Price Action Strategy Secrets What Every Trader Should be Aware Of


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    Price Action Strategy Secrets What Every Trader Should be Aware Of
    Price Action Strategy Secrets: Introduction

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    One of the most widely used concepts in trading is known as "price action." A trader who is well-versed in the proper application of price action can frequently see a significant uptick in both his performance and the manner in which he analyzes charts. However, there are still a lot of misconceptions and incomplete facts that are floating around, which confuse traders and put them in a position where they are likely to fail. This article delves into some of the most closely guarded price action trade secrets and offers some of the most useful price action trading advice.
    Price Action Strategy Secrets: Overview

    1. Order Absorption: Support and Resistance

    Because the price is forced to turn repeatedly at the same level, this level must be significant and is used by many market players for their trading decisions, support and resistance are indicators of important price levels. If an upward trend is repeatedly forced to reverse at the same resistance, this indicates that there has been an abrupt shift in the ratio between the buyers and the sellers. When sellers initiate a new downward trend in the market, not only do all buyers pull out at the same time, but they also immediately take control of the activity in the market. It is only natural that support and resistance do not always succeed in preventing a price trend from continuing. Breakouts are another potential source of trading signals with a high probability. According to the traditional approach to technical analysis, a support or resistance level is considered to be more robust the more frequently a price reaches it after having previously failed to break through it. However, it is impossible for it to fully concur with this. The equilibrium between buyers and sellers shifts every time the price reaches a level of support or resistance, which can have either of two meanings. During an upward trend, additional sellers will enter the market and start their sell trades whenever the price encounters resistance at a level it has previously reached. When the price reaches the same level of resistance for a second time, there will be fewer sellers waiting there. The buyers will no longer be met with resistance once the resistance has been gradually weakened, at which point the price will be able to break out upward and continue its trend in an upward direction. This phenomenon can be observed when rejections from a resistance become progressively weaker and the price is able to return to the resistance level more quickly in each individual case. The idea of order absorption is also the foundation for other types of formations, such as triangles and the Cup and Handle. One such illustration can be found in the figure below. According to what the arrows are indicating, the price of silver keeps coming back to the same level of resistance sooner and sooner. This would imply that fewer sellers are interested in selling their items at the level of resistance each time. In this scenario, the level of resistance exhibits a diminishing degree of strength. In addition, just before the breakout happened, the trend was already moving in an upward direction and picking up speed, as shown by the dotted arrow. When there was no more interest in selling, the price eventually broke through the level of resistance, which signaled the beginning of an extended upward trend.
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    2. Chart Phases

    There is always the possibility that the price will either go up, down, or remain stable. This may appear to be straightforward, but as it has already seen during the analysis of the candlesticks, when it breaks down complicated information into its individual constituents, it is able to quickly acquire comprehensive knowledge. A quick glance at the screenshot reveals that each chart is composed of the five stages listed below:
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    A rally, a bull market, or simply an upward trend is what people refer to when the price of an asset goes up over the course of some period of time. When prices continue to drop over a prolonged period of time, this type of market is known as a bear market, a sell-off, or a downward trend. There can be a wide range of intensities across different tendencies. The individual components of trend analysis will be broken down and discussed in the following section.

    Price movements that go in the opposite direction of the dominant trend are referred to as corrections. In the course of an upward trend, the price may experience brief periods of falling prices known as corrections. As you can see, the price does not always move in a straight line in one direction during trend phases; rather, the price is constantly moving up and down in so-called price waves. This movement can be seen throughout the entire trend phase.

    Phases of consolidation are those that move laterally. During a sideways phase, the price moves in a price corridor that is usually quite clearly defined, and there are no impulses that cause the price to start trending in a particular direction.

    During a sideways phase, the buyers and the sellers are in a state of equilibrium with one another. A breakout from a sideways phase occurs when the strength ratio between buyers and sellers shifts during consolidations and one side of the market players wins the majority. This can happen when the market is in a consolidation. The price then begins to move in a new direction. As a result, breakthroughs serve as a connecting mechanism between consolidations and emerging trends.

