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What is Price Action Trading
Have you also ever felt that your charts are overloaded with all sorts of indicators but no real return? You are not alone. To this day, many traders still rely on their trade executions on those indicators. However, even the most sophisticated indicator will mostly tell you about the “what happened” part rather than “what will happen”. With Price Action techniques, you won’t need any indicator at all. Not even Simple Moving Averages.
Price Action trading, often considered the art of reading naked charts without relying on indicators, is an essential skill for anyone looking to dive into the world of trading. It serves as the foundation upon which all other trading strategies are built. In this blog post, we’ll explore the concept of Price Action trading and delve into an unconventional approach that sets it apart from most other trading courses.
Understanding Price Action
Price Action is about interpreting market movements solely by analyzing price charts, without the use of traditional technical indicators. Unlike some approaches that focus on identifying specific candlestick patterns, Price Action looks at the bigger picture – it treats price charts and markets as a continuous flow, emphasizing the dynamics of price movement.
The Driving Force Behind Price Movement
Before we dive into the nitty-gritty of trading setups and strategies, let’s address a fundamental question: What fuels price movements? In essence, why does the price of an asset rise or fall?
You might be thinking, “It’s because there are more buyers than sellers (or vice versa),” but that’s not entirely accurate. This misconception is widespread, even among “experts” on television and in newspapers. The key factor driving price changes is aggression. When prices rise, it’s an indication that buyers are exhibiting greater aggression. Conversely, falling prices suggest increased aggression among sellers.
Understanding Aggression in Trading
In trading, aggression is the desire to buy or sell an asset immediately. If you’re eager to execute a trade right now and want absolute certainty of filling your order, you’ll opt for a MARKET ORDER. This order type ensures that your transaction goes through at the current market price, regardless of the specific value at that moment.
Consider a scenario: There’s breaking news suggesting that the EUR/USD currency pair is poised for an upward surge. As a hedge fund trader, you decide to enter a long position with a substantial 1,000-lot size, equivalent to a whopping $100,000,000. The news sparks a frenzy in the market, with everyone looking to seize this opportunity. Prices start skyrocketing, and you’re determined to participate. However, the market is moving at breakneck speed, and to guarantee your entry into this new trend, you need to act aggressively by using a MARKET ORDER.
Here’s what happens:
Your large position won’t be filled all at once, but it will be executed rapidly, albeit in smaller increments, as the price surges upwards. It’s the aggressive market participants using market orders who drive prices aggressively up or down. This is the underlying reason for price movements in the market.
While there’s much more to delve into on this topic, grasping this fundamental concept is crucial. Remember: it’s the aggressive buyers and sellers with their market orders who propel prices in either direction. As you explore further into the world of trading, you’ll frequently encounter discussions about aggressivity or aggressive buyers/sellers, and now you’ll have a clear understanding of their role in shaping market dynamics.
In this blog post, we’ve touched on the core concept of Price Action trading and the significance of aggression in understanding price movements. As you embark on your trading journey, keep these fundamental principles in mind, and you’ll be better equipped to navigate the dynamic world of financial markets.
