Price Action is a trading method based on price fluctuations that many traders prefer when analyzing technical. This trading style only uses basic technical analysis tools. It allows traders to make decisions based on price charts. So what exactly is Price Action? What are the advantages and disadvantages of this method and which trading strategy is suitable? Let’s explore more details about Crypto Trading in the following article!
What is Price Action that is popular with traders?
The three basic principles of trading are price action trading, indicator trading, and a combination of both. Among them, price action trading is considered one of the simplest and most effective forms.
What is the concept Price Action?
Price Action, also known as price action, is a trading method based on analyzing price movements on charts. It reflects the behavior of buyers and sellers in the market.
The principle of the method of Price Action is that all price movements are affected by market participants. Specifically, buyers and sellers of products. Therefore, traders will analyze the behavior of these two sides to determine which side is controlling the market. From there, predict the next direction of the price.
- If the buyers control the market (demand is greater than supply), the price will tend to increase => Traders can consider placing a BUY order.
- If the sellers control the market (supply is greater than demand), the price will tend to decrease => Traders can consider placing a SELL order.
Price Action traders will rely on candlesticks or important price zones. Where the candlestick appears (resistance, support). As well as candlestick patterns and price models to analyze price behavior. At the same time, to be able to predict the next trend of the market. They do not use technical indicators or any other analytical tools.
Analysis of advantages and disadvantages of price action coin trading technique
Price Action is one of the fairly simple Crypto trading methods. Recommended by many experts thanks to its outstanding advantages. Below, we will list the outstanding advantages of this method so that readers have a clearer view:
What are the advantages of applying Price Action?
- Simplicity: The biggest advantage of Price Action is to simplify the analysis and trading process. Traders only need to observe the candles or candlestick patterns on the chart to make decisions. There is no need to use complex and confusing indicators such as Elliott wave. This helps to focus on analyzing, observing, and finding better trading signals.
- Easy to access: Price Action analyzes price action through candlesticks. Each candlestick provides a lot of information about that trading session. When the candles combine into special candlesticks or price patterns. They provide effective trading signals. These signals are easy to recognize. Even for new traders with little experience.
- No lag-like indicators: With Price Action, you can quickly notice the market moves and react in time. This gives traders the opportunity to catch a wave. It is superior to other technical indicators which always lag behind the market.
- Helps traders think more: Instead of relying on indicators and using them mechanically, Price Action encourages traders to think more. This method requires traders to predict trends based on observing price behavior through candles. This requires observation skills, analytical skills, and market judgment. All of which stimulate traders’ thinking ability.
Disadvantages of Making Money in Crypto from Price Action Trading
Like other Crypto trading methods, Price Action also has certain limitations. Understanding these disadvantages will help traders apply the method more effectively.
- High Subjectivity: The biggest drawback of Price Action is its subjectivity. Each trader can identify different resistance and support zones. They can identify candlestick patterns and trading price patterns in their own way. From there, they can come up with different price action analyses. This leads to differences in the way of trading, cutting losses, and taking profits.
- Not always perfect: Price Action is not a perfect trading method. The market does not always move simply and clearly through price action. During times of high volatility in the Crypto market. Especially when there is important news, traders may have difficulty determining the price direction.
- Cannot automate trading: Since Price Action requires traders to manually observe charts and analyze price movements to make predictions, automating trading becomes difficult. It is impossible to set up automated trades based on this method. This will be disadvantageous for those who want to use trading robots.
- Requires a lot of time: To grasp the market fluctuations, traders have to constantly monitor the price charts. This is disadvantageous for new traders or part-time traders. Because they cannot spend a lot of time sitting in front of the computer to continuously monitor the charts.
See more: Technical analysis: secret trade to increase profits
What are the 3 important tools in Price Action?
Before you start trading using the method of Price Action, you should remove all unnecessary indicators on your chart, including Fibonacci indicators if not needed. Then, observe the price chart and start looking for signals to trade.
There are three main tools that traders need to pay attention to when trading Price Action. These are resistance/support, candlestick patterns, and price patterns. These tools help traders analyze price action and determine who is in control of the market. However, these tools are not available and must be determined by observing the candlesticks on the chart.
Crypto Trading with Resistance, Support
Support and resistance are important price areas where a trend can reverse or slow down before continuing. These are ideal areas to enter a buy or sell order. Price Action traders often rely on important support and resistance areas to make trades.
