Price Action Trading Strategy: Reading Price Charts

Intro

When it comes to analyzing crypto price charts in the absence of technical indicators, price action is the champion strategy to meet that goal. This strategy focuses on obtaining information based solely on price fluctuations and can be applied by traders of all levels and styles.

This analysis method is one the most versatile approaches for crypto trading, providing scalpers, day traders, and swing traders with simple and advanced techniques to participate in the market, gathering a deep understanding of what factors could be affecting the price.

What is Price Action

Price action is more than a simple concept but a framework for the analysis of price charts of financial assets. Beyond technical indicators, the price action concept states the fundamental conviction that the price itself is an indicator of the most useful information.

The direction that the price of a crypto asset could take during diverse trading scenarios will be forming relevant market structures, patterns, trends, and potential reversal points. From this concept viewpoint, traders can discover deeper information leading them to a broader understanding of market movements and pattern formations, and the psychology behind buyers and sellers.

The nature of the price action concept makes it able to dispense with technical indicators. However, they are not incompatible working together but rather reinforce analysis and confirmations. The remarkable aspect of price action is that it can conduct an effective and deep analysis simply addressing the price.

It is typical to watch the screens of price action traders and find no more than some trendlines or horizontal lines plotted in the chart, as this type of trader only focuses on the information they can obtain by just looking at levels the price fluctuates at the moment.

How to Analyze Price Action

Analyzing crypto charts based only on the price action strategy might require going above and beyond to study key concepts of trading.

The price action analysis is basically trying to decipher the causes behind the market structure formations, obtaining a deep comprehension of the market sentiment.

As well as price action can do without technical indicators, it cannot miss the study of core concepts like the following.

Support and Resistance

These are critical price levels where the price action has encountered strong demand or supply, respectively. Prices tend to reflect a response from the market from these levels, establishing historical data for potential entry and exit points in the future.

Price Patterns

Recurrent formations expressed by the price action over time, even around support and resistances, present valuable insights into potential patterns for future movements.

Patterns can be detected across structures including:

• Head and Shoulders.
• Double tops or double bottoms.
• Ascendant or descendant triangles, as well as various candlestick patterns like engulfing bars and hammer/shooting stars.

Trendlines

During sustained trending markets, where the price moves in a specified direction over time, drawing trendlines helps traders set themselves for continuation patterns. These lines are plotted in the chart, defining the dynamic highs and lows of the price movement, indicating the overall direction (uptrend, downtrend, or even sideways range).

Engulfing Bar, Price Action pattern

Tools And Techniques for Effective Price Action Analysis

Traders can leverage various tools to enhance their price action analysis. Evaluating candlesticks, time frames, and volume, and seeking price confirmations are common approaches for reliable analysis results.

Candlestick Analysis

Candlestick chart analysis can provide traders with a visual representation of price movements through open and close as well as high and low prices. A candle bar is essentially a piece of valuable information itself.

Traders can gauge the momentum and strength of a movement through the size of candles while their bodies and wicks can reveal selling and buying pressure for potential reversals.

For a better comprehension of what type of information candlesticks can provide, we could break down their anatomy:

• Opening Price: This is the starting price for the candle body formation during a specific period.
• Closing Price: The closing price at the end of the body formation period.
• High: Represented by a wick, this reflects the highest price reached during the specified period.
• Low: Represented by a wick, this reflects the lowest price reached during that time period.

For price action analysis, the distance between the opening and closing price can represent the momentum of the price movement while the peaks reached by highs and lows might suggest weakness.

Fractals and Time frames, Volume, and Price Confirmation

One relevant concept to consider when analyzing candlesticks and the overall market structure is the Fractals Concept, which states that the same patterns shown in higher time frames can be found in lower ones. Something like a loop, where a larger pattern carries smaller versions of itself inside.

Identifying this concept will enhance price action analysis results with a combined approach using other tools like:

• Timeframes: Timeframes can reveal varying grades of detail at different levels like daily, hourly, and minutes. Analyzing multiple timeframes will give traders a broader comprehension of the market sentiment and movements.
• Market Volume: Volume is a technical indicator whose combination with price action will give a stronger conviction for the analysis. Price action accompanied by high volume suggests effective momentum. On the other hand, low-volume price action might indicate a lack of strength.
• Price Confirmation: Price action signals can be confirmed by using technical indicators but also pure price movements. For example, by detecting the confluency of patterns across different time frames, like the Fractals suggest. This helps avoid false breakouts and impulsive decisions.

Conclusion

Price action trading strategies are a versatile method for reading price charts, compatible with advanced concepts like Fractals Markets, and aiming to get a deeper perspective for the analysis of the market structures and candlestick pattern formations

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