Price action trading

Price action is the record of what buyers and sellers did, shown as candles. A price action trader assumes that this record already contains what matters – news, orders and sentiment – and studies its shape instead of a formula built on top of it.

The approach works on any market and timeframe: stocks, crypto, forex and commodities, from 1-minute to weekly charts. A candlestick chart is the standard view.

• Candles – the open, high, low and close of each period. Body size and wick length show who controlled it.
• Swings – highs and lows where price turned. Their order defines the trend: see market structure.
• Levels – areas where price turned more than once: support and resistance.
• Trend lines and channels – lines through successive lows or highs.
• Patterns – repeating shapes made of candles or swings, listed in the candlestick patterns and chart patterns cheat sheets.

• Start on a higher timeframe and name the trend: higher highs and higher lows, lower highs and lower lows, or a range.
• Mark the levels that price reacted to most clearly. A few strong levels are more useful than many weak ones.
• Note where price is now: at a level, between levels, or breaking one.
• Read the last candles at the level. Long wicks away from it show rejection. Large bodies through it show acceptance.
• Only then look for an entry on the working timeframe.

• Pin bar – a candle with a long wick and a small body at a level, such as a hammer at support or a shooting star at resistance.
• Engulfing candle – a candle whose body covers the body of the previous one: bullish at support, bearish at resistance.
• Inside bar – a candle within the range of the previous one. A break of that range is used as the trigger.
• Breakout and retest – price breaks a level and returns to test it from the other side: see breakout trading.
• Trend pullback – a higher low in an uptrend or a lower high in a downtrend.

A candle pattern in the middle of nowhere means little. The same pattern at a tested level, with the trend, is what price action traders look for.

• Entry – after the signal candle closes at the level, in the direction of the higher-timeframe trend.
• Stop – beyond the wick of the signal candle or beyond the level, where the idea is no longer valid.
• Target – the next level or the previous swing high or low.
• Check the risk-reward ratio and skip trades where the next level is too close.

Indicators are formulas applied to price and volume, so they follow price with a delay. Price action is read directly and reacts at once, but the reading is subjective: two traders can mark different levels on the same chart.

Many traders combine the two. A moving average gives the trend at a glance, volume confirms a break, and ATR sizes the stop. On Charts you can draw trend lines, channels and rectangles on a clean chart and use Replay mode to practise reading past price bar by bar.

• Trading a candle pattern without a level or a trend behind it.
• Drawing too many lines until every price looks like a level.
• Acting before the candle closes.
• Reading a low timeframe without checking the higher one.
• Treating a level as an exact price instead of an area.