Many beginner traders usually rush to put various indicators on their charts. In fact, experienced traders often rely on the most basic thing, which is the price movement itself.

That’s the essence of price action, a method of analysis that focuses entirely on historical price movements without the intervention of additional technical indicators.

So, how does this method actually work? And why do many professional traders consider it a “pure weapon” in their strategies? Let’s take a look at the review here!

What is Price Action?

Price action is an analytical approach that focuses entirely on the price movement of an asset over time. In this method, traders observe how prices have moved in the past to understand the characteristics and tendencies of the market.

Price action is the basis of almost all forms of technical analysis because historical price charts are used to detect trends, opportunities, and buy or sell signals.

Unlike other strategies that involve many technical indicators, price action does not use tools such as RSI, MACD, or Bollinger Bands.

Trading decisions are made based on direct observation of price movements, without the intervention of additional indicators. In other words, the analysis is done “cleanly”, only based on what is seen on the chart.

In practice, price action traders use candlestick charts because they are considered the most effective in visualizing the opening, closing, highest, and lowest prices at one time.

On the other hand, technical elements such as support-resistance levels and patterns such as engulfing, harami cross, and head and shoulder are important guides in reading the direction of future price movements.

Basically, this strategy is very popular among short-term traders such as scalpers and intraday traders because it allows quick decision-making based on emerging price patterns.

Even so, price action is also flexible for use in swing trading strategies that emphasize price movements over several days to weeks.

Price action itself is widely applied in markets that have high volatility and large liquidity such as forex, crypto, and stocks.

Because it does not rely on fundamental data, this method is very suitable for assets that move dynamically and quickly so that traders are able to read opportunities only from visualizations of price movements.

Also read related articles: Candlestick Patterns for Open Positions: Accurate Trading Guide

Key Components of Price Action

To effectively understand price action, traders need to recognize the key elements that make up this analysis.

From candlesticks to breakouts, each component provides important clues about the direction and strength of price movements. Here’s an explanation:

1. Candlesticks: shape, size, and tails give market signals

Candlesticks are the main visual component in price action analysis. This chart displays important information such as the open, close, high, and low prices in a period of time.

From the shape of the body, the size of the wick (shadow), to the length of the tail, candlesticks can provide many signals about market conditions.

For example, a long tail at the top can indicate selling pressure, while a large body indicates the strength of the price movement.

Price action traders rely heavily on candlesticks to read market emotions and identify entry or exit opportunities.

2. Support & Resistance: important price levels where prices often bounce

The concept of support and resistance is a key element in price action strategies. Support is the level at which prices tend to stop falling and reverse upwards, while resistance is the point at which prices often get stuck when trying to rise.

These levels are formed based on the history of price movements that often reverse in certain areas. By observing price patterns in these areas, traders can look for potential signals to open or close positions.

3. Trend & Momentum: dominant direction of price movement

A trend in the context of price action refers to the general direction of price movement over a certain period of time. If the price continues to increase, the trend is called bullish. Conversely, a downward trend is called bearish.

Price action traders read trends as a reflection of market strength. Strong momentum in one direction often signals that the trend will continue, while weakening momentum can be a sign of a potential reversal.

4. Breakout & Rejection: signals to enter/exit positions based on price reactions

A breakout occurs when the price breaks through an important support or resistance area. This moment is often used by traders to enter the market because it can signal the beginning of a bigger movement.

A breakout can come from a short-term price consolidation, followed by a sharp spike when the price breaks out of the zone.

Conversely, rejection occurs when the price tries to break through a certain level, but fails, then reverses direction.

Rejection is often a signal that the area is still strong enough to hold back price movements and can be an opportunity to take an opposite position.

You might also be interested in this: What is a Pin Bar? Definition, How to Recognize, and Trading Strategy

Popular Price Action Patterns

In price action trading, candlestick patterns often serve as primary signals that provide clues about potential future price movements.

These patterns not only indicate the possibility of a trend reversal or continuation, but can also trigger entry or exit decisions. Here are some of the most widely used price action patterns by traders, including:

1. Pin Bar

This pattern indicates a significant price rejection from a level, which often indicates a possible reversal. A pin bar is characterized by a single candlestick with a long tail and a small body.

The long tail indicates that the price has tried to break through a level, but failed to maintain it. The position and direction of the tail can signal whether the price has the potential to rise or fall in the near future.

2. Inside Bar

An inside bar is formed when a small candle is completely within the range of the previous candle (mother bar). This pattern usually indicates a phase of consolidation or market indecision, and often appears before a breakout occurs.

If it appears in a trending market condition, the inside bar can be a signal of a trend continuation. However, in certain situations, this pattern can also be a signal of a possible reversal.