    Trend reversal
    It is possible for a correction to bring about an entire trend reversal as well as the beginning of a new trend if it lasts for a significant amount of time and if its intensity grows. In the same way that breakouts do, trend reversal scenarios indicate that prices are moving from one phase of the market to the next. Because they depict the conflict between purchasers and vendors, the chart phases can be observed by anyone anywhere. This idea has stood the test of time, and it elucidates the mechanism that underlies each and every price change. The price moves higher as the trend phase continues, which is indicative of a buyer overhang. The consolidations represent momentary pauses in the trend; however, a trend is considered to be continuing as long as the price does not reach a new high when the trend is upward. The corrections demonstrate a temporary rise in the strength of the opposition. If these challenges are overcome, the trend will continue in its forward motion. On the other hand, prolonged correction phases eventually transform into new trends whenever there is a complete shift in the strength ratio.
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    These are the only phases that can be found in any chart, regardless of how the phases of the chart are ordered or how strong they are individually. If it has a complete understanding of them, then analyzing prices will be a relatively straightforward process.

    3. Wave Length and Steepness

    At this point, it is getting even more specific. After establishing that every chart can only be constructed out of the different chart phases, which are in turn constructed out of the price waves themselves, it will proceed to investigate the four distinct components that make up wave analysis. The groundwork is finished with those contributions. After that, any subsequent chart formation, as well as any chart in general, can be explained and comprehended using the fundamental building blocks that were previously learned. When trying to determine the strength of a price movement, the length of the individual trend waves is by far the most important factor to consider. Long rising trend waves that are not interrupted by correction wave activity during an upward trend are indicators that buyers have the majority of the market power. On the other hand, trend waves that are either getting smaller or getting slower are indicators that a trend is either not powerful or is losing its power. Long price waves moving in the same general direction as the underlying trend are depicted clearly in the following figure as being indicative of trending phases. Left: Prolonged trend waves provide further evidence of the observed high trend strength. As soon as the waves become smaller, the trend comes to a complete halt. Correct: the downward trend can be identified by the presence of long falling trend waves. Nevertheless, the length continues its downward trend while shortly afterward it begins to shorten again.
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    The rate at which the price increases during the course of a trend is also a very important factor to consider. In general, trends that are moderate have a longer lifespan than trends that are extreme, and a sudden increase in price is typically indicative of a trend that is less sustainable. This phenomenon, in which the price falls again just as quickly as it rose, can frequently be observed during so-called price bubbles, which occur when the price falls after an explosive rise. The progression of the steepness of price trends and waves, in comparison to the context of the chart as a whole, is also an important consideration: The price waves may indicate that a trend is either picking up speed or is slowly coming to a standstill if they are either accelerating or weakening respectively. When considering the concept of length, one can make the following interesting correlations: If it finds long trend waves or trend waves that become longer with a moderate or increasing angle, then it can say that the trend is still intact. On the other hand, a trend that shows signs of imminent termination, such as trend waves that are getting shorter while at the same time losing their steepness. The following screenshot illustrates a situation in which the length and the steepness of the uptrend both changed while it was occurring. The complete about-face occurred not long after that.
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    Price Action Strategy Secrets: Examples

    Example #1: The One-Minute Price Action on Facebook (FB)
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    1. Before forming a bullish structure, this stock moved sideways within a narrow range. This bar served as an important crossroads in the story.
    2. It validated a trend line that was pointing upward. The market was in a bullish bias from a technical perspective.
    3. After drawing the bull trend line, this was the first instance of a Trend Bar Failing to Form. In addition to that, the Outside Bar Attempt Failed.
    4. As the market continued to move higher, it integrated a price channel to facilitate the taking of profits.
    5. The subsequent test of the channel trend line presented an opportunity to get out of the trade while maintaining a profit.
    Example #2: CSCO 5-Minute Price Action
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    1. This pullback that was taken against the new bull trendline resulted in a failure of the Trend Bar. In addition to that, it was an Anti-Climax pattern, which indicates an exhaustive type of price move. However, it was unable to reach the low from the previous swing, which indicates that bullishness is on the horizon.
    2. It's possible that you'll make your exit during the midday rush, depending on how you manage your trades.
    3. On the other hand, if you maintain your composure, this thrust-projected target makes perfect sense.
    4. This stock trading session came to a close with a high that was approximately on target with the projection. It was the best possible outcome.
    Price Action Strategy Secrets: Conclusion

    The purpose of this article is to demonstrate why price action strategies are still relevant in today's stock markets. Please do not consider this to be a comprehensive course on trading based on price action. Trading based on price action is profitable in most markets. This exemplifies the value of taking a straightforward approach. However, a profitable trading method is not the same thing as one that simply works. To accomplish this, you will need to exercise patience, remain steadfast in your approach, and meticulously document your findings. For additional information, visit
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    Last edited by ; 14-05-2022, 08:41 AM.