What is Price action trading?

Price action signifies the movement of a security’s price plotted over time. This movement is formed in accordance with the changes in price in recent past. Price action is a technique which allows a trader to observe the market and devise trading decisions as per the price movements, rather than depending on technical indicators. It is the basis for all technical analysis of a commodity, stock or other asset chart.

Technical analysis predicts the price of the share market through historical data like price and volume. Most investors use fundamental and technical analysis to make trading choices. Price action is the best way to study technical analysis.

Price action trading doesn’t focus on the factors that influence the market’s movement, rather it looks at the history of the market price. Price action trading is often called “pure” form of technical analysis because it doesn’t include any second hand price-derived indicators. It emphasis on the first-hand data of share market.

A lot of traders rely on price action to make trading decisions. Price action can be read and analyzed through chart patterns that plot prices over time. Traders use different chart compositions to enhance their ability to find and interpret trends, breakouts and reversals. A lot of traders use candlestick charts and chart patterns because they help to visualize price movements by displaying the open, high, low and close values in the context of up or down sessions.

Price action is not seen as a trading tool or indicator, but is seen as the data source which is the root cause of all tools. A trader uses price action to describe the human thoughts behind market’s movement. Every participant in the share market will leave “clues” of price action on the market price chart in their trading process.

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