Trading is one of the most admired activities today, it not only helps you make money but also learn a lot about the stock market. For anyone new to this market should always focus on learning about it correctly. Trading involves making use of your prior knowledge and market information to make your buying and selling decisions. One way to do trading is through price action. In this method, you analyze the performance of a stock by studying its price movements over the past time. The majority of the small traders use price action trading to make most of their trading decisions since they help them with detailed information regarding the price movements, and how the stock price changes with changes in trends.
All of this data is presented on a graphical chart, which depicts the various movements of the price. Candlestick charts are one of the forms of charts that are used for this purpose. These charts show the up and low values of the price by certain lines, which give you a more clear view about their movement, and hence you can infer information and draw conclusions. Following are some of the fundamentals of price action trading that every individual must know:
- What tools are used: Since we know that price action analysis is based on studying past performance, so we use a lot of charts for that purpose. Whether it is candlesticks, price brands, and kind of high and low swing movements, trend lines, or anything else, they help you in understanding the price movements in the best possible manner. While all these might be simple ways to learn, you can also go for complicated combinations to study price movements. It can be a combination of candlestick along with trend lines and channels etc. These tools only act as a medium to make decisions, but ultimately every trader needs to use their own psychological and intellectual knowledge to make the right decisions and live by them. What might work for one, may not work for the other, so being clear with your needs becomes very important.
- Which people use it: Price trading has been of major significance to every individual who is a keen investor in the stock market. Whether it is a retail trader, any sort of trading firm, which employs individuals for trading purposes, or they can be used by speculators too. These individuals deal with various market securities like equity shares, foreign exchange, any kind of commodities, and various derivatives too. Their main motive is to speculate a prediction, and earn profit from it in case it turns out to be true. While this approach may work well in short term, but its long-term consequences are way too negative. For anyone who has an interest in trading practices, they can make use of price action analysis and take the decisions that may help them earn more profits in a long time.
- How to start with it: Trading is a risky activity, so you should never depend on a single technique to take all your trading decisions. In case you are going to use price action trading, there are two steps involved in this process. First, you need to identify a particular scenario (it can be a bull or bear phase or any kind of breakout, etc). Then in the second step, you need to identify trading opportunities from these scenarios, for example, when a stock goes in a bull run, it will either overshoot or retreat. In this case, you are the one who needs to decide what is right for you. If you feel that there is a possibility of the price going up, you can either wait for it to go up or sell the stock then and there only. This will give you an idea about what works well for you and whatnot.
- Why should you choose it: Price action trading is not made for every kind of investment, since it only suits short and mid-term trading practices. The stock market is constantly changing, and that’s why one single strategy will never help you earn profits always. You need to change with the market, in this case studying the past price movements and making inferences from them can help you with taking quality decisions. What makes it a great strategy is its ease of use, the flexibility associated with its operations, and the various applications it associates with. Unlike other trading strategies where you are then answered directly, in price action trading, you are just provided the information and the end decision will always be based on your intelligence and interest.
To learn more about Price action trading, it is recommended to enroll in the best price action trading course, especially the one offered by Finlearnacademy because it provides you with in-depth knowledge about the concept of price action trading & how you can excel at it.