Price Action Trading

Price action describes the characteristics of a security's price swings. This movement is often analyzed in light of recent price swings. To put it another way, price action is a trading method that allows a trader to read the market and make subjective trading decisions based on current and actual price movements rather than only on technical indicators.

To assist us in making better trading selections, price action trading uses previous prices (open, high, low, and close). Unlike indicators, fundamentals, or algorithms, price action tells us what the market is doing rather than what you think it should do.

Price action trading assists us in better understanding the market and making lucrative trading decisions. Using the price action trading strategy may allow us to pinpoint our inputs and exits with more accuracy. When it comes to price action trading, there are Four things to consider.

• 1 - Market Structure
• 2 - Area of Value
• 3 - Entry Trigger
• 4 - Stop Loss

Market structure is an old notion that has existed for as long as financial markets have been. The fundamental concepts, on the other hand, remain crucial. Especially when it comes to price movement analysis and recognizing trading opportunities. Knowing upward, downward, and sideways trends are aided by understanding market structure. The same ideas apply to all markets, including stocks, futures, FX, commodities, digital assets such as cryptocurrency, and physical assets such as real estate.

A price action trader must first comprehend market structure. We won't be able to buy, sell, or stay out of the market if we don't understand it. However, If we understand market structure, a world of possibilities opens up before us.

So, what is the structure of the market?

It's a technique for classifying market stages so we can figure out what to do in different market conditions. In other words, market structure tells us whether to purchase, sell, or stay out of the market.

Market cycles occur in all financial markets. It's a natural cycle that will undoubtedly build and dissipate over time. There are four stages to every market cycle. Let's take a look at each one separately.

The interval between a market's high and trough and its phases is referred to as a "crypto market cycle." All financial markets experience market cycles. It's a natural sequence of cycles that will inevitably develop and go as time passes. Every market has cycles, which are divided into stages. Prices increase, peak, decline, and finally bottom out, signaling the start of a new cycle.

Novice traders may not realize that markets are cyclical, and as a result, they frequently fail to plan for the conclusion of the present market cycle. Furthermore, even if we understand market cycles, predicting the peak or bottom of a specific cycle can be difficult. To optimize our trading profits, however, we must comprehend the cycle. Let's have a look at the four major stages of a normal market cycle and how to spot them.

• Accumulation Phase (Range market in a downturn)
• Mark-Up Phase (Bullish Market)
• Distribution Phase (Range market in an upswing)
• Mark-Down Phase (Bearish Market)

We've studied how the market works and how the market structure signals when it's time to buy, sell or stay out. The next step is to choose where we will purchase or sell. 'Area of value' is used to obscure this question.

So, what exactly is the area of value?

The 'area of value' is a price range where the bulk of trade activity occurred the day before. This is the range in which 70 percent of the previous day's volume occurred. The value area is around one standard deviation above and below the greatest volume pricing average.

An area of value on our chart is a location where prospective buying or selling pressure might emerge. We need to talk about two things to figure out what the 'area of value' is.

• Support and Resistance
• Moving average

We've discovered that market structure determines whether we should buy, sell, or remain out of the market. The value area indicates where we should purchase and sell. The next thing we need to understand is "when we truly join the market and begin buying or selling."

'Entry trigger' is used to answer this question - So, what exactly is an entry trigger?

An entry trigger is a specific occurrence that assists us in determining market attitudes. It instructs us whether to enter or exit the transaction. It prevents us from entering or exiting trading too early or too late, skipping deals, or taking deals we shouldn't be doing.

When it comes to entry triggers, we have far too many strategies and tools to choose from. But I'll teach you how to utilize the greatest and easiest tool as your entry trigger right now. As an entrance trigger, we may utilize one of two methods.

• Break of structure
• False Break

We've learned how to assess market structure, what area of value is and how to calculate it, and how to utilize the entry trigger to enter or exit a trade. Even with all of this information, a loser may emerge. That is why knowing when to exit our deal before things deteriorate is critical.

In this scenario, our last tool, the "stop-loss," is used to safeguard our trading account from losing all of our money on a single deal. So, where should our stop loss be placed?

Simply put, our stop loss should be placed at a level that will invalidate or remove our trading strategy if the price reaches it. If we purchase at support and anticipate buying pressure to drive the price higher, our stop loss should be below the support region. If the price falls below the support level in this situation, it indicates that our assumptions were incorrect, and we should exit the trade before it becomes too late.

So, should we put our stop loss beneath the support area or leave it some breathing room? To avoid stop hunting, we need to give it a 1 ATR (Average True Range) buffer below support.

Follow these procedures to place a stop-loss order.

• In the support area, find the lowest low.
• Find out what the ATR value is right now.
• Subtract the current ATR value from the lowest price of support - Our stop-loss limit will be the solution.

This technique may be used for any kind of value area, not simply support and resistance. If we purchase near a moving average in the hopes of seeing buying pressure, our stop loss should be below the moving average. Because if the price falls below it, the moving average will no longer be "regarded," invalidating our trading strategy.

Here's what we found out:

• The market structure determines whether we should purchase, sell, or stay away from the markets.
• We may utilize a value region, such as support and resistance or a moving average, to help us determine where to buy or sell.
• A price trend entry signal, such as price rejection or candlestick patterns, advises us when to buy or sell.
• We should set our stop loss at a level that, if reached or when our value area is "destroyed," will render our trading arrangement null and void.