Price Action Trading
What is Price Action Trading?
We have heard enough people telling us that price action trading is the ultimate strategy to be profitable in trades. But what exactly is this so-called price action trading?
PRICE ACTION TRADING = PRICE + ACTION + TRADING
Price Action Trading is simply relying on the price (candlesticks) more than relying on other elements such as indicators to trade in the market. In price action trading, the trader sees the candlestick behavior, mark support & resistance as per the candlestick/price behavior (price action) & then look at the indicators for confirmation (some traders do not use indicators, it totally depends on your trading style) to take the trade.
Price Action Trading Myths
In price action trading, more emphasis is on the candlestick structure and behavior but this does not mean no indicators are used. I personally find out support and resistance as per the price action and use RSI & Stochastic RSI to confirm if the price will go up or down.
Indicators are lagging, so you cannot completely rely on them. Therefore, I have created a combination of price action and indicators which suit my trading style.
Example of a Trade as per Price Action
The Current Bitcoin price is 48867$ in the above chart. Now we will mark our support & resistance zones as per price action.
We will look for areas of price reversal immediately above 7 below the current price to mark our support & resistance zones
We will mark support/resistance areas from the body closing to the end of the wicks
We have marked our support & resistance zones as per the price action. Now we will wait for the price to come to our support zone.
Now, price is in our support zone. We will not blindly go in just because it is a support zone. Now, we will look at our indicators. RSI is showing a bullish divergence & stochastic RSI is also bullish. We have got confirmations from our indicators. Now we will take a trade from the current price of 46915$ to the first level of resistance 50124$ with the stop-loss below lower level of support i.e. below 45750$
Look at what the price did next? It went straight to our take profit zone & we made a profit of close to 7% on that trade.
This is how I use price action along with a combination of other indicators to take trades! Hope you liked it!