What is Price Action?
'Price action' means price fluctuations of a stock or index in the given market.
On any trading day, from open to close, the price keeps on changing. This variation is nothing but Price Action.
Let's discuss Price Action Trading:
'Price Action Trading' is a trading concept in which a trader reads the chart and makes subjective trading decisions based on the price movements, rather than relying on technical indicators or other factors.
In simple words, traders use only 'price' and 'volume' to make any trading decision.
The three essential components of trading are :
1. Price -it advertises all the opportunities.
2. Time- it regulates all the opportunities.
3. Volume- it measures the success or failure of all the advertised opportunities.
Volume is essential as 80% of the trading volume is given by 20% of the big players.
How to use Price Action Trading?
Traders need to spend some time getting a fair idea of price action trading as it will not generate any buy or sell signals like other indicators.
It involves three steps :
1. Identify key price levels using any method like drawing trend lines, pivot points, supply-demand zones, round numbers, support and resistance lines, etc...
2. Planning an 'Entry' based on the candlestick pattern at key price levels ( for beginners).
3. Similar to step 2, planning an 'Exit' based on the candlestick pattern or raw price action at key price levels.
Price Action Trading VS Indicators
I have seen many traders who lose money with blind price action trading and indicators. Hence, debating price action trading vs. indicators is a waste of time. I suggest picking the one which suits your personality is the best way to do trading.
Indicators Don't Dictate the Price:-
How many indicators are there in the market? 100? 1000? Maybe 10000?
There is no end to this number as anyone can develop an indicator using an online platform such as 'Trading View,' 'Chart link,' or 'Gocharting.'
Even if a trader chooses 2-3 indicators, they can come up with different readings anytime. Isn't it? My concern is that people add 4-5 indicators on the chart, wait for some cross-over or overbought/oversold scenarios, and then pull the trigger. In the end, they don't even know what instrument they are buying or selling.
Let's discuss with an indicator.
The price doesn't know or care whether the RSI ( an indicator) is in an oversold zone or close to 200 DMA. It does efficiently what it has to do. If the price falls further, the RSI level will also fall further, but at a slower rate, the moving average will start moving down slowly.
So it is better to remember that 'indicators' indicate and don't dictate the price. Any fluctuations in the price will also bring changes in the indicators.
I can go on with many indicators, but I don't want to make this a boring article. The key takeaway is, 'Indicators don't dictate the price!' Never take a trade just because some indicator shows some level .
Difference between price action trading vs. indicator based trading:
From the logical perspective, I don't see much difference between a price action trader and an indicator-based trader because both are trying to analyze the price but using different approaches.
Let me clarify.
A price action trader studies the price directly. Most of the indicators are derived from the price. Hence, an indicator trader is also studing the price but indirectly.
Don't you think it's better to study the price directly instead of investigating the same price using different indicators?
I will leave the choice to you!
.
You must be logged in to post a comment.