How can I learn price action trading?

In layman terms, price action is price’s movement over time and is part of technical analysis. The fluctuation in the prices of financial instruments forms the basis of the price action. This method links historical prices to current prices making better trading decisions. Unlike others, this theory tells what is happening in the market. It can be related to behavioral economics where early identification of opportunities helps in seizing the opportunity. A trader takes key factors like volume, price, market trends, and human behavioral patterns into account and tools like trend lines, price/volume indices, support or resistance levels, relative strength index, moving averages, etc to predict stock market movements based on real-time information. Trends can come in any of these three forms: primary trends, secondary trends, and short-term trends. Pricing action works best in short term trends. Thus, it becomes important to understand market cycles as these help in knowing the direction of the market and making better-informed decisions. The origin of price action theory can be related to Dow Theory.

The answer to the following questions can be explained better with the help of the price action-trading concept. 

•  Where the market is heading/trend of the market?  
•  How the market has responded to the current price? 
•  ·When to entry and exit? 
•  What is the breakout? 
•  Where is the support and resistance level required? Moreover, many more………… 

It is a matter of debate that markets are predictable/unpredictable. Price actions claim to some extent that the market can be predicted and the pattern is cyclical and always fluctuate within some range. Therefore, speculators, arbitrageurs, trading firms, technical analysts, aggressive retail investors, intraday traders, hedge fund managers, etc who make decisions based on price action always look for the patterns that repeat themselves. The focus is on ignoring aspects of fundamentals and identifying trending market vs consolidated market by looking at price patterns, trends, and other forms of technical analysis. Simply you need to identify price patterns and mastering the art of drawing support and resistance lines.

Human nature dictates that the prices of the market and sometimes it becomes highly unpredictable. The market oscillates between “Higher highs” and “Lower lows” during an uptrend or downtrend and it is the pricing factor, which makes it. The best explanation could be made on the supply and demand concept. Supply areas, where sellers actively entered the market and caused the price to fall, Traders actively make an eye on these activities because buyers will still be present and willing to sell again when the market returns, driving the price back down. Similarly, Demand areas exist where buyers aggressively entered the market, and the price is rocketed. Traders will look to see if the purchase picks up again, driving up the price again to that level. So studying the highs and lows of these previous days, weeks, and months, the idea is to develop a general idea of what will be the next price. The price action strategies work best in markets with high liquidity.

The underlying is that markets generate data about the movement of the price of a market with time; this data can be represented by charts. Price charts show the beliefs and actions of all market participants trading at a given time and these belief forms the basis of price action. The momentum always increases once a pattern shifts. The pattern shifts again when a stronger pattern in opposite direction appears and changes the direction. There will be periods of consolidation between these relatively strong patterns, hence trade and prices will sometimes bounce off between support and resistance lines.

Many variables create price movement giving information about past trends, which can be observed on the market’s price chart. It is difficult to track all market variables, which affect the price of a security. Therefore, instead of focusing on all variables, you can track the price action made by these securities. In technical and chart pattern analysis, price action tries to find order from random security price movement So it requires knowledge of support and resistance, breakout points, and, above all, repetitive price trends and other factors also. When the price action of security reverses and shifts it the direction it makes a peak or low in the market thus a support or resistance level is created. The golden rule can be said as resistance level is always above the current market price and vice versa for support.

Few things to remember about price action strategy is:

• You need to study technical indicators such as (RSI, MACD, Bollinger bands, candlestick, Fibonacci, etc.)
• It is helpful for short-term quick decision only because it doesn’t require complete analysis.
• Strategies could be adjusted according to the trader’s preference.
• Ignores the fundamental aspects of stocks and focus on the quantitative part.
• The breakout means When the index/securities have moved with a certain tendency and this tendency break after a period, it is a breakout and alerts traders to a new opportunity for trading.
• Support and resistance areas are a sign of a bounce or reversal trade.