PRICE ACTION INDICATORS
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Overview of Price kích hoạt Charts
If you browse the website at times, it can be difficult to lớn determine if you are looking at a stoông xã chart or hieroglyphics. When you see a chart with manyindicators & trend lines, it is likely a trader trying lớn overcompensate for lachồng of certainty.
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For example, I have sầu talked with traders whose screens look something like the picture below.
Too Many Indicators
I have even seen some traders that will have sầu four or more monitors with charts this busy on each monitor. When you see this sort of thiết đặt, you hope at some point the trader will release themselves from this burden of proof.
What if we lived in a world where we just traded the price action indicator? A world where traders pichồng simplicity over the complex world of technical indicators and automated trading strategies.
When you remove all the clutter from the trades, all that is remaining is the price.
To see a chart minus all the indicators, take a look at the following image.
Price kích hoạt Chart
At first glance, it can almost be as intimidating as a chart full of indicators. Like anything in life, we build dependencies and handicaps from on pain of real-life experiences. If you have been trading with your favorite indicator for years, going down to a bare chart can be somewhat traumatic.
While price action trading is simplistic in nature, there are various disciplines. The disciplines can range from Japanese candlestiông chồng patterns, support & resistance, pivot point analysis, Elliott Wave Theory, & chart patterns <1>.
In this article, we will explore the six best price action trading strategies & what it means to lớn be a price action trader.
Chapter 1: What Makes up Price Action
Before we dive sầu inkhổng lồ the price action trading strategies, I want first to lớn ground you on the four pillars of the price action indicator.
CandlesticksBullish TrendBearish TrendFlat MarketIf you can recognize and understvà these four concepts & how they are related lớn one another, you are on your way.
Learn to Trade Stocks, Futures, & ETFs Risk-Free
Pillar 1 – Candlesticks
I have listed candlesticks here because this is the most popular khung of charting in today’s trading world. Historically, point & figure charts, line graphs & bar graphs were the raves of their day.
Not to lớn make things too open-ended at the start, but you can use the charting method of your choice. There is no hard line here.
However, for the sake of not turning this into a thesis paper, we will focus on candlesticks. The below image gives you the structure of a candlestichồng. To learn more about candlesticks, please visit this article that goes into lớn detail about specific formations & techniques.
Candlestiông xã Structure
The key point khổng lồ rethành viên with candlesticks is each candle is relaying information, và each cluster or grouping of candles is also conveying a message. You have sầu lớn begin lớn think of the market in layers.
Pillar 2 – Bullish Trend
This is a simple chiến thắng to identify on the chart, & as a retail investor, you are likely most familiar with this formation.
A bullish trend develops when there is a grouping of candlesticks that extover up & khổng lồ the right.
Think of a squiggly line on a 45-degree angle.
The key thing to look for is that as the stochồng goes on khổng lồ make a new high, the subsequent retracement should never overlap with the prior high. This ensures the stoông xã is trending và moving in the right direction
Make sense?
Pillar 3 – Bearish Trend
Bearish trends are not fun for most retail traders. Shorting (selling a stochồng you vì chưng not own) is likely something you are not familiar with or have sầu any interests in doing. However, if you are trading this is something you will need khổng lồ learn to be comfortable with doing.
This formation is the opposite of the bullish trover. This is where a security will trend at a 315-degree angle.
Pillar 4 – Flat Market
Get ready for this statement, because it is big. In general terms, the market is in a flat trading range approximately 70% <2> of the time according to author Heikin Ashi Trader, which is the pen name of a trader with over 15 years of futures & forex experience.
Rarely will securities trkết thúc all day in one direction. You will set your morning range within the first hour, then the rest of the day is just a series of head fakes.
If you can re-imagine the charts in these more abstract terms, it is easy lớn form size up a security’s next move quickly.
Flat markets are the ones where you can lose the most money as well. Reason being, your expectations và what the market can produce will not be in alignment. When the market is in a tight range, big gains are unlikely. The main thing you need lớn focus on in tight ranges is lớn buy low & sell high.
Chapter 2: Price kích hoạt Trading Strategies
#1 – Outside Bar at Support or Resistance
For those unfamiliar with an outside bar, an example of a bullish outside bar is when the low of the current day exceeds the previous day’s low, but the stoông chồng rallies & closes above the previous day’s high.
The bearish example of this would be the same setup, just the opposite price action.
outside down day
Therefore, it’s not just about finding an outside candlestiông xã và placing a trade. As you can see in the above chart of Cambrex (CBM), it’s best to find an outside day after a major break of a trkết thúc. In the CBM example, there was an uptrend for almost 3 hours on a 5-minute chart prior to lớn the start of the breakdown.
After the break, CBM experienced an outside down day, which then led khổng lồ a nice sell-off inlớn the early afternoon.
