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The Price Action method to trade the financial markets
On the Price Action method today know almost everything novice speculators as experienced traders is often presented as the only correct and effective trading strategies for all markets.
It would seem that such a popular approach must be fully understood and systematized, but there is one paradox – everyone knows everything, and smart textbooks in PA where a beginner could find the answers to basic questions in Russian before, does not exist. Today we will talk about the history of this analysis, and consider his views.
The Internet often is the assertion that the method is Price Action had appeared very long ago – in the mid-20th century. Actually, it's a mistake because for the first time this phrase (in translation from English means "price movement") was given specific techniques in 2005, that is, relatively recently.
Clearly, Price Action, which incorporates the older practices of traders, which leads to confusion. Apparently, it is easier to remember the other integral feature, characteristic of this approach is it involves a complete rejection of technical indicators, that is, a speculator makes his insights and forecasts solely on the basis of prices and trading volume.
The logic here is very simple – any indicator handles price using a special formula, and then generates a corresponding signal, delayed relative to the actual market reversal. Proponents of Price Action, on the contrary, looking for regularities in the dynamics of the price itself, because only it can give a real idea about the reaction of participants to the events.
Classification of methods Price Action
Typically, this approach is identified with candlestick analysis, and it should be noted that there is no contradiction, because some of the model PA – it is nothing but enhanced and optimized for modern conditions classic.
Most often traders use to trade setups:
1. Pin-bar (or Pinocchio) is a special case of the hammer (shooting star), the rules for identifying which are mandatory and not recommendatory nature;
2. DBLHC - a sequence of two (or more) of the candles, the minima are located approximately at the same level, and the maximum is above the last bars High. This model of Price Action is bullish:
3. DBHLC formation, reverse DBLHC, that is, it generates signals to sell after the next low in the sequence of candles, which are characterized by the same peaks, restore the previous one:
4. Absorption – the so-called pivot model, a new candle which completely covers the previous one. As in all other cases, it can be bullish and bearish:
Similar patterns have already created a few dozen, but if you sum up briefly, we can note the following advantages peculiar to this type of Price Action:
• versatility – it works on all time frames (except for minute charts);
• the representativeness of statistical samples – strong on history are not redrawn;
• relative simplicity – just enough to remember figures, that is, no additional conditions and filters is not necessary.
The second group of methods Price Action combines strategy, signals which are formed at the levels of support and resistance. In principle, there is nothing complex and unique, what's more, many beginners come to similar systems, not even knowing that they have already been described in the literature.
One of the founders of this approach is the Sam Seiden, quite a famous Western trader, developments which have been actively replicated in the post-Soviet space.
The essence of the trading levels is as follows – the trader looks for the point from which the price struggled in the past, then conducts through them straight lines.
This is a potential support and resistance, from which you can work on the rebound and the breakdown. Many traders complement this technique with their models and formations, analyze the location of the shadows and bodies of the candles, use the filter by closing prices, etc.
Thus, for systems Price Action the second type is characterized by the following features:
• they work in any market;
• the ratio of profit/risk in such transactions may reach 10 to 1, as the levels are easy to set stop losses;
• there is a field for creativity, as around the price may behave in completely different ways.
And the last class of strategies Price Action, the third, includes a methodology that combines the volumes and market prices. Perhaps the most effective trading strategies, but they are the most complicated, because the trader needs is not just to learn some typical figures, he must understand the psychology of trading participants that only comes with experience.
Actually, to tell in a few words about this type of analysis will fail because individual attention is given each of the following subspecies of the volume-oriented method, Price Action:
• Analysis of supply and demand in the so-called "protorgovki" (when the price some time is in the range).
• Evaluation of force levels on market profile (more contracts bought/sold at the same price – the more interesting it is for bidders).
• The combination of classic pattern with the provisions of the VSA (different value of the vertical volume can confirm/deny signals habitual patterns Price Action).
|Category: Forex | Added by: (30.10.2017)