PRICE ACTION:
the term price action refers to the price 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 removes all the technical indicators and only basic price movement data is used to generate entry and exit signals for trde.
price action is one of the branches or a part of technical analysis which makes use of only the post 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 is takes place when you base your trading decision (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 Che which means price is supreme. Price action trader focus on what has happened and what is happening 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, points, 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, Hight, low, close price and hence price action traders mainly use candlestick charts or bar charts.
price action trading is purely based on the concept of demand and supply.
if the price any security goes up it simple means that there are more Boyers 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 next page , i have presented two charts, one showing just price action and another one loaded with indicators along with the price. Chart below is NEFTY 50 daily price action chart which shows a clear picture of the price movement of the index in a simple manner.
chart below is NEFTY 50 daily chart loaded with commonly used technical like Bollinger bands, ADX and RSI .
now by looking at both the charts, I am sure you will say that the first is easy to read understand while the second chart loaded with indicators looks a bit confusing and messy. Hence if you 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 chart is saying.
it will also become much easier for you to spot chart patterns on price action chart. If you are new, then after reading this book, i would suggest you to see a few 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 action trading is based.
- support and resistance
- candlesticks and chart patterns
- trends
- market reaction
- structure of the market
all these concepts will be discussed in detail in the chapter ahead in this this book.
now let us look at some advantages and disadvantages of ptice action treding.
advantages of price action trading.
1.IT HELPS YOU TO TRADE IN REAL TIME: price action gives you the edge in real time frame as it does not include technical indicators most of which are lagging in nature as they are derived using post price and volume data.
2. easy to understand : as explained earlier, understanding price action in any easy task because you are looking at just price data points, which
makes it easy to identify.