What is Price Action Trading Strategy?
Price action trading is about understanding the imbalance between buying and selling pressure so that you can identify trading opportunities and make a profit.
Before we discuss about Entry, Exit and Stop Loss Signals, I would like to tell you some basics about the Market Structure, Support and Resistance and Candlestick Pattern.
I will be dividing all these topics in different parts, so that it will be easy to understand.
So let's start with PART 1 Market Structure.
Market Structure
- Accumulation.
- Advancing.
- Distribution.
- Declining.
If you have a clear idea in which structure market is moving, then we are in less trouble to find whether to Buy or Sell.
Accumulation Stage
This phase is common for smart money and waiting for High Up move. Price Tends to move sideways between support and resistance.
Some Characteristic of Accumulation stage:
- It occurs after the price has fallen over the last five months or more (on the daily timeframe).
- It looks like a range market with obvious areas of support and resistance within a downtrend.
- The 200-day moving average starts to flatten out.
- The price swings back and forth around the 200-day moving average.
Advancing Stage:
This phase is commonly known as breakout. When Buyer pressure is more than seller and leads to Up Trend and forms an Advancing Stage.
Some Characteristic of Advancing stage:
- It occurs after the price breaks out of resistance in an accumulation stage.
- You’ll see a series of higher highs and lows.
- The price is above the 200-day moving average.
- The 200-day moving average is starting to point higher.
Distribution Stage:
This stage Smart money distribute away their position and anticipation for price to come lower.
Some Characteristic of distribution stage:
- It occurs after the price has risen for the last five months or more (on the daily timeframe).
- It looks like a range market with obvious support and resistance areas in an uptrend.
- The 200-day moving average starts to flatten out.
- The price whips back and forth around the 200-day moving average.
Declining Stage:
This phase is commonly known as breakout. When Seller pressure is more than Buyer pressure and leads to Down Trend and forms a Declining Stage.
Some Characteristic of Declining stage:
- It occurs after the price breaks out of support in a distribution stage.
- You’ll see a series of lower highs and lows.
- The price is below the 200-day moving average.
- The 200-day moving average is starting to point lower.
Summary:
- The accumulation phase occurs after the price has fallen and looks like a range market within a downtrend.
- The advancing stage occurs when the price breaks out of resistance (accumulation phase). This is also known as the uptrend.
- A distribution stage occurs after an advance in price, and it looks like a range market within an uptrend.
- The declining stage occurs when the price breaks down of support (from the distribution stage), otherwise known as a downtrend.