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Price Action
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Price Action

created Paweł Mosionek24 February 2014

Price Action (PA for short) is a game technique that is based on the price, i.e. the price of a financial instrument. It avoids the analysis of its derivatives, which we obtain after grinding it by mathematical formulas in the form technical analysis indicators.

What is Price Action?

Translating this name literally into Polish, we would get the phrase "price action". What is it all about? It is an apparent system simple i transparent. Seemingly simple because it does not contain many elements, which makes the bases come to a halt in a short time. Transparentbecause the chart contains the necessary minimum tools, and we start the analysis from a pure bar or candle chart.

The main analytical tools that are used are straight lines that mark support and resistance levels, candles or bars (it is important to see OHLC prices - Open, High, Low, Close), and occasionally some support each other Fibonacci tools.

The ability to use the trend analysis, that is, the correct identification of the directional tendency in which the market is following is exceptionally helpful. In PA, usually transactions are concluded in accordance with the direction of the ongoing trend.

Support and resistance (Supports and Resistances)

These levels are the foundation of Price Action. Designating them is one of the key factors in successful investment. These are places on the charts where the rate has or will have problems with continuing movement in a given direction. At the same time, the probability of a change of direction increases here (resistance stops gains, support stops declines). They are often local highs or lows set by the course. However, the occurrence of such a level on the chart cannot be equated with 100% certain slowdown of the rate. Keep in mind that there are no supports and resistance that the market could not overcome.

How to identify support or resistance?

Usually these are horizontal areas where the price clearly stops and stabilizes near them or returns in the opposite direction.

PA: Support and Resistance

There are two types of support and resistance:

  • short-term,
  • the long-term.

short-term those that are not only crossed out on a low time scale but their presence on the market is relatively short. The low time scale on the currency market is each hourly (H1) down. A period of less than one month is also a short period.

Long-term are those that are drawn at higher time intervals, higher than hourly, e.g. four-hour (H4) or even weekly (W1).

There may be times when a given support or resistance level is both a short-term and a long-term level. This will be the case when, for example, the support plotted on a low interval of the order of M30 will persist for a long period of time, e.g. two months, and the rate will continue to respect it and rebound upwards from it.


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There is also the question of determining the strength of such a level. As a rule, it is a subjective assessment of the investor as to how strong this support or resistance is. The more premises that confirm such a phenomenon (eg candle formations, classical technical analysis, Fibonacci abolition, psychological round price level, etc.), the more likely it is that the rate will hinder or bounce back from this barrier and can be called stronger. An example of a strong resistance can be found in the previous picture. The following is a weak support.

Support and resistance

Formations in Price Action

You can distinguish several basic formations in Price Action.

Swing High

It is a combination of three candles / posts, where the middle is on the highest peak.

Swing High

Swing Low

It is a combination of three candles / bars, where the middle one for the lowest hole.

Swing Low

The presented formations are used for quick identification of the market situation. Increasing peaks (successive Swing High's) talk about the growth market, lower and lower (the next Swing Low's) inform about a downtrend, and the alternating Swing High's and Swing Low's indicate consolidation and sideways movement. It is very simple, however, it happens that investors forget about such basics in the heat of battle.

Swing Low and Swing High

Additionally, in the Price Action technique, three main candlestick patterns can be distinguished, which are characterized by a specific form and herald certain market behavior. Combined with the aforementioned supports and resistances, they already provide a good basis for learning to invest with PA.

Pin Bar

It is a single candle formation characterized by a distinctly higher shadow (upper or lower) in relation to the body. Size disproportions must be visible to the naked eye. It is a pattern suggesting a trend reversal, and the shadow itself must be in the direction of the last directional trend (if there is an uptrend, a long shadow must also be up). This suggests a weakness on the side of the market that was dominant a moment ago, as a result of which the price quickly turned back and wiped out its last efforts. After such a pattern completes, it usually enters the market at the opening price or correction (if any) to half the total size of the Pin Bar.

Pin Bar

Engulfing Bar

Two-century formation, known under the Polish name as a form of covering the bull market / bear market. It also heralds the reversal of the trend and occurs at its completion. In the upward trend near the peak it will be a bear market, in a downward trend around the hole it will be a bull market. Formation looks like that the body of the first candle (the upward one for the boom, the downward one for the formation of the bear) is completely covered by the body of the second one with the opposite color. This shows the beginning of the dominance of the other side of the market and is a signal suggesting a change in the directional tendency. The opening of the item usually takes place at the opening candle's opening price after the formation.

Engulfing Bar

Inside Bar

It is a pattern in which one or more candles, the body and the shadow of which are entirely within the range of the preceding candle. This situation shows that the market is undecided as to the further direction. Usually, after such patterns, a breakout in the direction of the ongoing trend is more likely. Hence, a popular technique is to play breakouts in the same direction, setting pending orders outside the candle range after which the Inside Bars started appearing.

Inside BarClosing the position

Opening a position is relatively easier than closing it, because after identifying a trend, finding a pattern that suggests a given move, all you need to do is make a male decision to buy or sell. However, in the event of an exit from the market, it is necessary to determine where the rate may go or when we should exit the position in order to exit well. Most often Stop Loss it is placed just below / above the nearest support / resistance. The negation of the closest important level proves that the input was wrong and that the diagnosed situation has changed or we have made a mistake in it.


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orders take Profit are usually placed at supports and resistances, but not directly on them or behind them, but in front of them. There is a certain probability that the market will not want to test it, but will turn back a few points earlier. Any signals coming from the market that may indicate a possible threat of a change in the situation (e.g. end of increases and transition to a correction or a complete change of direction to a decline) should increase our vigilance and at least cause the SL to switch to the level Breakeven or a positive level, if the item permits.

Often investors instead of TP apply only Trailing Stopwhich has its good and bad sides. For more information, please visit thread on our forum, which explains this issue in detail.

A complete strategy

Merely knowing the rules of Price Action does not constitute a ready-made strategy and should not be treated as such. A precise action plan is needed, which will take into account the types of inputs used, dealing with unusual situations, defined capital management along with a fixed percentage of risk that will be taken. Remember that there is no strategy that is XNUMX% effective. However, practical experience and training of your skills can tip the scales in our favor.

It takes many hours to master the technique itself. Many hours devoted to staring at charts, where we will train the eye, which after some time will reflexively capture significant support and resistance, and the analysis of the trend itself will take only a moment. Along with the acquired experience, doubts will disappear, which are a natural thing when learning a new analysis technique. We will slowly start to understand the graph and thus the market and the behavior of their participants.

Instructional videos

Literature

There are many items on the subject of Price Action, however, most in English. Definitely worth recommending are:

  • Bryce Gilmore "The Price Action Chronicles"
  • Henryk Woźniak "Forex Price Action"
  • Al Brooks "Price action analysis: trends",
  • Maciej Goliński Inside bar. How to become a master of one technique ",

Books by Henryk Woźniak, Al Brooks and Maciej Goliński can be found in the bookstore Maklerska.pl.

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About the Author
Paweł Mosionek
An active trader on the Forex market since 2006. Editor of the Forex Nawigator portal and editor-in-chief and co-creator of the ForexClub.pl website. Speaker at the "Focus on Forex" conference at the Warsaw School of Economics, "NetVision" at the Gdańsk University of Technology and "Financial Intelligence" at the University of Gdańsk. Twice winner of "Junior Trader" - investment game for students organized by DM XTB. Addicted to travel, motorbikes and parachuting.