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Price action trading

What is it?

In short, price action trading means trading without using sophisticated algorithms and indicators. Price action traders believe that the chart itself shows all necessary information and that we do not need anything else. Instead of using black-box systems which show entry and exit signals, they focus on charts and market's behaviour.

Below you can find key elements of price action trading.

Trends

Traders usually find trends on the chart by looking for higher highs or lower lows. If price action is able to reach new highs, we are in an up trend. If it reaches new lows, we are in a down trend.

Support and resistance

Support and resistance are levels where price action is likely to stop or reverse, because it happened in the past. They act like invisible barriers. When support level is finally breached, it becomes resistance level. When resistance level is breached, it becomes support level.

Candle patterns

Candle patterns usually consist of one to three consecutive candles. Examples of such patterns are pinbars, inside bars, outside bars or engulfings.

Chart patterns

Chart patterns are much bigger than candle patterns. They usually contain lots of candles. Examples are: head and shoulders, double bottom, double top, channel, triangle, wedge or Gartley pattern.

Breakouts

Price action often remains inside a channel or consolidation range for a long time. When it finally escapes, we call it a breakout. Breakouts can lead to very strong movements. The longer the consolidation, the stronger the breakout should be.

Charting

It is worth to remember that we are not bound to time-based charts, which are most common. There are other charting methods like renko charts, range charts, tick charts or point and figure charts. These charts are more focused on price action than standard time-based charts. You can find a few charting add-ons for MT4 and MT5 in our software section.


Tools and indicators can still be useful

Although trading price action usually means forgetting about indicators and other automatic tools, they can actually still be useful. For example, indicators showing you resistance and support levels in form of horizontal lines will make them much easier to spot on the chart. Highlighting candle or chart patterns will help you find them quickly, especially when trading on many charts. Indicators which analyze currency strength will help you find pairs with the strongest trends.

If you are looking for such tools, you can find them on price action indicators website.