Price Action Trading

What Is Price Action Trading?

In this section, we are going to discuss whether the price action trading works or not. Before clearing your doubt it is very important to understand that how the market works?

A financial market is a commonplace (exchange board) where investors, traders, buyers, or sellers exchange their instruments. Nowadays these exchanges exist as electronic marketplaces.

When a company gets listed, an auction process starts in the secondary market. Buyers look for sellers offering the cheapest price and sellers look for buyers who are willing to pay the highest price. This creates a supply and demand cycle in the financial market.

The financial market moves for different reasons. Technicals, fundamentals, gut feeling, and emotions are the main market drivers. Whatever price is on your chart due to these market drivers.

Now coming back to your main topic i.e Does price action really works or not?

There is a very popular saying in the financial market that "Trend is your friend". What does it mean? As you know that it is a game of buying and selling pressure. If supply exceeds demand then the price will fall and if demand exceeds supply the price will go up. So if you place a buy order then you are expecting the price to go up and it is possible only if there are more traders to a place buy order. The same is true if you are placing a sell order, you're expecting the price to fall. Hence the conclusion is you should do what others are doing because retail traders can't beat the market alone.

Coming back to our main discussion Does price action works or not?. To answer this question we have to find out whether the other traders are including the price action strategies in their trading plan or not.

Price Action Traders base their trades on predictions of whether the buying exceeds the selling or vice versa. The Action of price is itself the most reliable and accurate indicator. Price goes up or down, a price action trader doesn't care to explain the fundamental reason why this happened, traders use price behavior as the main source of information to make a trading decision.

Price Action trading is not perfect but it is very useful. There are many traders, hedge funds, and investors using this technique in their trading plans. Lots of traders are using price action strategies as this technique has won the trust of many. Several investors have claimed to ride a profitable and square-off their position at the correct point using price action techniques. There are countless theories on price action trading, with some claiming decent success rate, but it's important to note that not everyone who follows a particular strategy will do well.

Include price action trading in your plan to improve your comprehension and knowledge. It takes time to build a firm foundation, but the market teaches you all you need to know. All you have to do now is respect the market and your strategy.

Although there is a lot of benefits of using price action strategies, it is also important to be aware that price action trading does not guarantee returns. Some strategy works for you but not for others. It depends on one's own understanding of the financial market.

Statistics about price action trading

  • For a trader, the issue is to make the decision of whether the market is trending or not. A trend can be as short as a single bar (on a smaller time frame) or it can last a day or more. How does a trader make this decision? Simply, by reading the price action chart on the chart in front of the trader.
    • A research indicates up to 40 percent of foreign exchange traders see technical analysis as important for predicting price action over short time horizons.
    • About one-third of equity fund managers utilize technical analysis, according to a major 2012 survey.
    • 10,000 fund manager portfolios were taken under observation over 20 years period. The net result found that the funds that made use of price action have provided a decent profit to their investors compared to those who relied solely on fundamentals.
    • The scenario is different among ordinary investors, Over a period of 6 years, the trading record of Dutch investors was taken under observation. Finally, it was found that those who used technical analysis were more likely to overtrade and to speculate, the net result being they underperformed investors who didn't use technical analysis by 8.4% points annually.
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