- When the price goes up and meets resistance. It can stop or turn down if the selling force is strong enough. At this point, traders can consider and place a SELL order.
- When the price goes down and meets the support zone. It can stop or reverse up if the buying force is strong enough. At that time, traders can consider and place a BUY order.
Coin Trade Techniques Using Price Models
Price patterns are a combination of many candles in a certain period of time. To create special shapes with specific trading meanings. Based on price patterns, traders can determine the developments of buyers and sellers during the process of forming the pattern. From there, it is easy to predict the next direction of the price.
Some common price patterns that traders should pay attention to include:
- Double top, triple top pattern
- Double bottom, triple bottom pattern
- Head and shoulders pattern
- Cup and handle pattern
- Wedge Model
- Pennant pattern
- Triangle model
- Rectangular model
However, to accurately identify price patterns, traders need to understand each pattern clearly. At the same time, they need to observe price charts on many different time frames.
Popular candlestick patterns in trading Price Action
Candlestick patterns are an important trading tool in Price Action. They provide traders with important information about price action and market sentiment. This helps predict future price trends.
Some candlestick patterns that traders need to pay attention to include:
- Basic trading candlestick patterns such as: Inside Bar, Pin Bar, Fakey.
- Bullish reversal candlestick patterns: Dragonfly Doji, Hammer, Inverted Hammer, Morning Star, Bullish Engulfing.
- Bearish reversal candlestick patterns: Gravestone Doji, Hanging Man, Bearish Engulfing, Evening Star, Shooting Star, Three Black Crows.
- Continuation candlestick patterns: Risings Three Methods, Fallings Three Methods.
3 commonly used strategies in trading Price Action
There are many strategies you can apply when trading with Price Action. Including Breakout trading, Retest, Pullback… In this article, Crypto Trading will introduce three effective Price Action trading strategies. Please follow along.
How to Invest in Crypto Using PullBack
With the market moving sideways for about 70% of the time, using the Pullback trading strategy is a popular choice among traders Price Action. In this method, traders only need to identify support, resistance zones, and price channels. When the price approaches these zones, there will usually be a return, creating a trading opportunity.
This Crypto trading strategy works as follows:
- Identify important support and resistance zones in Crypto trading.
- Wait for price action at the support or resistance zone.
Transaction:
- Open a SELL order when the price touches the resistance zone and starts to go down. However, traders need to have a confirmation of the signal. Before touching the resistance, the green candles tend to get shorter or there are bearish reversal candlestick patterns.
- Open a BUY order when the price touches the support zone and starts to move up. In this case, there should also be confirmation that the sellers are getting weaker. Red candles get shorter before touching the support or bullish reversal candlestick patterns appear.
Note: When the candles approach the resistance or support zone without any significant shorting. It is a sign of great strength from the buyers or sellers. In this situation, traders should avoid opening orders.
Set stop loss and take profit:
- Stop loss: Place a few pips above resistance for SELL orders, and a few pips below support for BUY orders.
- Take profit: This can be set according to the distance from support to resistance.
See more: Instructions for opening an MEXC global account
Apply Retest Strategy
To increase safety when making a Break-out trade, traders can wait for the price to return to the breakout zone to retest. In many cases, the price only breaks temporarily before returning to test the support or resistance zone. If this situation occurs without confirmation, the risk can be very high.
Crypto Trading Strategy with Retest will be implemented as follows:
- Identify important support/resistance zones when trading.
Waiting for Retest:
- If the price breaks the resistance zone and then returns to touch that zone with the confirmation of a green candle. At this point, the trader can open a BUY order.
- If the price breaks the support line and then returns to test the support zone with the confirmation of a red candle. Here the trader can open a SELL order.
Set stop loss and take profit:
- Stop loss: Set stop-loss at the nearest peak for BUY orders and the nearest bottom for SELL orders.
- Take profit: Set take profit according to the distance from the entry point to the support/resistance zone. Or according to the R: R ratio as desired.
Crypto Trading Breakout
Breakout trading occurs when the price breaks out of important resistance or support areas. It usually happens strongly in the direction of the breakout. This Crypto trading strategy works as follows:
Observe and identify support/resistance zones: Use price charts (timeframes from M15 to D1) to identify support and resistance zones on the chart.
