Many analysts mention price action trading as the simplest trading strategy to learn. Besides, it also offers effective ways to successful trading. Therefore, if you just start trading, learning price action trading will mark a great starting point.
The Definition of Price Action Trading
In price action trading, traders make their decision based on the price movement of an asset. The trader will not use indicators or other methods to analyze their decision. If they have to use other methods, then they will use it with very little weight in their trading decision process.
The price traders believe that the most meaningful information for their trading is only coming from the price itself.
Stock traders know that people are buying, then the stock price goes up. With that information, traders will assess the level of aggressiveness of the buying.
These traders usually never concern on the reason of why something happens.
They usually look for a favorable entry point for their trade by analyzing the historical charts and real-time information. That real-time information covers bids, offers, volume, velocity, and magnitude.
With a favorable entry point, the traders can control their possible risks, while gaining a potential profit at the same time.
Type of the Strategy
Now we have various price action strategies. The most common price action strategy is a breakout. It is after the asset price has moved into a certain tendency, but then it breaks that tendency.
After that, the breaking point will alert the traders of the new trading opportunity. There are many different patterns for a breakout to happen. That includes ranges, triangles, flags, head and shoulder patterns. Breakouts during a trend can give great profit potential.
We also have a false breakout. What happens when after the occurrence of a breakout the price does not go in the anticipated direction.
Traders usually use price support and resistance regions to get good trading opportunities. Support and resistance happen where the price has the tendency to reverse in the past.