3. Engulfing Candle

Engulfing candle occurs when one large candle completely “swallows” the previous candle, both in terms of body and overall length. This pattern is usually a strong sign that the trend direction will change.

For example, in a bullish engulfing, a large green candle completely covers the previous red candle, which signals that buying pressure is starting to dominate.

4. Break of Structure (BoS)

Break of Structure refers to the moment when the ongoing price structure, either an uptrend or a downtrend, changes.

This can be seen when the price manages to break through an important support or resistance level that previously consistently held back movement.

BoS is often considered a strong confirmation that the trend direction has changed, and can be a crucial signal to enter or exit a position.

Another interesting article for you: Getting to Know Ichimoku Cloud: A Guide to Understanding Trading Indicators

Advantages of Price Action Analysis

Price action analysis is basically not only visually simple, but also provides high flexibility in decision making.

Here are some of the main advantages that make it widely used by traders in various market instruments, including:

1. Cleaner charts and minimal visual interference

Price action does not use many technical indicators so that the graphic display is neater. This makes it easier for traders to focus directly on price movements without visual distractions.

2. Responsive to current market conditions

Because it directly reads the prices that are being formed, this analysis provides faster signals in responding to trend changes, breakouts, or price reversals.

3. Flexible in all instruments and time frames

Suitable for use in various markets such as stocks, forex, or crypto, and can be applied to short (scalping) to long (swing trading) time frames.

4. Can be used with or without additional confirmation

Price action is strong enough to stand alone, but can also be combined with other indicators as additional confirmation according to each trading style.

5. Helps understand market psychology

Each pattern formed reflects trader behavior, such as fear or euphoria. It helps in reading the actual market sentiment behind price movements.

When Should You Use Price Action?

Basically, there are several ideal situations for using price action as the main strategy in trading, including the following:

1. When you want to focus on simple but effective market signals

Price action is suitable for traders who don’t want to bother with lots of indicators. By simply reading price movements and candlestick patterns, traders can get clear entry and exit signals.

2. When the market is clearly trending or extremely sideways

This analysis is very effective when the market trend is strong (up or down), or when prices are moving within a narrow range. Patterns such as breakouts or rejections are very useful in these conditions.

3. In the H1 time frame and above for swing trading

Price action works optimally in larger time frames, such as H1, H4, or daily because price movements are more stable and the signals tend to be more accurate for medium-term trading.

4. As a tool to confirm signals from other indicators

You can also combine price action with indicators such as RSI or moving averages to strengthen trading decisions. For example, candlestick patterns can be additional confirmation before you take a position.

Price Action in the Crypto World

Price action is very suitable for use in the crypto world because of the fast-moving and volatile nature of this market.

This approach allows traders to read price movements directly without having to rely on technical indicators that often lag in responding to market changes.

Many Bitcoin, Ethereum, and various other altcoin traders utilize price action, both in spot and futures trading.

By focusing only on price action, they can make decisions faster and more efficiently, especially in dynamic and unpredictable markets.

In addition, price action is also very helpful in recognizing fake breakouts, which are situations that often occur in the crypto market when prices appear to break through important levels, but then reverse direction.

By understanding price movement patterns, traders can be more alert and not easily trapped by false signals.

Conclusion

Well, that was an interesting discussion about Price Action Is the Main Weapon of Pro Traders!, These are the Patterns & Advantages that you can read in full at the Crypto Academy at INDODAX Academy.

In conclusion, price action is a simple but very effective analytical approach.

By understanding price movements directly, you can capture market signals without relying on too many technical indicators.

This method is suitable for those of you who want to become independent traders with a cleaner chart display and more precise decisions.

For those of you who are serious about pursuing the world of crypto trading, mastering price action can be an important provision for facing a dynamic and often rapidly changing market.

This is a strategic step to increase the sharpness of analysis and readiness in making decisions. Are you ready to upgrade the way you read the crypto market?

Well, in addition to expanding your investment horizons, you can also stay updated with the latest crypto news and directly monitor the price movements of digital assets on the INDODAX Market. Don’t forget to activate notifications so that you always get the latest information about digital assets and blockchain technology only at INDODAX Academy.

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FAQ

1.What is price action in trading?
Price action is a method of analysis based on historical price movements without the help of additional technical indicators.

2.Is price action better than technical indicators?
Not always, but price action is more responsive and is often used as a basis for decision making by pro traders.

3.What patterns are important in price action?
Pin Bar, Inside Bar, Engulfing Candle, and Break of Structure are common patterns that are often used.

4.Is price action suitable for beginners?
Yes, as long as it is accompanied by practice reading charts and basic understanding of candlesticks.

5.Can it be used in crypto?
Absolutely! Price action is very suitable in the crypto market which tends to be fast and volatile.

Author: Boy