier to position after the announcement.
2.Market Structure is Key
Price action provides market structure to your analysis. As a Price Action Trader, knowing the market structure in the chart is very important as it helps you to identify the swings in a chart. Swing traders make use of these turning points in the form of support and resistance to help them enter or exit a position.