What is Price Action Trading Methodology?

Price Action Trading is a revolutionary approach to navigating financial markets that emphasizes understanding price movements, patterns, and trends.

To understand Price Action, let’s begin with the definition of “Price”

The simplest definition of price is the amount of money that a buyer gives a seller in exchange for any goods or services. This price is dependent on demand and supply equilibrium. If Demand and Supply don’t vary much, the prices of the commodity or services do not fluctuate much.

Applying the same concept of Law of economics of Supply and Demand in the stock market, the price of a stock is dependent primarily on the demand and supply equation.

So what is Price Action?

When you trade in any stock exchange, the stock exchange receives primarily buy orders and sell orders along with price and quantity. The cumulative effect of the buy and sell orders decides whether the prices move up or down. More the buy orders, prices rise and more the sell orders, prices decline.

So basically, Price Action tells you the cumulative activities of the market participants. More Buyers – Prices Rise, More Sellers – Price Decline.

The stock market has varied participants who buy and sell shares based on their own reasons for the action for buying or selling. We can segregate the market participants into two broad categories – Institutional or Professional Participants and Retail or Individual market participants. The main difference between the institutional and retail participants is the sheer quantity and huge amount of money that institutions have. This alone provides them with an edge of influencing the market prices.

The cumulative effect of Institutions and other market participants affects the price. So when the institutions have more buy orders, the price moves as per the order fill and creates a Price Action.

Since human minds are patterned, the cumulative effect of this creates repeatable patterns on the price charts. Price action study involves understanding who is controlling the price – buyers or sellers. Price action also provides us many clues to understand where a price is likely to turn, how far the price is likely to go and what should your action be.

The orders that any market participant puts ( Buy or Sell) are based on many factors which influence the decision and action.

The following gives a simple understanding of how factors affect the participants decision and how it gets reflected in the price charts.

Any and all influences on price charts are reflected in price.

What is Price Action
If you can figure out where the institutional buy or sell orders are, you have the edge that institutions have.
These imbalances in buy/sell orders is where prices turn. As a trader/investor, if you know these turning points, you have a definite edge over others.

Price Action Analysis  is like a treasure hunt, where each time frame provides you with clues to the direction of the price based on Price Action. Every clue (Price Action) you solve on a specific time frame provides you with the highest probability trading and investing setups based on the time frames you choose.

What is Price Action analysis?

Price Action analysis involves finding behavioral patterns of the majority of the market participants. It helps you assess the probable turning points with greater accuracy and understand the dominant trend.
The Price Action journey involves understanding candlestick formations, recognizing trend shifts, and fine-tuning entry and exit strategies.

Unlike traditional trading methods that heavily rely on complex indicators, Price Action Trading revolves around analyzing raw price data from charts.

The Price Action methodology enables traders to make informed decisions based on the actual behavior of prices, providing a clearer and more intuitive understanding of market dynamics.

In a trading world saturated with noisy indicators, Price Action Trading is considered a better approach for clarity, accuracy and to uncover the hidden rhythms of the market.

Whether you’re a beginner or a seasoned trader, embracing Price Action Trading can revolutionize your trading approach and elevate your success in financial markets.

The core principles of Price Action Trading

At the heart of Price Action Trading are a few key principles:

  Candlestick Analysis  

Candlestick patterns, formed by the open, high, low, and close prices of an asset, are vital tools in Price Action Trading. These patterns offer insights into potential trend reversals, continuations, and market sentiment.
  Buying and Selling 
Identifying levels where prices have historically reversed or stalled is crucial. These buying and selling zones offer valuable cues for entry, exit, and stop-loss placement.
  Trend Recognition  
Price Action traders study trends, including uptrends, downtrends, and sideways movements. This information helps traders make informed decisions about market direction.

Advantages of Price Action Trading

Price Action Trading methodology is preferred for several reasons:

Price Action Trading avoids the complexity of numerous indicators and focuses on the price itself. This simple approach reduces confusion and offers a clearer perspective.
Real-Time Insights
Unlike indicators that rely on past data, Price Action provides real-time information, allowing traders to respond to current market conditions swiftly.
Objective Analysis
Price Action Trading removes the subjectivity that can arise from interpreting indicator signals. It’s about reacting to what the market is directly revealing.
Universal Applicability
Price Action works across different asset classes, timeframes, and markets. This versatility makes it a preferred method for traders diversifying their portfolios.

How does Price Action differ from Indicator based Trading/Investing?

Most or all of the indicators are based on price and volume. This provides you with the necessary turning points much after the price has moved. This does not provide any trader or investor with any edge as you would really be buying in retail prices and selling in wholesale prices, which is exactly what the institutions want to get their orders filled.

Price action trading allows us to buy or sell along with the institutions instead of trading against them.

– Deepak Rajendra

“One of the best places to learn price action trading. Mr Amit and Mr.Ajit have done a fantastic job.
Mentor Amit was extremely patient in teaching the language of the price. I feel really confident now provided I put in my efforts to excel myself in this journey.”

– Bibhuti B Sahoo

“Concept wise LPAT methods of analyzing DZ n SZ and also various ways to measure probability of trade success , quality of zones etc. are the most logical way of analysis. Very simple to comprehend which of course needs lots of practice. I can give my feedback in a much more effective way once this amazing theory is tested in the real market by me.”

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