Technical Analysis

Price Action Trading

a professor of economics explaining technical analysis
Technical Analysis

Technical analysis is the analysis of stock prices or maybe other speculative asset prices by looking at charts of the prices and looking for patterns that suggest movements in prices.


Here, we are going to introduce Price Action Trading which becomes very popular among swing traders, day traders, and scalpers.

The Technique you are going to learn is purely price action on the clean/naked chart in front of you, with the main purpose of finding what are the buyers and the sellers doing and what are they most likely to do next.

Price action trading is the art of chart reading with no indicator, often called as Technical Analysis. Although some investors disregard technical chart patterns as useless but many believes that there's always a practical explanation behind them.

Some investors compare it to astrology. The first thing that we want to cover with you is what Price Action Trading actually is?

Price action trading is a technique by which a trader reads the market and then interprets the market sentiments based on price movement on the chart, as opposed to by relying on lagging or leading technical indicators

In simple words, price action trading is a 'pure' form of technical analysis since it included no indicators.

Price Action Trading is also referred to as 'natural trading', 'naked trading', 'clean chart trading' or 'raw trading'.

The image below shows a clean price chart, with no messy indicators just a pure price action chart.
pure price action trading chart
Naked Price Action Chart
The image below shows a messy price chart, with lots of clutter and indicators.
price action chart with loads of technical indicators
Chart with indicators

If you look at both of these charts and consider which one is simpler to study and trade from, the answer should be very obvious.

It doesn't mean that price action traders don't use indicators. They do but on rare occasions to augment their entries and exit trading plan.

Before diving into Price Action Trading we recommend you to go through section 1 i.e Candlesticks. It's very necessary to understand the perspective of different candles to get all from this Price Action Trading.

The Psychology Of Price Action

Like most things in life, the market moves in cycles( later on we discussed the market cycle in this section). If something goes up, it will fall. With the help of Price Action, it becomes easy to identify trends. Price action traders feel more in control of their actions since they are not forced to blindly follow a set of rules.

In this young market, many retail traders, hedge funds, and institutional traders use Price Action trading strategies to predict the direction of the future market of financial securities.

Here comes the best part of Price Action trading that their strategies work in any type of financial instrument like future, option, commodity, stocks, forex, or any other market that's traded on the exchange.

Some Price Action Trading strategies are -
✒ Inside Bar pattern
✒ Fakey pattern
✒ Pin bar pattern and many more
We are going to discuss all the price action strategies one by one throughout this section. Once you understand a Price Action strategy it won't require much research time at all.
There are many different Price Action strategies you can use, such as breakouts, support, and resistance, round number effect, etc.
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Price Action Tools

  • Price Action Trading tools are as follow :
    1. Breakouts
    2. Candlesticks
    3. Volume
    4. Human behavioral pattern
    5. Round number effect
    6. Trends
    7. Support and Resistance
    8. Pullback reversal
    9. False high and low

Don't go blindly behind any setup like "Head and Shoulder" or "Bull Flag Pattern". Try to analyze the situation using other approaches for the best conclusion possible.

To master Price Action Trading, look at as many charts as you can, think as bad as possible, and ask yourself lots of questions.

Throughout this "Price Action" section we are going to use lots of pictorial examples because the best way to grasp the knowledge is to visualize what is being discussed.