Reasons for Using Price Action Strategy

28 Dec 2016, 12:07Reasons for Using Price Action Strategy#1
bsadamsmithposts: 6since: 21 Mar 2016

Anybody you ask would be ready to inform you that there is no particular indicator which can guarantee you profits in a consistent manner. And this is largely true indeed. However, there exist certain routes and strategies that are more functional compared to others. One of those is called “price action strategy”. Why should you choose price action strategy to trade with? A few reasons are given below:

  1. One important thing needs to be remembered here: everything here is about simple thinking. Traders usually make the mistake of buying every kind of indicator which exists; such as moving averages, oscillators and Fibonacci retracement tools. But normally it is of no use; and engaging in over-analysis only wastes time and energy. No indicator can be called perfect. In case you use a lot of indicators, you could have a result that is totally off-the-mark. E.g., you might successfully calculate an indicator and abide by its signal to go long, whereas the prices are actually spiralling downwards. Thus, it would be extremely bad for you when a major breakout takes place. Using price-acting based charts could be a life-saver in this instance. Japanese candlesticks are the most pertinent examples of price-action based charts which can help to you achieve a lot of clarity. (Credit for information: cornertrader.ch).
     
  2. Depending on price action, the chart produces a huge number of signals which are quite easy to detect. You could take the Pin Bar Reversal as an example. A pin bar represents a major reversal signal, which often (and almost always) twists itself into ways in which prices could possibly move. A pin bar can be recognised by a long lower or upper wick. If you spot a pin bar which happens to have a long upper shadow, this normally signals a warning that prices would not be travelling upwards, owing to a strong resistance. But if it displays a long lower shadow, then it means that prices are stable and there is little chance for a downward spiral. When you combine these bullish and bearish price rejections with the resistance and support lines on the price chart, you’d be rewarded only by using simple strategies.  
     
  3. There are particular time frames which might be carrying particular significance. Some price action traders prefer to use time frames which run on a daily or weekly basis, because those are often designated as being much more reliable. Time frames that are much longer are considered to possess much greater stability; also, they give out a better indication compared to those five-minute ones. The bigger the amount of data, the greater is the signal reliability. This is why you must depend on price action charts. Those are long time frames and hence, are more dependable.
     

So to sum it all up in a neat, clean and precise manner, price action provides you the chance to take sensible and intelligent decisions, instead of having to rely on emotions and whims. So heed the instructions and go for a price-acting based trading chart. You’ll never regret it.