Wait for Break-out: Wait for the price to break the support/resistance zone and enter an order.
- If the price breaks up after breaking the resistance zone, the trader can open a BUY order.
- If the price breaks the support zone and goes down, traders can consider opening a SELL order.
Set command:
- Order entry point: Use the closing price of the candle that breaks out of support/resistance.
- Stop Loss: Place stop loss one pip below the resistance line or nearest high for BUY orders, and one pip above the support line or nearest low for SELL orders.
- Take Profit: Usually located at an equal distance between support and resistance.
5 Step Guide to Identifying Price Trends Price Action
Creating a price action setup is the process of combining elements to create a well-founded trading idea or strategy. First, analyze the environment, and identify key points for trading. Then wait for the signal.
- Technical analysis to determine valid market structure: This step is the most important. Traders need to answer questions. For example: is the market in a condition to trade? If so, what type of market structure is taking place? To start trading, a reasonable context and structure are needed.
- Identifying Targets for Expected Locations of Trading Signals: When determining their trend, traders often use techniques to mark where price action signals are likely to occur.
- Wait for the predicted signal: If a signal (like a candlestick signal) occurs at the predicted position or nearby. Then it is a suitable opportunity to make a trade.
- Check the profit potential: The trader needs to ensure that the trade can generate a profit higher than the amount of money risked. It is necessary to ensure that there is enough profit potential before reaching the next structural level on the chart.
- Set, forget, and collect: Once you have evaluated the trade, set the order, forget about it, and wait for the results. Set your target and stop loss, then monitor the market movements.
Things to keep in mind when trading with Price Action
When trading with Price Action, there are a few important things to keep in mind to ensure effective and safe trading:
- Understanding Price Action: To apply the Price Action method effectively, traders need to understand how it works. Including candlestick patterns, price patterns, and the principles of price action on the chart.
- Trade only in ideal market conditions. Avoid trading when the market is in a choppy or sideways state. Look for trading opportunities when the market is in a clear trend and is volatile.
- Capital Management: Always maintain disciplined and safe capital management. Set reasonable profit and stop loss levels to protect your investment capital from unwanted risks.
- Patience and Consistency: Trading with Price Action requires patience and consistency. Sometimes, the market may not move in your favor. It is important to stay calm and stick to your strategy.
- Gain Experience: Keep learning and gaining experience from your previous trades. This will help you improve your analytical skills and make better trading decisions in the future.
- Test and Evaluate: For each trade, test and evaluate the results to better understand the strengths and weaknesses of your trading strategy. From there, improve and develop it over time.
How to apply price action with an effective technical analysis method
Applying price action with effective technical analysis requires an organized process and a keen sense of chart reading. Here are the basic steps for traders to apply this method effectively:
- Identify the main trend: First, identify the main trend of the market by using tools in Crypto technical analysis such as moving averages MA, trend lines, or basic price patterns such as highs and lows. This helps you identify the uptrend, downtrend or sideways trend.
- Identify support and resistance levels: Use technical analysis to identify important support and resistance levels on your chart. These are the price levels where prices often react or reverse. Recognizing these levels helps you determine when to enter and exit the market.
- Identifying a Trading Signal: When you spot a candlestick pattern or other price action signal at a key support or resistance level, assess whether the signal is credible. Consider other factors such as confirmation from technical indicators, trading volume, and overall market structure.
- Risk Management and Capital Management: Set stop losses and profit targets based on support and resistance levels, as well as your desired risk/reward ratio.
Conclude
Price Action is a trading method that is simple in theory but requires the sophistication and high skills of each trader. Therefore, if you want to pursue this trading style, make sure you understand this method well. Know how to use related tools and constantly improve your knowledge before starting. Don’t forget to follow Crypto Trading to get more new and useful information!
Frequently Asked Questions
How to start learning about Price Action?
To get started, you need to master the basics of price charts, candlestick patterns, support and resistance. Along with tracking and analyzing past price movements.
What are the advantages of Price Action over other methods?
Price Action helps traders better understand market psychology. Not confused by many complex indicators, and allows quick response to price fluctuations.
What tools are used in Price Action?
The main tools include candlestick charts, trend lines, support and resistance zones. Price patterns such as engulfing candlestick patterns, pin bars, and inside bars.
