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Be the first to like this. In simple terms, price action is a trading technique that allows a trader to read the market and make subjective trading decisions based on the recent and actual price movements, rather than relying solely on technical indicators. For example, they may look for a simple breakout from the session's high, enter into a long position, and use strict money management strategies to generate a profit. If you're interested in day trading, Investopedia's Become a Day Trader Course provides a comprehensive review of the subject from an experienced Wall Street trader.
You'll learn proven trading strategies, risk management techniques, and much more in over five hours of on-demand video, exercises, and interactive content. 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. The tools and patterns observed by the trader can be simple price bars, price bands, break-outs, trend-lines, or complex combinations involving candlesticks , volatility, channels, etc.
Psychological and behavioral interpretations and subsequent actions, as decided by the trader, also make up an important aspect of price action trades. For e. Other traders may have an opposite view — once is hit, he or she assumes a price reversal and hence takes a short position. No two traders will interpret a certain price action in the same way, as each will have his or her own interpretation, defined rules and different behavioral understanding of it.
In essence, price action trading is a systematic trading practice, aided by technical analysis tools and recent price history, where traders are free to take their own decisions within a given scenario to take trading positions, as per their subjective, behavioral and psychological state.
Most experienced traders following price action trading keep multiple options for recognizing trading patterns, entry and exit levels, stop-losses and related observations.
Keep It Simple and Trade With the Trend
Having just one strategy on one or multiple stocks may not offer sufficient trading opportunities. Most scenarios involve a two-step process:. This is a completely subjective choice and can vary from one trader to the other, even given the same identical scenario. As can be seen, price action trading is closely assisted by technical analysis tools, but the final trading call is dependent on the individual trader, offering him or her flexibility instead of enforcing a strict set of rules to be followed.
Price action trading is better suited for short-to-medium term limited profit trades, instead of long term investments. Most traders believe that the market follows a random pattern and there is no clear systematic way to define a strategy that will always work.
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Most importantly, the traders feel in-charge, as the strategy allows them to decide on their actions, instead of blindly following a set of rules. Trading does have the potential for making handsome profits.
- How to Identify and Trade with the Trend in Forex.
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It is up to the individual trader to clearly understand, test, select, decide and act on what meets his requirements for the best possible profit opportunities.