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Price Action – Graphical Analysis of Price Behavior

Price Action is a market reading technique based on the analysis of asset price behavior, plotted on a candlestick chart, without indicators. In the USA this technique is also known as naked trading.

Today we will talk about Price Action . We realize that there is a question between the trades about Price Action what it is and searches for Price Action PDF .

Let’s clarify the issues related to this technique.

What is Price Action?

In a translation for Portuguese, price action simply means “price action” or “price behavior”.

Thus, we can say that Price Action is the technique that analyzes the price movement of an asset, plotted on a chart over time.

There are traders who use this technique solely and exclusively to make their trading decisions.

Price Action does not use indicators, only candles and volume are plotted on the chart, as you can see in the image below:

Price Action Chart
Candlestick chart with horizontal volume

It is also common to be seen on the charts of traders who use Price Action, in addition to volume and price, a moving average.

Just being a technical indicator, many traders use a moving average as a reference for short, medium and/or long-term prices.

In short, your function of price action analysis for the trader is to show the patterns of price movement to try to predict future movements.

But where does the volume come in?

Generally, the volume is used as a confirmation of the forecast. A lot of volume reveals the entry of possible major players in the movement, which gives a good signal to the trader.

The Fundamentals of Price Action

From the analysis of the “naked graph” we can see the following information:

Brackets

By drawing the horizontal line at the minimums of a given asset on a given timeframe, the trader can visualize the support line for the asset.

Resistance

As in the support, the trader draws a horizontal line at the maximums and obtains the resistance of the asset.

Support and resistance are the most basic concepts of graphical analysis and it is difficult to find a trader of any level who does not know how to plot these lines on the chart.

What else does it show us?

Upand down trend lines

As we can see in the market, an asset never only goes up or just goes down.

The ascent or descent is done in “ladder”, that is, the price goes in favor of the movement and comes back a little, continues in favor and back a little.

These turns are always smaller than the ones, as in the chart below.

In this example we see how the tops and bottoms are mostly upwards, forming an uptrend line.

Side market

When there is no tendency, well, there is laterality.

In this case, we will have two parallel lines and flats (fully horizontal), indicating a flat market.

How to Operate Lines

The trader does not plot the lines on the chart just to soothe it, of course.

So how can the trader take advantage of the drawn lines?

Price Action in Side Markets

In a side market the trader has two options:

  1. Buy on the bracket and sell on the way to resistance (or vice versa).
  2. Wait for the breakout (break age of the side market somewhere) and position yourself in favor of movement.

In case number two the volume is of extreme relevance.

It is very common when a market is sideways that the price is overthe lines plotted by traders on some ticks (it can be 1, 2, even more).

However, it is often the market testing demand at that price level.

When demand doesn’t come, the market comes back.

If the trader positions himself in favor of the demand test, he ends up getting trapped at a very unfavorable price.

And that’s where the volume comes in: if the market breaks this line with large volume it means that the demand test was successful and that more players are entering the market at that price level and in the same direction of movement.

Then yes, the trader will have a great trade location.

Price Action in TrendMarkets

In a trending market, no matter the technique used for reading, it is worth the maximum:

The trend is your friend!

Financial, Market.

For those who do not know the phrase “the tendency is your friend”, it’s past time to meet.

When the trader recognizes that the asset is trending he can use the drawn lines to enter the best price.

In the chart above, orange circles reveal good entry points in an uptrend.

Thus, the trader maximizes his winnings when entering the movement.

It is not always that the trader will be able to enter the minimum of the day and still the active hitch trend (it would be the best of the worlds).

Often, when the trader notices the trend he has already lost some part of it.

Thus, having a good entry point after starting the trend is critical.

Rollbacks

Whether the trader is in a trend trade or not, he should monitor the continuity of the movement.

Staying within the lines, it’s all right with continuity.

As said, however, it is common for some candles to overlight the line by a few ticks.

How does the trader know if it is the end of the move and a possible reversal start?

Answer: volume.

The volume is the confirmation of the movement.

If the asset goes 4 ticks beyond the trend line without any volume, it is likely to be nothing relevant: trader continues to monitor continuity.

If the volume is too large in motion: possible end of momentum. Active may reverse or simply consolidate laterally.

When to sell

So far we’re talking about entry, but what about the trade exit?

In the case above it was clear: if the asset is trending, exit when it exits the trend.

And what to do if the trader has not caught the trend, but, caught the reversal?

Or if you’ve caught the breakout of a side market, where you’re going to “aim” the exit?

The trader can both pick up the support and resistance lines outlined earlier (hence the importance of a daily preparation of the trader), as well as in the case above, and wait for the end of the movement.

There is still the trailing stop,which consists of a mobile stop.

Advantages of Using Price Action

The great and most notable advantage is the cleaning of the chart.

Technical analysis traders often end up using many indicators that, in the end, confuse more than clarify what should be done.

Using the PA the trader will have less information on the screen, however, with more quality in the final information.

Another advantage is simplicity: you don’t need the last mega badass indicator that came out and everyone is using it.

Price. Volume. That’s final.

Setups

The simplicity of the PA brings with it the comfort of assembling setups with well-defined inputs and outputs.

When the trader becomes more experienced in the technique and develops this skill he knows how to look at the market.

For example, on news days like Payroll,which timeframe best?

What volume should I look like a large volume after the data comes out?

Also, depending on the volatility and trading patterns of a given asset, the trader can adjust the timeframe to improve the signals given.

This all, of course, comes with the experience that no book teaches.

One trading modality that uses PA a lot is Forex.

In the largest market in the world you find numerous traders making some money with this technique.

Conclusion

Like any other market reading technique, Price Action should be used with caution by the trader.

There’s always the statistic behind each trade and we don’t really know what it is.

We estimate and train, but we can’t let any technique be greater than our market experience.

Al Brooks’ books are the Bibles of Price Action.

If you want to delve into the subject, it is recommended to read.

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A hug and good trades!