“advanced Forex Strategies: Expert Approaches To Profitable Trading In Australia” – Price action is one of the most popular trading concepts. A trader who knows how to use price action the right way can often significantly improve his performance and his way of looking at charts. However, there are still many misunderstandings and half-truths that confuse and mislead traders. In this article, we explore the top 8 price action secrets and share the best price action trading tips. #1 Order Absorption: Support and Resistance Support and resistance indicate important price levels, because if the price has to move at the same level repeatedly, this level must be significant and is used by many market players for their trading decisions. If an uptrend is repeatedly forced to reverse at the same resistance, it means that the ratio of buyers to sellers suddenly reverses. Not only do all the buyers pull out at once, but the sellers immediately dominate market activity as they initiate the new downtrend. Of course, support and resistance don’t always stop price from continuing a trend. Breakouts can also provide highly probable trading signals. Conventional technical analysis says, the more times price hits a certain level of support or resistance, the stronger it gets. However, I cannot fully agree with this. Every time the price reaches a support or resistance level, the balance between buyers and sellers changes. Whenever price meets resistance during an uptrend, more sellers will enter the market and begin their sell trades. If the price hits the same resistance level again, fewer sellers will be waiting there. This phenomenon is also known as order absorption. The resistance gradually weakens until the buyers run out of resistance and the price can break up and continue the uptrend. We can observe this phenomenon when a resistance’s rejections become progressively weaker and, in any case, the price can return to the resistance level more quickly. Also formations such as triangles or the cup and handle are based on the concept of order absorption. The figure below shows such an example. Silver price returns to the same resistance level faster and faster, as indicated by the arrows. This suggests that fewer sellers are interested in selling at the resistance level each time. In this case, the resistance level becomes progressively weaker. In addition, just before the breakout, the trend accelerated to the upside, as indicated by the dotted arrow. Eventually, the price broke through the resistance level and established an extended uptrend when there was no more selling interest. #2 Chart Phases At any time, the price can rise, fall or move sideways. This may sound simple, but as we have already seen during candlestick analysis, we can quickly gain extensive knowledge when we break down complex facts into separate components. The screenshot shows that each chart includes the following five phases: Trends If the price rises over a period of time, it is called a rally, a bull market, or simply an uptrend. If the price is falling continuously, it is called a bear market, a sell-off, or a downtrend. Different trends can have different degrees of intensity. In the next section, we’ll get to know the individual facets of trend analysis. Corrections Corrections are short price movements against the prevailing trend direction. During an uptrend, corrections are short-term phases where the price falls. As we will see, during trend phases, price does not always move in a straight line in one direction, but constantly moves up and down in so-called price waves. Consolidations Consolidations are sideways phases. During a sideways phase, price moves sideways in a usually well-defined price corridor and there are no impulses to start a trend. Breakouts The buyers and sellers are in equilibrium during a sideways phase. If the strength ratio between the buyers and sellers changes during consolidations and one side of the market players wins the majority, a breakout occurs from such a sideways phase. The price then sets a new trend. Breakouts are therefore a link between consolidations and new trends. Trend reversal If a correction lasts for a long time and if its intensity increases, a correction can also lead to a complete trend reversal and initiate a new trend. Thus, like blowouts, trend reversal scenarios signal a transition in prices from one market phase to the next. The chart stages can be universally observed as they represent the battle between buyers and sellers. This concept is timeless and describes the mechanism that causes all price movements. The trend phase pushes the price up, indicating that the buyer is overhanging. The consolidations mark temporary trend breaks; however, a trend continues until the price fails to make a new high during an uptrend. Corrections show the increase in opposition in the near term. If these are repelled, the trend will continue its movement. On the other hand, long correction phases eventually develop into new trends when the strength ratio shifts completely. While the order and strength of individual diagram phases can vary widely, each diagram contains only these phases. Understanding them fully makes price analysis relatively easy. #3 Wavelength and Steepness Now we go even more detailed. After seeing that any chart can only be constructed from the different chart phases, which themselves consist of price waves, let’s examine the four different elements of wave analysis. This concludes our fundamental work. Each subsequent card formation, and any card in general, can then be explained and understood with the previously learned building blocks. The length of the individual trend waves is the most important factor in judging the strength of a price move. During an uptrend, long rising trend waves uninterrupted by correction waves show that buyers have the majority. On the other hand, smaller trend waves or slowing trend waves show that a trend is not strong or is losing momentum. The figure below shows that the trend phases are clearly described by long price waves in the underlying trend direction. Left: Long trend waves confirm high trend strength. The trend comes to a halt once the waves shorten. Right: The downtrend is characterized by long descending trend waves. However, the length decreases downwards and the trend reverses soon after. The speed at which the price rises during a trend is also of great importance. In general, moderate trends have a longer life and a sudden price increase usually indicates a less sustainable trend. We can often observe this phenomenon during so-called (price) bubbles, where the price falls just as quickly after an explosive rise. The development of the steepness of trends and price waves, compared to the overall chart context, is also important: accelerating or weakening price waves can indicate that a trend is accelerating or slowing to a halt. Interesting correlations can be made with the concept of length: a trend is intact if we find long trend waves or trend waves that become longer with a moderate or increasing angle. On the other hand, a trend with trend waves that are getting shorter and shorter, and at the same time loses its steepness, indicates a possible approaching end. The screenshot below shows such a situation where the length and steepness changed during the uptrend. The complete turnaround soon followed. More: Trend Strength with Indicators – Ad: ’sTrend Rider Indicator – #4 Location – Improving Your Trading Instantly Even if you see the best price action signal, you can still greatly increase your chances by only taking trades at important and meaningful price levels. Most amateur traders make the mistake of taking price action signals no matter where they occur and then wonder why their win rate is so low. In my own trade I pay a lot of attention to the location. A good signal in a key support/resistance or demand/supply area can often be a harbinger of a great trade. On the other hand, even a great price action signal in a bad location is nothing I would trade. To increase the chances of a successful trading opportunity, you should not trade blindly in such support and resistance areas. It is advisable to wait for more confluency factors. For example, if a head-and-shoulders formation or a double top appears at the support and resistance level, it can increase the chances of a positive outcome. The screenshot below shows how the left head-and-shoulder pattern played out at a sustained resistance level on the right. Point 4 on the right marks where the head and shoulders are formed. Zooming in and out of your map can often help you see the bigger picture and allow you to pick up important clues. If we zoom out, we can see that the
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