Price action trading is one of the easiest and most effective approaches to trading.
Knowing how to make it work for you can significantly enhance your analytic abilities and trading performance. However, there are tons of misconceptions and half-truths surrounding the concept of price action trading.
Whether you are just starting out on your trading adventure or are something of a guru, below is an opportunity for you to perfect price action trading.
This comprehensive guide on all things about price action trading explores the ins and outs of this technique, separating fact from fiction. Read on to find out all you need to know.
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How to Start Price Action Trading in 3 Quick Steps:
Step 1: Create an Account
Open a price action trading account with our recommended broker. As part of the registration process, you will be required to submit your personal details for KYC.
Step 2: Deposit Funds
Once you have completed the registration and your account has been approved, you can transfer funds to your account by one of its supported payment methods.
Step 3: Demo and Live Trading
Begin trading using the free demo account. Once you are confident with your price action trading strategy, you can use your deposited funds to trade for real.
Disclaimer: eToro - 62% of customer lose money when trading CFDs
Step 1: Open a Price Action Trading Account
Our Criteria For Choosing The Best Price Action Trading Platforms
We have analyzed the top price action trading platforms and come up below with the list of the top 3 platforms you can check out today. Below are the factors we took into consideration:
- Broker’s reputation
- Security features
- Specific features; charting tools, indicators and educational resources
All of them are all licensed and regulated by several financial regulators in the world so you can be sure that your personal information and money are always safe. They also have powerful trading platforms that can provide you with a lot of charting tools and indicators.
1. eToro – Best Choice For Beginners
Founded in 2007, eToro is a highly regulated trading platform operating under multiple top-tier authorities. These include the FCA, CySEC and ASIC among others.
One of the highlights of this service that makes it ideal for price action trading is its excellent trading platform. It’s available either as a web platform or as a mobile app. Also, it offers excellent research, charting and analytics capabilities.
The charting tool is excellent, and if you want to use indicators for your price action trading, there are at least 70 technical indicators you can check out. The chart saving is automatic, which means you will not waste time setting indicators from scratch every time. Unfortunately, the longest time frame you can use is 6 months.
On the bright side, charting functions are easy to use and offer an intuitive feel. So regardless of your experience level, you will find it suitable.
Another aspect in which eToro shines is its sheer number of markets and assets available to trade. You can trade shares, indices, commodities, forex, cryptocurrencies and equities here. In addition to trading physical assets, you can instead trade CFDs for all its asset classes.
If you are yet to master the technicalities of price action trading, you can take advantage of the site’s copy trading feature. This allows you to mimic the moves of more experienced traders as you learn the ropes. For more experienced traders, you get the opportunity to discuss strategies on the social trading program.
It is also noteworthy that you will not pay any fees when you open a position here. Rather, the service will generate a fee based on the spreads which vary according to market conditions and liquidity.
- Trading commission - $0
- Trading fees – Charged based on spreads
- User-friendly design
- Excellent charting features
- Innovative copy trading option for beginners
- Charts only show data for the past 6 months
2. Plus500 – Large number of quality technical indicators
Founded in 2008, Plus500 has, over the years, become one of the top providers for CFDs globally. It offers leverage trading on a wide range of financial trading instruments, 2,000+ at present, under the main asset classes. Plus500 UK LTD is authorized and regulated by FCA in the UK, ASIC in Australia, and CySEC in Cyprus.
Traders here can trade CFDs markets such as crypto, shares, indices, ETFs, commodities, options, and forex.
One of the features that make it a great price action trading service is its trading platforms. It has a proprietary WebTrader platform as well as a mobile app for Android, iOS, and Windows devices. These offer excellent functionality with great navigation features and a user-friendly design. On the downside, it doesn't support the MT4 trading platform and its proprietary WebTrader platform isn't customizable.
Among the key features, it offers to traders is the ability to configure real-time alerts. These alerts will inform you of price movements on your select instruments. You can also get a notification when an asset reaches a set buy or sell price and when the percentage of sellers or buyers reaches a certain level, denoting trader sentiment.
The charting tool is great, and it has 100+ technical indicators as well as editing tools. You also have the option of saving charts for future use.
- Trading fees – Varying but highly competitive spreads
- User-friendly platform
- Real-time alerts for price movement
- A wide range of trading instruments
- Trading platform is not customizable
Features to Look for When Choosing a Price Action Trading Platform
- Markets on Offer
The higher the number of markets you can access on your choice of platform, the better. This will eliminate the need to open a second account if your trading needs change.
One of the highlights of eToro is that it offers access to a wide array of markets making it possible to cover all your trading needs with a single account. Plus500 also excels in this regard.
- Trading Platform and Tools
Price action traders require a platform with great charting features so as to optimize their trading experience. Another important feature is accessibility on multiple operating systems.
eToro’s trading platform is easy to navigate and use, and it offers excellent charting features as well as plenty of indicators in case you need them in your strategy. Also, it is accessible online and as a mobile app. Though Plus500 also has a great platform, the lack of customization options is a major downside. Forex.com has multiple options offering lots of versatility.