#2 – Spring at Support
Spring at Support
A spring is when a stock tests the low of a range, only khổng lồ quickly come bachồng inlớn the trading zone và kiông xã off a new trkết thúc. According lớn the author xxx, “springs, shakeouts, & tests usually occur late within the trading range và allow the market & its dominant players lớn make a definitive chạy thử of available supply before a markup chiến dịch will unfold. <3>
I like khổng lồ use volume when confirming a spring; however, the focus of this article is khổng lồ explore price action trading strategies, so we will zone in on the candlesticks.
The one common misinterpretation of springs is traders wait for the last swing low to lớn be breached. Just to be clear, a spring can occur if the stoông xã comes within 1% to 2% of the swing low.
Trading setups rarely fit your exact requirement, so there is no point in obsessing a few cents. To illustrate this point, please have sầu a look at the below example of a spring thiết lập.
Spring Example
Notice how the previous low was never breached, but you could tell from the price action the stock reversed nicely off the low và a long trade was in play.
#3 – Inside Bars after a Breakout
Inside bars are when you have many candlesticks clumped together as the price action starts to coil at resistance or tư vấn. The candlesticks will fit inside of the high và low of a recent swing point as the dominant traders suppress the stochồng to lớn accumulate more shares.
To illustrate a series of inside bars after a breakout, please take a look at the following chart.
This chart of Neonode is truly quality because the stock had a breakout after the fourth attempt at busting the high. Then there were two inside bars that refused to give bachồng any of the breakout gains. NEON then went on to lớn rally almost 20% in one trading day.
Please note inside bars can also occur prior to lớn a breakout, which strengthens the odds the stoông chồng will eventually breakthrough resistance.
This is honestly my favorite thiết lập for trading. I love sầu it when a stoông xã hovers at resistance and refuses lớn back off. This is a sign to you that things are likely going lớn heat up.
The other benefit of inside bars is it gives you a clean mix of bars to lớn place your stops under. This way you are not basing your stop on one indicator or the low of one candlestiông xã.
#4 – Long Wiông chồng Candles
Are you able khổng lồ see the consistent price action in these charts? If not, were you able khổng lồ read the title of the setup or the caption in both images?
Just having a little fun here, don’t get sensitive.
The long wichồng candlestichồng is one of my favorite day trading setups. The thiết lập consists of a major gap up or down in the morning, followed by a significant push, which then retreats. This price action produces a long wiông xã and for us seasoned traders, we know that this price action is likely to be tested again.
Reason being, a ton of traders, entered these positions late, which leaves them all holding the bag. The counter pressure will be weak comparatively, so what can’t go down must go up again. This leads to lớn a push baông xã khổng lồ the high on a rethử nghiệm.
That may have been a little tough to lớn follow, so let’s illustrate this point through the charts.
Notice after the long wiông xã, CDEPhường. had many inside bars before breaking the low of the wichồng. After this break, the stoông chồng proceeded lower throughout the day.
#5 – Measure Length of Previous Swings
Have you ever heard the phrase history has a habit of repeating itself? Well, trading is no different.
As a trader, you can let your emotions & more specifically hope take over your sense of xúc tích. You will look at a price chart and see riches right before your eyes.
Well, that my frikết thúc is not a reality. Did you know in stocks there are often dominant players that consistently trade specific securities?
These traders live sầu & breathe their favorite stoông chồng. Given the right level of capitalization, these select traders can also control the price movement of these securities.
What you can vì khổng lồ better understand the price action is to lớn measure previous price swings.
As you perform your analysis, you will notice comtháng percentage moves will appear right on the chart. For example, you may notice that the last 5 moves of a stochồng were all 5% to 6%.
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If you are swing trading, you may see a range of 18% khổng lồ 20%. Bottom line, you shouldn’t expect stocks to lớn all of a sudden double or triple the kích thước of their previous swings.
I fully understand the market is limitless; however, it’s better khổng lồ play the odds with the greathử nghiệm chance versus swinging for the fences. Over the long haul, slow và steady always wins the race.
To further illustrate this point, let’s go to lớn the charts.
Notice how FTR over a 10-month period experienced many swings. However, each swing was on average 60 lớn 80 cents. While this is a daily view of FTR, you will see the same relationship of price on any time frame.
As a trader, vị you think it would make sense khổng lồ expect $2, $3, or $4 dollars of profit on a swing trade? At some point, the stoông xã will make that sort of run, but there will be more 60 khổng lồ 80 cent moves before that occurs.
Just on this one chart, I can count 6 or 7 swings of 60 khổng lồ 80 cents. If you can trade each of these swings successfully, you, in essence, get the same effect of landing that trang chính run trade without all the risk và headabít.
#6 – Little lớn No Price Retracement
Not to get too caught up on Fibonacci, because I know for some traders this may cross inkhổng lồ the hokey pokey analysis zone. However, at its simplest khung, less retracement is proof positive the primary trkết thúc is svào and likely lớn continue.
The key takeaway is you want the retracement to be less than 38.2%. If so, when the stochồng attempts to lớn thử nghiệm the previous swing high or low, there is a greater chance the breakout will hold and continue in the direction of the primary trover.
This is especially true once you go beyond the 11 am time frame. This is because breakouts after the morning tover to fail. So, in order lớn filter out these results, you will want lớn focus on the stocks that have consistently trended in the right direction.
