While automated stock trading systems can perform the mundane tasks of tracking price movements of thousands of securities every day and alerting you of potential gold mines in real time, knowing about traditional strategies like trading price action can help you understand the market and the price dynamics even more.
There are various trading strategies or methodologies that traders can use to make decisions regarding their trades. Bear in mind though that what may work with one trader may not work with someone else because there are many factors to consider like the traders’ goals and the nature of the market.
What is Price Action Trading?
Price action trading is basically a trading method where you base your decisions on the price movements of the securities or assets as they’re plotted on the charts within a trading time frame. An asset is analyzed based on its performance and patterns in order to predict its future price movements.
A well-experienced short-term trader can quickly spot price action signals or triggers by simply recognizing certain patterns or shapes in the asset’s previous performance.
Many short-term or day traders solely rely on price action to make their decisions. “Pure” or “naked” price action refers to the exclusive reliance on price movements as seen on the charts in front of you. In essence, you’ll be making trading decisions based on the way you understand the market instead of waiting for the results of complex analysis or calculations.
Price action trading is a practical method when the market is highly liquid and always moving because it’s difficult to seek trading opportunities when the prices remain unchanged. Thus, this trading method is ideal for swing traders as well as forex traders.
For greater convenience in trading, make use of stock trading systems. They can automatically calculate and plot price movements of thousands of assets so that you can have more time and energy to focus on making your price action trading decisions.
Price Action Strategies
Trendlines can be drawn on the price action chart to identify possible breakout or potential swings since trendline charting involves the prior highs and lows of price movements.
Trend Following Retracement Entry
Retracement is when the price pulls back to the prevailing trend and continues in the original direction. A trader may take a long position when the price movement is on an uptrend with new lows trending higher each time or a short position when a downtrend is creating new highs that are lower each time.
Trend Following Breakout Entry
A breakout is when the price pushes through the boundary of a defined support or resistance line. Traders generally take a short position if the price breaks below the support line or a long position if the price breaks above the resistance line.
Candlestick or pin bar charts are commonly used by price action traders since they provide visual interpretation of price movements in terms of close, open, high and low values.
Inside bar pattern is essentially a candlestick pattern with a bar next to a “mother” bar. This pattern visualizes a period of market consolidation or a shift in the prevailing trend.
Head and Shoulders Reversal Pattern
The price movement of this pattern reflects three highs that look like a silhouette of shoulders and a head, with the highest high representing the head. Traders will generally take advantage of the temporary peak or the head by entering the market after the first shoulder and setting a stop loss after the second shoulder.
Highs and Lows Sequence Pattern
The sequence of highs and lows can create a pattern that makes it easy for traders to predict future price movements. For example, price movements with higher highs and higher lows indicate an upward trend, which means that traders can have their entry point at the lower end of the trend and set their stop just below the prior higher low.
Unfortunately, historical price actions do not guarantee future results, as there are many factors to consider like the non-financial and macroeconomic issues that affect a security. So make sure to get automated stock trading systems with the capability to track prices of thousands of securities and other assets and to send real-time alerts on lucrative entry and exit opportunities.
Monster Short for Hassle-Free Price Action Trading
Monster Short is the latest product from Monster Trading Systems designed to help traders take advantage of bearish markets when short selling. Using the Heatseeker technology, the system automatically tracks more than 22,000 stocks every day so that you can be sure of taking immediate action when lucrative short/down trading opportunities are available. What’s more, the system sends you real-time entry and exit notifications, ensuring that you’re always on top of your trades.
Get in touch with us to learn more about Monster Short and other stock trading systems that will revolutionize your trading activities and dramatically improve your earnings.