The best way to understand price action trading is to talk about what it does not do. Price action traders do not look at Bollinger bands. They are not interested in moving averages. In effect, price action traders do not take into account technical analysis indicators.
Unsurprisingly, price action trading comes down to one thing: the price. Using this method, traders make their decisions based purely on the movement of prices in the markets. Price action trading is sometimes referred to as “naked trading” because it is a method based on price charts without other variables or indicators.
What is price action trading?
Price action traders believe that price is king. The price action trading method is effectively the study of how prices move in the market. The focus is the action of the price itself – not those triggers leading up to any changes. In this type of trading, the belief is that all the relevant information and variables are contained within the price action itself.
Long-term investors will assess the markets and make their decisions based on predictions of future prices. Price actions traders ‘live in the moment.’ They see the prices (of stocks, shares, crypto, etc.) and then make their trades according to the value at the time.
What tools will you need?
If you are not a huge fan of technical graphs and complicated chart patterns, this could be the trading method for you! Price action traders use very little by way of data analysis. The most common tools used in price action trading are candlesticks, trends, and breakouts.
Price action can be predicted using candlestick charts. In these charts, a candlestick represents a single day’s price data, as long as the time frame is set to D1 (one day). Traders use candlestick patterns to decide when to buy and sell.
Remember bull and bear markets? Price action traders refer to rising prices as “bullish trends” whereas falling prices show a “bearish trend.”
A breakout occurs when a price goes above or below a specific range. In other words, the price “breaks out” of support (low) or resistance (high) levels. Price action traders can use breakouts to decide when to open a trade and ride that ‘breakout wave’ until the price indicates otherwise.
How to get started price action trading?
In the same way you can’t drive without a car, you can’t trade without a broker. No matter what investment strategy you choose, you will need a trustworthy trading platform. Look for the level of customer support and compare the trading tools on offer. TradeOr is a new platform that offers more than just brokerage. Join TradeOr and you will get stellar 24/7 customer support, cutting-edge market research tools, and trading with 0% commission.
Price action trading sounds simple. There are no obscure graphs or intimidating terms like “oscillator index.” Simple does not always mean easy, however. Price action trading requires reading and interpreting price charts. You will need to learn about support and resistance levels and how to recognize candlestick patterns. That said, price action is an excellent stepping–stone to many other methods of playing the markets. If you are a beginner trader, the best thing you can do is find a reliable broker that will give you the right resources and support to start your trading journey!