Basics of Price Action Trading Strategy

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Basically, price action is a series of price movements from time to time, and price action analysis is done by observing the formation of candlestick bars.

Bar formations in price action reflect the sentiments of market participants and can provide early clues or signal the direction of the next price movement.

Terms In Trading With Price Action Strategy

Here are some terms in trading with price action:

Up Bar

Also called a ‘bullish bar’, a bar with a high level that is higher than the previous high (higher high) and a low level that is higher than the previous low (higher low).

The series of up bars in the picture above shows an uptrend movement. In general, the closing price of the up bar is higher than the opening price, but it can also be lower as seen on the black candlestick bar in the up bar series of the picture above.

However, the bar is included in the up bar because the highest and lowest levels are still higher than the previous highs and lows.

The series of up bars indicates that at that time the buyers or ‘the bulls’ were controlling the market.

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Down Bar

Also called a ‘bearish bar’, which is a bar with a high level that is lower than the previous high (lower high) and a low level that is also lower than the previous low (lower low).

The series of down bars in the picture above shows a downtrend movement and shows that at that time the sellers or ‘the bears’ were controlling the market.

Inside Bar

Inside Bar is a bar with a high that is lower than the previous high and a low that is higher than the previous low. Many traders consider a bar with the same high or low level as the previous bar as an inside bar.

A bar formation like this shows market uncertainty or a state of consolidation where buyers and sellers wait for each other.

If they break through the highest level of the previous bar, the buyer wins and vice versa if it breaks the previous low bar level, the seller wins and controls the market.

Outside Bar

Outside Bar is also known as the ‘mother bar’, which is a bar that ‘swallows’ the inside bar, or in the engulfing bar formation it is a bar that ‘swallows’ the previous bar.

In principle, an outside bar is a bar with a high level that is higher than the previous high bar level or the bar after it, and a lower low level than the previous low bar level or the bar after it.

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In candlestick terms, the combination of the outside bar and inside bar formation is often referred to as ‘harami’.

In the example above, the closing level for the outside bar is higher than the opening level, which indicates that buyers are in control of the market before consolidation occurs.

Trading Signals From Price Action

Bar formations in price action reflect the sentiments of market participants and can provide early clues or signal the direction of the next price movement.

Signals from price action are usually indicated by the formation of a pin bar which is a bar with a tail (axis) that is longer than its body. The longer the tail, the stronger the rejection sentiment at a certain price level.

In a trending market, pin bars usually signal a reversal movement or the opposite of the current trend, and these pin bars are often called pin bar reversals.

Here are some pin bar reversals where one of them failed or is a false trading signal (false signal):

Supporting Factors for Trading Signals From Price Action

To avoid possible errors as in the picture above, supporting factors are needed that confirm trading signals from price action.

Thus, traders can choose the signal with the highest probability, which is confirmed by several supporting factors. Confirmators or supporting factors are support and resistance levels, trend direction, and technical indicators.

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The indicator that is often used is the moving average to confirm the direction of the trend.

The following is an example of a trading signal (pin bar) with 3 supporting factors:

It appears that the pin bar formed is confirmed by 3 factors, namely: trend direction (downtrend), rejection by horizontal line resistance (failed to break the resistance), and also a rejection by dynamic resistance, namely the area between the 21 exponential moving average (EMA) and 8 EMA indicator curves.

Thus the probability of successful sell entry after the pin bar is high. If not in a trending condition the market is consolidating. Common consolidation patterns are sideways (ranging), triangle (triangle), pennant, and others.

There are times when the market moves in a narrow range with an uncertain pattern, this condition is called choppy which is difficult to predict and should be avoided.

The following is an example of a trading signal from price action for trending and ranging conditions:

It appears that the price has broken through the lowest level outside the bar, which means that sellers are back in control of the market. This is also supported by the break of

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