Not Using Indicators, Trading Based on Price Action Alone
No.3
Trading with Price Action is a method of trading that does not rely on indicators but focuses solely on price movements (candlestick and chart patterns). Many successful traders use this strategy because it emphasizes the ‘pure’ or natural movement of the market.
When trading solely with Price Action, there is no dependence on indicators, and attention is given to the following:
1. Recognizing Candlestick Patterns
The foundation of Price Action is the movement of candlesticks. Some important patterns include:
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- Pin Bar: A strong reversal signal with a long wick and a small body.
- Engulfing: A candlestick that engulfs the previous one, often indicating a trend reversal.
- Inside Bar: A candlestick that is within the range of the previous bar, signaling consolidation or a potential breakout.
- Doji: The opening and closing prices are equal, often indicating market indecision or a possible reversal.
2. Support and Resistance
Even without using indicators, support and resistance lines are crucial. Pay attention to previous highs and lows and price levels where reversals frequently occur.
- Support: A price level where the price is likely to bounce back up after declining.
- Resistance: A price level where the price is likely to reverse downward after rising.
These levels are determined based on past price movements. By identifying them, traders can determine the right timing for entries, particularly when the price bounces off or breaks through support or resistance levels.
3. Trend Lines
Understanding trends is essential in price action trading. When prices consistently rise or fall, recognizing the flow of movement and following the trend rather than going against it is key.
- Uptrend: A state where higher highs and higher lows are recorded. Traders enter at lower prices (lows) in anticipation of the trend continuing upward.
- Downtrend: A state where lower highs and lower lows are recorded. Traders enter at higher prices (highs) in anticipation of the trend continuing downward.
Drawing trend lines helps in understanding price direction and detecting breakouts or retracements. These serve as a basis for identifying ideal entry points in the market.
4. Breakouts and Retracements
The market price often moves within a defined range, so when it breaks through support or resistance levels, significant price movements can occur. Utilizing this is known as the breakout strategy.
- Breakout: When the price breaks through a key support or resistance line, gaining momentum, it is considered an opportunity to enter a trade.
- Retracement: Within a trend, the price temporarily reverses before resuming the main trend direction. Entering at this point is based on the expected “return” to the trend.
5. Differences in Timeframes
In price action trading, having different perspectives based on timeframes is important. For example, if a major trend is visible on the daily chart (D1), an entry point might be found on the 1-hour chart (H1).
A common approach is: confirm the trend on a higher timeframe and determine the right timing for entry on a lower timeframe.
6. Practical Application of Price Action
- Entry: The entry point is determined based on price action. For example, if a pin bar appears near a support line, it can be considered a reversal signal and a good entry point.
- Setting Stop Loss: In price action trading, stop loss is typically set based on the nearest high or low. This minimizes potential losses when price movement goes against the trade.
- Take Profit: Take profit points are set based on support or resistance levels or previous price movements.
7. Controlling Emotions
Price action relies on intuition in many aspects, so making decisions with a calm mindset is crucial. Emotional control and adherence to established rules are key to successful trading.
In this way, trading with price action emphasizes the “pure” movement of the market. Instead of using indicators, this method focuses on reading price patterns and trends. Practical aspects of price action include experience and the ability to interpret charts, but due to its simplicity and intuitive nature, many traders rely on and prefer this trading style.
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