Chapter 3: False Setups
Trading comes down to lớn who can realize profits from their edge in the market. While it is easy lớn scroll through charts và see all the winners, the market is one big cat and mouse game.
Between the quants and smart money, the false setups are everywhere.
As a price action trader, you cannot rely on other off-chart indicators khổng lồ provide you clues that a formation is false. However, since you live sầu in the “now” và are reacting khổng lồ directly what is in front of you, you must have strict rules khổng lồ know when to get out.
For me, in lieu of a technical indicator, you can use time as a gauge.
Just to be clear, the chart formation is always your first signal, but if the charts are unclear, time is always the deciding factor.
I did a study of all my winning trades and over 85% of them paid in full within 5 minutes.
If you have been trading for a while, go baông chồng and take a look at how long it takes for your average winner khổng lồ play out.
Let’s đánh giá a few head fakes to get a feel for what we are up against in terms of false setups.
I just showed you two examples of head fakes in both equities và futures markets.
In each example, the break of support likely felt like a sure move sầu, only to have sầu your trade validation ripped out from under you in a matter of minutes.
Chapter 4: How to lớn Protect Against the Head Fakes
There are many ways you can protect yourself against head fakes.
For starters, vị not go hog wild with your capital in one position. Make sure you leave yourself enough cushion, so you bởi vì not get antsy with every bar that prints.
Also, let time play lớn your favor. I know there is an urge in this business to act quickly. However, there is some merit in seeing how a stoông xã will trade after hitting a key support or resistance level for a few minutes.
If you think baông chồng khổng lồ the examples we just reviewed, the security bounced back the other way within minutes of trapping traders.
Where to Place Your Stops
One thing lớn consider is placing your stop above sầu or below key levels. Since you are using price as your means khổng lồ measure the market, these levels are easy to lớn identify.
Now one easy way lớn bởi vì this as mentioned previously in this article is to use swing points. A more advanced method is to lớn use daily pivot points.
Now I know what you are thinking, this is an indicator. Well yes và no. Unlượt thích other indicators, pivot points vì not move sầu regardless of what happens with the price action.
So, let’s see how you can use pivot points lớn avoid getting caught in false signals.
Notice how the price barely peaked over the key pivot point & then fall back below the resistance cấp độ. In order to lớn protect yourself, you can place your stop below the break out màn chơi khổng lồ avoid a blow-up trade.
Another option is lớn place your stop below the low of the breakout candle. Some traders such as Peters Andrew even recommends placing your stop two pivot points below. <4> This doesn’t work for me, as I bởi not lượt thích that much risk, but it can work for some.
This is honestly the most important thing for you to take away from this article – protect your money by using stops. Do not let ego or arrogance get in your way.
Chapter 5: Price kích hoạt Traders
Price action traders are the Zen traders in the active sầu trading world.
These people believe sầu the human brain is more powerful than any machine.
Please vì not mistake their Zen state for not having a system. The price action trader can interpret the charts & price action khổng lồ make their next move.
Benefits of Price Trading
For starters, there isn’t as much information to lớn process, so you can focus on the chart action.
Secondly, you have no one else lớn blame for getting caught in a trap. Don’t bother emailing the guru with the proprietary trade signal that had you on the wrong side of the market.
The biggest benefit is that price action traders are processing data as it happens. There is no lag in their process for interpreting trade data.
Chart PatternsBy relying solo on price, you will learn lớn recognize winning chart patterns. The key is lớn identify which setups work and to lớn commit yourself to lớn memorize these setups.
The next key thing for you lớn vì is khổng lồ traông xã how much the stoông chồng moves for và against you. This will allow you khổng lồ set realistic price objectives for each trade. You will ultimately get to a point where you will be able lớn not only see the thiết lập but when to exit the trade.
Challenges
Price action traders will need lớn resist the urge to lớn add additional indicators to your system. You will have lớn stay away from the lachạy thử holy grail indicator that will solve all your problems when you are going through a downturn.
The real challenge is it’s extremely difficult lớn trade purely on price. It’s not something you can just pick up và start doing right away.
You need lớn think about the patterns listed in this article and additional setups you will uncover on your own as stages in your trading career.
First, learn lớn master one or two setups at a time. Learn how they move sầu và when the thiết lập is likely lớn fail.
This, my frikết thúc, takes time; however, get past this hurdle and you have achieved trading mastery.
To further your retìm kiếm on price action trading, check out this site which boasts a price action trading system.
In Summary
Trading with price action can be as simple or as complicated as you make it. While we have sầu covered 6 common patterns in the market, take a look at your previous trades to see if you can identify tradeable patterns. The key thing for you is getting to lớn a point where you can pinpoint one or two strategies.
To start, focus on the morning setups. The morning is where you are likely to lớn have sầu the most success. Avoid the lunchtime và kết thúc of day setups until you are able lớn turn a profit trading before 11 or 11:30 am.
To thử nghiệm drive sầu trading with price action, please take a look at the Tradingslặng platsize to see how we can help.
