Price action trading Part 1 Trend Analysis

What is Price Action Trading? A Simple Yet Powerful Approach

Trading based purely on price patterns, devoid of indicators and other derivatives, price action analysis empowers the trader to read the footprint of market participants on price charts. Though a vast ocean of concepts and techniques, understanding the core principles can help one fathom market behavior better. So let's sail through some key aspects of this approach centered around the heart of the markets - Price.

Trend - The Tide and Its Ebb Flow

"The trend is your friend" - old trading adage

Trend refers to the general direction of price. An uptrend signals bullish sentiment while a downtrend bears the mark of bearish bias. Price swings up and down even within trends. So how to identify one?

Uptrend - Higher Highs and Higher Lows

In an uptrend, price forms higher highs and higher lows. Each rally reaches a peak higher than the previous one, and each decline bottoms out at a level higher than the earlier trough.

This shows the dominance of bulls. The buying interest overrides selling pressure to keep propelling price to greater heights successively.

Downtrend - Lower Lows and Lower Highs

Similar to above, a downtrend exhibits lower lows and lower highs as bears reign supreme. Each revival peters out at lower peaks & each selloff plunges to lower depths.

This indicates selling pressure overwhelming buying interest, driving price downwards.

Sideways - No Clear Direction

When the market is indecisive with neither bulls nor bears in control, price keeps fluctuating in a range.

There are no well-defined higher highs/lows or lower highs/lows. It's a tug of war between both camps with equal domination. This consolidation indicates an impending breakout/breakdown as sentiment builds up one way.

Change of Guard - Trend Reversal Signs

"The trend is your friend until the bend at the end"

Though trends persist for a long time, they eventually reverse when bulls/bears lose steam. How does one identify this shift?

Higher High Breaking Down

In an uptrend, if price fails to make a higher high and starts dropping lower, it signals waning momentum. Bulls are losing power.

Especially if this breakdown is accompanied by heavy volume, it validates the weakness in uptrend. The market may be turning bearish.

Lower Low Fizzling Out

For a downtrend, if selling pressure exhausts itself that price stops making lower lows and bounces back up sharply, bears are losing their grip.

If this up-move also sees significantly higher volumes, it gives more credence to the possibility of a trend reversal. The tide could be turning bullish again!

Confirmation comes when the old high/low is breached. Nevertheless, above signs offer early alerts to a potential change of guard - from ally trend to the enemy!

This covers basic concepts on price trends and reversals. Plenty more ground to cover ahead. Let's sail on further bit by bit to uncover more price action techniques in subsequent parts. Do leave your feedback & queries below!

Video given below is taken from our youtube channel "Share market malayalam by Muhamma Riyas". Check it out for more info. Video is in Malayalam.

Price action trading part 1 -

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Video explains concepts explained below in details.

Whats is price action

We Teqmo Charts - share market malayalam, started a new series in our youtube channel on topic price action trading. Price action analysis and trading is a vast subject. We will try to make a few videos of some of the concepts in price action trading.

Those who are into share market or technical analysis might have heard this word many times and tried to find what is price action and learn it. There aren't many free resources available on this topic. Price action traders analyse charts based on purely price. They avoid all indicators and all. We know indicators are derivatives of price or volume. They may use candlestick analysis, price patterns etc to analyse a chart.

Trends, Uptrend, Downtrend, sideways consolidation

This video in malayalam explains basic structure of a trend. It explains different trends like up trend, down trend, side ways or consolidation and basic structures of these trends.
when price is forming higher highs and higer lows, it called uptrend. Down trend is just opposite of this. Price forms lower highs and lower lows in a down trend.
Video also explains signs of trend reversal and its confirmation signals.

Frequently Asked Questions

Q: Is price action trading suitable for beginners?

A: Yes, price action is intuitive and newbie friendly. As it avoids clutter of indicators and focuses purely on price, it allows clean analysis without confusion. Beginners may start with basic patterns.

Q: Does price action work for all market conditions?

A: Price action can adapt across diverse scenarios - uptrend, downtrend, range bound & volatile markets. Key is to align your strategies to the prevailing conditions. No single rigid style, be flexible.

Q: What timeframes are best for price action?

A: It can work on any timeframe you trade - from 1 min charts for scalping to daily/weekly ones for long term. Depends on your style and horizon. Many prefer 5 min, 15 min or hourly charts to begin with.

Q: What trading instruments can we apply price action on?

A: Be it stocks, futures, forex, cryptocurrency - price action principles remain the same across financial instruments. Just adapt to the volatility of the asset you trade.


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