Trading - price action

What is Price Action?

Price Action refers to the price movements of a financial asset visually represented on a chart over time. Traders who use Price Action focus on raw price data to make trading decisions, relying on patterns and configurations that form naturally.

Levels of Support and Resistance

Definition: Support and resistance levels are key areas on the chart where price tends to stop and reverse direction. Support is a level where the price finds a floor, while resistance is a level where the price meets a ceiling.

Identification :

• Support: A support level is generally identified when the price falls repeatedly but fails to drop below a certain point.
• Resistance : A resistance level is identified when the price rises repeatedly but fails to exceed a certain point on a chart.

Practical example: Let's assume that the EUR/USD price has dropped several times to 1.1500 but has always bounced back from this level. This would be considered a support level. Conversely, if the price rises several times to 1.2000 but reverses each time, this would be a resistance level.

Candle Patterns

Definition: Candle patterns are specific formations of Japanese candlesticks that appear on a chart and can indicate trend reversals or continuations.

Main Patterns :

• Hammer : A bullish pattern, indicating a potential upward turn, forms after a downtrend.
• Étoile Filante (Shooting Star) : A bearish pattern, indicating a potential downward turn, forms after an uptrend.
• Doji: Indicates indecision in the market, forming when the opening and closing prices are very close.
• Bullish/Bearish Engulfing : A pattern indicating a potential reversal, where a large candle completely swallows up the previous candle.

Practical example: If you observe a hammer pattern on a chart after a sharp fall in the EUR/USD. This could indicate a potential reversal to the upside, prompting you to consider a long (buy) position.

Forming trends on a graph

Definition: Trends occur when the price of an asset moves in a specific direction over an extended period. Trends can be bullish (upwards), bearish (downwards) or sideways (without a clear direction).

Identification :

• Bullish trend : Series of successive higher highs and higher lows.
• Tendance Baissière : A series of successive lower lows and higher highs.
• Lateral trend : The price is oscillating between support and resistance levels with no clear direction.

Practical example: If you analyze a chart of the EUR/USD. And see that every new high is higher than the previous one, and every new low is also higher. You're probably in the presence of an uptrend.

Conclusion

Price Action is a powerful and intuitive approach to technical analysis that enables traders to understand and predict price movements based on visual patterns and chart formations. By mastering the concepts of support, resistance, candle patterns and trend formations, you can improve your trading skills and make more informed decisions.

We hope this article has helped you better understand Price Action. If you have any questions or would like to share your experiences, don't hesitate to join us on social networks with the hashtag #xenesy and identifying @xenesy_project. Happy trading!