What is Price Action?
Price action deals with the interpretation of the action of the price and the underlying psychology of the market analysing the patterns price draw in bars or candlesticks and how it reacts at determined price levels, which are considered key levels and characterised as supports or resistances to the future price.
Price action has been discussed in several articles on our Ditto Trade website. Therefore it would become repetitive and a waste of time to repeat all this. So, instead, let’s list the articles here for your reference and study:
Bars and Candlesticks
Bars and candlesticks are the two main forms of representing the range of prices in a segment of time. From the action trader point of view, the patterns that show bars or candlestick, isolated or in combination with previous bars, reveal the hidden psychology of the market participants and, also, who is currently controlling the movements of the price.
The links below show a wealth of information that you need to master before attempting to trade using your money.
To improve your odds of success in the markets, you need to assess the current trend of the assets you intend to trade.
There are, basically to conceptions or beliefs about price action. One that follows the current opinion, thinking that if a trend is in place is because the big institutions who move the market knows something you don’t, so you’ll follow them and profit from the wave. The other is thinking about price action as a rubber band that stretches and, then, relaxes. When the price is too stretched, and at an extreme, the future natural action is for it to relax and move back to its mean or, even, the opposite extreme.
Maybe your style is to trade with the trend or fade it but to do it you need to assess the current trend and price extension.
The articles below will tell you how to determine the market type and current characteristics.
Support and Resistances
Support and resistances are the bread and butter of trading. These are the most reliable signals you’ll ever encounter. Therefore It is a basic ability for your success. The links below will tell you everything you need to start trading.
Many people use oscillators to assess overbought and oversold price levels; others rely on Bollinger Bands or the CCI to do it. But if you master support and resistance concepts and practice, you’ll be ahead of the herd of traders trusting the indicators. It’s not that indicators are wrong. They are useful confirmatory information on your analysis, but what support and resistance evaluation give you is one of the most precious advantages you’ll ever have.
On bullish trades, supports are the levels at which the reward-to-risk is the highest, and resistances are the best places to set your targets. Conversely, on short (bearish) trades, resistances are the best place to trade from the reward-to-risk ratio point of view, and supports are the natural places to close a short position.
The importance of high reward-to-risk trades is discussed here. But suffice to say that seeking high reward-to-risk trades makes sense from a business perspective, but also, because it is intuitively obvious that the higher the reward-to-risk ratio, the easier and faster to recover from a drawdown. If seems evident, also that the higher this ratio, the less per cent winners a trader needs to break-even. Therefore it is a protection against the times when the trading signals fail more than usual.