Monday, 21 October 2019

Basics of Trading Strategies with Price Action

Basically, price action is a series of price movements from time to time, and price action analysis is done by observing the candlestick bar formation. Here are some terms in trading with price action:


Up Bar Also called the 'bullish bar', which is a bar with a high level that is higher than the previous high (higher high) and a low level that is higher than the previous low (higher low). The series of up bars in the picture above shows the uptrend movement. In general, the closing price of the up bar is higher than the opening price, but it can also be lower as shown in the black candlestick bar in the series of up bar images above. However the bar is included in the up bar because the highest and lowest levels are still higher than the highest and lowest levels of the previous bar. The series of bars shows that at that time buyers or 'the bulls' were controlling the market.

Down Bar Also called the 'bearish bar', which is a bar with a high level lower than the previous high (lower high) and a low level that is also lower than the previous low (lower low). The series of down bars in the picture above shows the downtrend movement, and shows that at that time the seller or 'the bears' is controlling the market.

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Inside Bar Inside Bar is a bar with a high level that is lower than the previous high and a low level that is higher than the previous low. Many traders consider a bar with the same high or low level as the previous bar to be inside the bar. Bar formations like this indicate market uncertainty or a state of consolidation where buyers and sellers are waiting for each other, if they break the highest level of the previous bar then the buyer wins and vice versa if they break the previous low bar level then the seller wins and controls the market.

The Outside Bar The Outside Bar is also called the 'mother bar', which is the bar that 'swallows' inside the bar, or the engulfing bar formation is the bar that 'swallowed' the previous bar. In principle, outside bars are bars with high levels that are higher than the previous high bar level or the bar after it, and low levels that are lower than the previous low bar level or the bar afterwards. In candlestick terms, a combination of outside bar and inside bar formation is often referred to as 'harami'. In the example above the closing level outside the bar is higher than the opening level which shows the buyer is controlling the market before consolidation takes place.

Trading Signals from Price Action The formation of bars on price action reflects the sentiments of market participants, and can provide initial clues or signal the direction of further price movements. Signals or signals from price action are usually indicated by the formation of pin bars which are bars with tails (axes) that are longer than the body. The longer tail means the stronger the rejection sentiment at a certain price level. In a trending market, pin bars usually signal a reversal or the opposite of the current trend, and the pin bar is often called a reversal pin bar. Here are some reversal pin bars where one of them fails or is a false trading signal:

Supporting Factors of Trading Signals from Price Action To avoid the possibility of errors such as in the picture above, it is necessary to support factors that confirm the trading signal of the price action. Thus, traders can choose the signal with the highest probability, which is confirmed by several supporting factors. The confirmation or supporting factors are support and resistance levels, trend direction and technical indicators.

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