Are you thinking that trading is “easy to play, easy to win”? But the reality is that earning money is never easy, regardless of investment or any other job. Only those who take it seriously and don’t see it as a game will find success. If you are a Price Action trader, you need to master the following 6 skills to make huge profits in Olymp Trade.
Today, we will come to the tools that Price Action takes advantage of. As a Price Action Trader, you must know how to master these tools. These include simple but important things like swing points, trends, support and resistance, trendlines…
- 1 Find swing points according to Price Action
- 2 Skill to identify trends accurately
- 3 Draw Trend Lines and trade with Price Action
- 4 Decide whether a support or resistance zone can hold the price or fail
- 5 The skill of identifying buying and selling forces through each candlestick
- 6 Setting feasible price targets
Find swing points according to Price Action
Price moves in waves and reversal waves form swing points. Identifying these swing points means that we are determining the market structure. Those are the simplest but most accurate signs of support and resistance.
The market structure is like a battleground. That is the battlefield where you will have to face the enemy. The more you understand the terrain of the battlefield, the greater your advantage.
Observing the swing points of the price waves, they will show you:
- Main trend
- Support and resistance – potential entry zones.
- The first swing points are the most important ones
- Although it was preceded by a strong decline, the price was still well supported by the previous swing point.
- This 3rd bearish wave will be enlarged in the chart below
Swing highs and swing lows get lower. All previous attempts to break above the swing point have failed. This is a downtrend.
The price hits the previous support level on the first chart and forms a long-tailed candle, which is rejection.
Has anyone here used the ZigZag indicator to determine swing points? Don’t do that. Redraw yourself to train your eyes to be more sensitive to price action.
Skill to identify trends accurately
It sounds easy to say, but most of us determine the trend in a very emotional way. Every time we see the price increase, we say it is an uptrend. Or if the price drops sharply, it means a downtrend.
There are many cases where the price is falling but that is just a retracement of the mainstream uptrend. On the contrary, the price is increasing but only a retracement of the previous major downtrend. Sometimes we even get confused in multi-frame analysis, not even determining what the real trend is.
– An uptrend consists of higher highs and higher lows.
– A downtrend consists of lower highs and lower lows.
Thus, to have an uptrend, one must see at least 1 pair of higher highs and higher lows, and vice versa.
Draw Trend Lines and trade with Price Action
A trend line is a natural representation of a trend. It connects swing points together. If the trend blends well with the trendline, it is a strong and sustainable trend.
- The trend line tells us what the current trend is. Is it sustainable?
- Can it be considered as secondary support or resistance?
- It gives us a feel for the dynamics of the trend.
To draw the right trendline, you must first identify the swing points correctly. Take that as the landmarks from which draw a line connecting them from left to right. Remember that trendlines are always drawn from left to right.
Trend lines can connect the highest highs and lows of the candle or the closing price of the candle. As long as you finish drawing it, you feel that the trendline is being respected by the price action, and is likely to be repeated in the future.
Decide whether a support or resistance zone can hold the price or fail
If you expect the support zone to hold the price there, you open an UP order when the price tests it. On the contrary, if you expect that zone can’t hold the price, then you will initiate a DOWN order when the price breaks out of the support and goes down.
Hold or fail? This decision will change your strategy.
The key to making the right decision is “Patience”. If in doubt, wait for more reliable price action signals to appear. Waiting is a virtue that Price Action traders need to have, even making it a habit. Waiting gives us more benefits than harm. We rarely lose because of waiting but will often lose more because of haste.
Take a look at the following scenario analysis.
Lower highs and lower lows suggest a continuation of the downtrend.
The price breaks trendline. But we still don’t know if this is a trend line break or not
If we are patient, we can see a higher swing low appearing, which means this support is still good. The bounce is initiated by a Bullish Pin Bar. And the uptrend continues.
The skill of identifying buying and selling forces through each candlestick
Both buying and selling forces are shown on the chart. Price Action traders must know how to read those signals and see if the buying and selling forces are strong or not. If yes, which force is stronger and which side is winning.
On the Japanese candlestick chart, each day will have different developments in the battle between the two sides. You need to know at the moment which force is in control of the market. You need to make the trades that are the best in that situation. If the two sides are in a truce, ie the market is moving sideways, you should not look for an entry point. Make sure you’re on the more dominant side.
Can you spot buying and selling in this picture?
The selling force is shown through the upper shadows of the candle. The buying power is shown through the lower shadows of the candle. The length of the whole candle is the volatility. The length of the candle body shows which side has the upper hand. They all provide us with valuable pieces of information.
Setting feasible price targets
Taking profits is an often-overlooked skill in trading methods. Price Action traders must know how to set feasible price targets. About ways to take profits using Price Action, I have written in the following article. How to set up an effective Price Action strategy in Olymp Trade (Chapter 10)
So, in summary, a Price Action Trader needs to have the following skills:
- Find swing points
- Identify trends correctly
- Draw a trend line
- Decide whether a support or resistance zone can hold or fail
- Identify buying and selling forces through each candlestick
- Set feasible price targets to exit with profit
In the following sections, we will go through the most powerful tools of Price Action in turn.
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