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7 Crucial Insights into Price Action You Need to Understand

Trading with Price Action is a simple technical analysis method without using indicators. This method directly uses price patterns as signals, ensuring high accuracy. Here are 7 Price Action secrets that might enhance your analysis quality:

1. Order Absorption

We often hear that the more often support or resistance is tested, the stronger it becomes. However, in a breakout scenario, it's the opposite. The strength of buyers and sellers changes every time the price tests a support or resistance level. When the price approaches resistance in an uptrend, sellers tend to enter to realize profits. On the next test, the strength of sellers decreases, making resistance weaker. This phenomenon is known as order absorption.

Characteristics of Order Absorption:

  • The price returns to the support or resistance level faster after a retest.
  • Chart patterns like Triangle and Cup and Handle are based on this order absorption theory.

2. Five Phases of Price Movement

Price movement is not just divided into uptrend, downtrend, and sideways. There are five phases in every price movement direction:

  • Trend: Buyers or sellers dominate.
  • Correction: Opposing forces increase in the short term.
  • Consolidation: Buyers and sellers are balanced.
  • Breakout: One side's strength ends the consolidation.
  • Reversal: Opposing forces seize market dominance.

3. Prioritize Patterns at Strategic Locations

To increase profit potential, focus on significant patterns detected at strategic locations such as support/resistance or supply/demand areas. These strategic areas are formed for specific reasons and provide better confirmation for Price Action signals.

Steps:

  1. Identify patterns in strategic areas.
  2. Look for additional confirmation from a higher time frame before entry.

4. Price Patterns Don't Have to Be Perfect

Prices are always changing and dynamic, so price patterns do not always match theoretical descriptions. Stop looking for perfect patterns, and learn to recognize valid patterns even if they do not exactly match the theory.

5. Four Principles of Reading Candlesticks

How to read candlesticks effectively:

  • Shadow Length: Indicates uncertainty and volatility.
  • Bullish vs. Bearish Shadow: Market rejection to continue movement.
  • Body Position: Indicates bullish or bearish pressure.
  • Body Size: Indicates trend strength.

6. Don't Worry About Broker Server Time Differences

Chart differences across brokers are caused by server time differences. As long as you are consistent with the chart from the same broker, these differences will not significantly affect your Price Action analysis.

7. The First Breakout from a Trendline is Not an Entry Signal

Do not rush to enter a position after the price breaks out from a trendline. It is better to wait until the price breaks the last high or low before the breakout. This strategy is more realistic and reduces risk.

Steps:

  1. Wait for the price to break the last low (for sell) or high (for buy) before the trendline breakout.
  2. Place an entry position after confirmation.

Understanding the secrets of Price Action requires deep understanding and discipline. Do not force invalid signals just to follow personal perspectives. Be realistic and ensure your analysis is based on a fundamental understanding of Price Action. This way, you can make more objective and profitable trading decisions.

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