introduction to price action trading.
price action :
the term price action refers to the prime movement which happens in any security in a given period of time.
Jesse Livermore was one of the most significant practitioners of price action analysis. He was the one who invested price action trading in the 20th century.
the fundamental belief of price action is that price never lies ,so price action methodology remove all the technical indicators and only basic price movement data is used to generate entry and exit signals for trade.
price action is one of the branches or a part of technical analysis which makes use of only the past and the current price to predict the future price movement of any security.
price action trading:
price action trading is also known as clean chart trading .price action trading takes place when you base your trading (buying and selling) on the price behavior of any security.
in Gujarati, there is a famous saying related to the stock market which is the essence of price action trading Bhav Bhagwan means price is supreme.
price action trader on what has happened and what is happing in the market as opposed to why it is happening .
as mentioned earlier , price action trading is normally based on the naked price chart without making use of any indicators like oscillators, pivots ,moving averages, etc
a price action trader does not give much weightage to technical indicators like MACD ,RSI,ADX and so on.
a price action trader is only concerned with past and current price data points which include open, high, low, close price and hence price action traders mainly use candlestick and supply.
if the price of any security goes up it simply means that there are more buyers. then sellers which pushes the price of the security higher. in other words, demand is higher then supply .similarly, if the price of any security goes down it simply means that there are more sellers than buyers which pushes the price of the security lower. in other words supply is higher then demand.
on the price of any ,i have presented two charts, one showing just price action another one loaded with indicators along with the price.
chart below in NEFTY 50 daily price action chart which shows a clear picture of the price movement of the the index in a simple manner..
chart below is NIFTY 50 daily chart loaded with commonly used technical indicators like Bollinger bands, ADX and RSI.
now by looking at both the charts, I am sure you will say that the first chart is easy to read and understand while the second chart loaded with indicators looks a bit confusing and messy.
hence if you are a beginner and trying to learn technical analysis, I would always suggest to start with learning about price action before you think of using indicators because such an approach will help you to easily understand what the chart is saying.
low price stocks.
- tata Tela (Maharashtra)
it will also become much easier for you spot chart patterns on a price action chart.
if are new , then after reading this books, i would suggest you to see a sew charts on a daily basis and try to analyze them as to what candlesticks are saying and spot chart patterns in them.
slowly but surely you will gain confidence , which will help you a lot in your trading.
HOLD ON!
by no means , i am saying that you should never use technical indicators. you can use some indicators along with your price action data which might give additional confirmation to your analysis.
many price action traders use volume and 50 or 200 day simple or exponential moving averages with price action data to filter out the trend.
basic principles of price action trading:
before proceeding, further, let me list out the main concept or principles on which price action trading is based .
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