Price action refers to the behavior of price (repeated patterns) over time. This simply called price action. Trading repeated price patterns in currencies are called price action trading in forex.
For example, a pin bar indicates a reversal in price. The formation of a pin bar pattern is a repeated price pattern, and it repeats many times a day in a short timeframe. This is a price action pattern.
What is Price Action
Price action is totally independent of fundamental factors. Price action patterns are natural. See around yourself. Everything in nature is according to a perfect pattern. Like the movement of the sun and moon. Like after sorrow and happiness go side by side. After sorrow, happiness will come one day or after happiness, sorrow will surely come.
These are natural patterns and price action is the same as this. Price action is far better than lagging indicators. I hope you will know my point of view about price action.
Let us take a clear example of COVID 19. It is a fundamental factor. Look at the image below (chart of S&P index). Price broke the trendline, but the movement of price was because of COVID 19. We were not aware of this situation, but we knew that trendline will break in the future. Every trendline will break one day. The situation will happen automatically and naturally.
A Price action trader doesn’t care about these fundamentals but price patterns. Repeated patterns and increase probability of every setup using many strategies. This is simply a Price Action.
Good news for retail traders. Forexbee team is working to make totally price action-based indicators for benefit of retail traders. Mathematical indicators will just show you historical data, but these formula-based indicators will not predict the future, but price action will predict.
Price action trading tools & pros
Price action trading is useful for only scalpers, day traders, and swing traders. it will not be useful for long-term traders because of limited data.
The following tools are used in price action trading
- Support and resistance
- Supply and demand
- Fibonacci golden ratio tool
- Trend line
- Chart patterns
- Candlestick patterns
Price action makes sense to me and I use price action and always look for price action patterns.
One major and benefit of price action is that every trader has his own price action strategy. Because A price action strategy is made by analyzing historical data using price action tools.
Indicators-based traders have almost the same strategies. Like they will not follow a pattern. They will follow a mathematical formula and there are many more following the same formulas. You should use indicators but just to add a confluence to your strategy. Totally relying on indicators will not make you a profitable trader.