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There are many different ways to trade. Some traders will prefer to follow the trend. Others will trade according to the color of the candles formed on the price chart. Many experienced traders will use Price Action Trading.
Price Action trading is commonly associated with the forex markets. However, it can be used to trade any market. This guide will look at what Price Action trading is.
Key Takeaways🔑
| →Price Action trading is a technique that focuses on the asset's price to make trading decisions. |
| →It can be used to trade various markets, including forex, stocks, and other financial instruments. |
| →Learning Price Action trading involves understanding candlestick patterns, chart patterns, and support and resistance levels. |
Overview of Price Action Trading
Price Action trading is a technique of trading where the trader reads the markets and makes their trading decision solely based on the actual asset price on the chart. Traders that use this technique believe that the asset's price is the most important piece of data you need to make a trading decision. As such, many will avoid using indicators.
Why Price Action?
Followers of this discipline believe that there's nothing new in the markets. History repeats itself. As such, prices will oscillate around a specific price point. With this knowledge, Price Action traders are able to make predictions about how the markets will act during certain periods.
Price Action traders will therefore keep looking for repeating price patterns on their charts. Their major question is, “What direction does the price take when it reaches a specific point?” Knowing the answer to this question allows the Price Action trader to make very accurate trading decisions in future trades.
One major advantage of Price Action trading is that you don't need to rely on many indicators. Your only concern is the current price.
What does price action mean in trading?
We can say that price action is a price movement plotted on a timeline. Such price movements on a chart form various repetitive patterns and are the foundation of technical analysis of financial markets. Identified patterns allow traders to assess the current situation in a given market. They help to make both speculative and investment decisions.
Is price action trading the best?
If you ask someone who uses price action in trading on a daily basis, you will probably hear that of course, price action is the best. The truth is that if we put 2 traders on the same chart and they both use price action, it may turn out that their chart analysis will be different.
This is because each may prefer different tools within the same trend. Someone may attach great importance to candlestick patterns, someone else may specialise in classic technical analysis. Still another person may act on the basis of key supports and resistances on the chart.
The second point is that any chart analysis is then translated into trading decisions. These two traders may have a different perception of the technical situation in a given asset, but at the same time, they can both make money on this asset using slightly different tools within the price action.
Pros and Cons of Price Action Trading 📊
| Pros 😃 | Cons 😔 |
|---|---|
| Eliminates the need for lagging indicators | Requires significant practice and experience |
| Applicable to various markets and assets | Subjective interpretation of price patterns |
| Focuses on the most relevant data: price | May not account for external factors affecting the market |
Key Elements of Price Action Trading 📈
| Candlestick Patterns 🕯️ | Chart Patterns 📊 |
|---|---|
| Bullish Engulfing | Double Top |
| Bearish Engulfing | Double Bottom |
| Hammer | Head and Shoulders |
| Shooting Star | Inverse Head and Shoulders |
| Morning Star | Ascending Triangle |
| Evening Star | Descending Triangle |
Price Action trading on IQ Option
Although many traders agree that Price Action trading doesn't require the use of indicators (due to their lag), this trading technique works well when used alongside support and resistance lines.
The reason for this is that, prices tend to behave in a predictable way once they hit the support, resistance levels. Take a look at the snapshot below.
You will notice that once a pin bar candle develops along with the trend, it's a signal for an impending trend reversal.
In the first image, the bearish pin bar develops signaling that prices are unlikely to rise beyond the high (tip of the upward-pointing shadow). In the second image, the bullish pin bar develops at the end of the downtrend signaling a trend reversal.
For a Price Action trader, prices aren't likely to drop below the low of the pin bar (tip of the downward-pointing shadow). The Price Action trader's trading strategy involves reading the charts this way.
How do you trade with price action?
Becoming a Price Action trader is no easy fete. First, you'll need to learn how to read price charts. This means knowing the different types of candles and what they signal.
Second, you'll need to learn to identify price patterns. This will require a good grasp of how to draw support and resistance lines. Finally, you'll need to instinctively know how prices react when they reach certain points along the trend.
How do you learn price action trading?
On our blog you will find many articles dedicated to the elements of price action. I have made such a simple division into candlestick patterns and elements of classical technical analysis. It is worthwhile for you to familiarise yourself with this knowledge and decide which tools you feel comfortable with.
Articles relevant to the reading of candlestick formations
- Brand new strategy to trade using only candle colors
- How to profit from Three Inside Pattern on IQ Option
- How to recognise the Sushi Roll Chart Pattern on IQ Option
- Guide to Trading the Hikkake Pattern on IQ Option
- 1# Guide for Trading Using the Bullish Engulfing Candle Pattern on IQ Option
- The Best Guide to Trading Using Price Action and Candlesticks on IQ Option
- #1 Guide to recognise a Stick Sandwich candlestick pattern on IQ Option
- Bullish and bearish belt hold candlestick patterns explained
Articles in the field of classical technical analysis
- #1 Guide on how to trade breakouts on IQ Option
- Different Chart Types explained on the IQ Option platform
- Simple aproach to trade trend lines effectively on IQ Option
- Rebound line Strategy on the IQ Option platform
- Guide to Setting Up and Trading Using Support and Resistance on IQ Option
- Trading the famous head and shoulders pattern on IQ Option
- Double and Triple Top and Bottom with Digital Options
Verify your IQ Option account and make your first deposit
If you've already opened an IQ Option account, it's advisable to verify it as soon as possible. Account verification has several advantages. One advantage is that your withdrawals will be processed faster. It also helps to keep your account more secure. IQ Option account verification takes roughly 5 working days.
Making your first IQ Option deposit is quite easy. The platform accepts several payment methods including debit/credit card and ewallets such as Jeton Wallet, Neteller and Skrill. Depending on the payment method you choose, your deposit should reflect in your account within a few minutes.
Once you have deposited money in your account and had it verified, it's time to start trading using real money.
Try out the Price Action trading strategy I've taught you today.
Once you've traded using the Price Action technique, I'd love to hear about your results in the comments section below.
Common Questions About Price Action Trading 🤔
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- Q1: How long does it take to master Price Action trading?
- A1: There is no specific timeframe to master Price Action trading. It depends on the individual's dedication, practice, and ability to learn from mistakes.
- Q2: Can Price Action trading be applied to different timeframes?
- A2: Yes, Price Action trading can be applied to different timeframes, from short-term intraday trading to long-term investments.
- Q3: Is Price Action trading suitable for beginners?
- A3: Yes, Price Action trading can be suitable for beginners, but it requires dedication and practice to become proficient in analyzing price patterns.
- Q4: Can I use Price Action trading in combination with other strategies?
- A4: Yes, Price Action trading can be combined with other strategies, such as using technical indicators, support and resistance levels, or fundamental analysis for a more comprehensive approach to market analysis and decision-making.
- Q5: How reliable is Price Action trading in predicting future price movements?
- A5: While Price Action trading can provide valuable insights into potential price movements, no trading strategy is foolproof. It is essential to manage risk, continually learn, and adapt to changing market conditions.