Price Action Trading 101 🅿️ What it is and How to Use it for Profits 📉

Simply put, price action refers to the movement of price on a chart. It involves analyzing candlestick patterns, support and resistance levels, trends, and other aspects of price dynamics without relying on indicators. Price action traders believe that all relevant information is reflected in how price moves over time - upwards, downwards, or sideways. By learning to "read" price charts, traders can identify patterns that provide trading opportunities.

Instead of confusing indicators, focus on price itself. Candlesticks clearly show you open, close, high and low prices each period to spot trends and reversals. The key aspects of price action include:

• Trends: Identifying uptrends and downtrends through higher highs/higher lows and lower highs/lower lows.
• Support and Resistance: Areas where price consistently bounces or stalls. Provide important entry/exit areas.
• Candlestick Patterns: Formations like pins, dojis that signal reversals or continuations.
• Order Flow: Imbalances between buyers and sellers revealed through candle formations.

One of the most reliable patterns in price action trading is the trend. When prices are making a series of higher highs and higher lows, this indicates an upward trend as buyers are in control. Conversely, a downward trend involves lower highs and lower lows as sellers dominate. The power of trends is that they tend to persist, so the best strategy is to simply "ride the trend".

Candlestick patterns provide powerful insights into market psychology and momentum shifts. By watching for common formations like pin bars, dojis, and hammers near support/resistance levels, traders can identify high-priority reversal and continuation signals. Some key patterns to watch for include:

• Pin bars: A single bar with a small body and wick over 70% of the bar's height. Often signifies a reversal is coming.
• Dojis: A bar with little to no body, showing indecision. Followed by a move in the direction of the long wick.
• Hammer/Hanging Man: Looks like a hammer/hanging man and forms after a downtrend/downtick. Indicates a bullish/bearish reversal may happen.

Areas where price consistently bounces or stalls provide important levels to watch. By marking 3 or more touches of a price area, traders can identify:

• SUPPORT: Floors traders buy dips towards. Look for patterns below support signaling breaks may occur.
• RESISTANCE: Ceilings sellers defend. Watch for bullish signs like engulfing candle patterns above resistance hinting at breakouts.

Paying attention to candlestick formations at S/R levels can trigger high confidence trades. Simply wait for closes beyond S/R before acting to confirm the break.

There are several advantages to using a price action approach:

• It relies only on raw price data without any indicators cluttering the charts. This allows for a simpler analysis.
• Price action strategies work across all markets and time frames. The patterns remain consistent regardless of the asset.
• It requires an understanding of market psychology reflected through bullish/bearish reactions at key levels. This knowledge is transferable.
• Price action traders are not dependent on tweaking indicator settings. The chart conveys all the necessary information.
With practice, it trains traders to recognize patterns subconsciously and react quickly to emerging opportunities.

To get started analyzing price action, focus on the following steps:

• Choose a liquid asset and timeframe like the 5-minute chart of EURUSD. Practice daily.
• Learn to identify trends through higher highs/lows or lower highs/lows. Trade in the direction of the trend.
• Mark significant support and resistance levels on your chart from past price behavior.
• Watch for common candlestick patterns forming at support/resistance that signal reversals or trend continuations.
• Practice what you learn by paper trading until strategies are refined. Then risk small live trade sizes.

With consistent practice of these steps, your ability to extract profitable trades from raw price action will significantly improve over time. Be patient as it requires experience to develop an intuitive understanding.

In conclusion, price action is a proven way for traders of any experience level to analyze charts. By learning tell-tale signs reflected through price behavior, opportunities can be spotted across all markets. Focus on the core concepts outlined here to start your price action journey.