Trading is complex enough without having to learn how to use the underpinning service. Platforms with a steep learning curve are not ideal for novice traders.
eToro excels in this regard because despite offering tons of functionalities, its intuitive design makes it easy to use.
It would be frustrating to operate an account on a site that experiences frequent downtimes and execution delays. The best price action trading site should offer flawless performance and execution with minimal lapses.
eToro and Forex.com both have a reputation for impeccable performance and execution.
- Trading Instruments
Find a trading platform with a comprehensive selection of tradable assets so you can diversify your portfolio with ease and optimize your earning potential.
On eToro and Plus500, there are countless assets to trade across a wide range of classes, all within the same account. Forex.com lags behind since accessing some of its tradable assets requires a separate account with an affiliate.
Step 2: Learn How the Price Action Trading Market Works
What is Price Action Trading?
Price action refers to the movements of a trading asset’s price over a period of time. It is the fundamental building block for the technical analysis of all tradable securities. In fact, technical analysis is a price action derivative, since it bases calculations on past prices.
Based on the above, we can define price action trading as a form of trading where decisions are based on asset price movements.
Typical trading usually revolves around three main aspects to inform traders’ decisions and moves. These are price action, indicators and a combination of the two. There are additional strategies too such as statistical, order flow or seasonality, but the aforementioned are the major categories.
Price action traders basically ignore indicators and focus their strategies on price as the only true information source. However, it is noteworthy that some price action traders use price as the main source of information and indicators as a secondary source.
How does Price Action Trading Work?
Financial markets usually generate data concerning market price movements over different periods of time. You will find such data on price charts. Basically, these price charts show the actions and feelings of all market participants who are trading during the given period. On the market price chart, these feelings and actions take the form of price action.
As such, even though there are many catalysts contributing to price movements, it is not necessary to analyze all of these so as to trade successfully. This is because a market’s price action ultimately reflects all the world news and economic data that causes price movement.
With these signals, you have all the necessary tools at your disposal to develop your trading strategy. The price action trading concept involves making decisions on the basis of what is referred to as “naked” or stripped down chart. Such a chart does not have lagging indicators, with the exception of maybe a few moving averages. These help to identify trends and dynamic resistance and support areas.
Essentially, the approach is hinged on the premise that prices move in trends, and momentum will keep a trend going in one direction until a major force in a different direction halts it. A price action trader is not really concerned about the ‘why’ of price movements. Rather, when the price of a stock increases, they conclude that the demand is high. Depending on how aggressively people are buying, they then assess whether the trend will continue.
To do this, they make use of real-time and historical price info. This info includes aspects such as volume, offers, bids, magnitude and velocity. Using this data, the trader will then seek a viable entry point to trade. Such a point will offer a balance between profit potential and risk control.
In order to improve their capacity to spot trends and interpret them, traders make use of various chart compositions. These charts plot asset prices over a period of time and make it possible to visualize, not merely trends, but breakouts as well as reversals too. On the basis of the formations they generate, they are able to set expectations for what is likely to happen next.
Some price action traders also go a step further and calculate technical indicators. The idea behind this is to make sense of seemingly random price movements.
Traders who follow this approach believe that history always repeats itself and that there is nothing new in any market. Thus, prices will always revolve around specific points. Based on this belief, they make predictions on how the market will behave during a certain period.
They keep looking for repeating patterns asking where price usually goes next once it reaches a certain point. Having the correct answer to this is the key to accuracy in using this trading technique.
Assets for Price Action Trading
You can trade most securities using this approach. Some of the popular favorites include:
Benefits of Price Action Trading
There are countless benefits that a trader may derive from using this trading approach. Here are some of them:
- Clean Charts – There is a remarkable difference between pure price action charts and ones that are full of indicators. The latter appear cluttered, and in order to make room for the indicators, you have to reduce the size of the price action section. But when all you have on a chart is price action, it is easier to focus and carry out an analysis.
- Suitable for Beginners – Another highlight is the simplicity of trading in this manner. Let’s face it. Markets can be complex and confusing when the flow of information is endless. The idea of focusing on a single variable makes it easy for beginners to get a handle on trading.
- Focuses on the Core Market Element – At the end of the day, every market’s workings revolve around price. Its focus on this element makes it highly effective, and that is why it is a time-tested strategy that any professionals swear by.
- Easy to Spot and Execute – Price setups form frequently and once you know what to look for, you will easily spot them. All it takes to use this method is to sit and wait for a pattern to form, and then execute the desired edge. For beginners, you can easily test this out on a demo account before you go live.
- Offers High-Profit Potential with Higher Time Frames – With this setup, the higher the time frame of trading, the stronger and more valid your moves are likely to be. As such, you can trade less frequently and get higher accuracy. This makes it ideal for people in full-time jobs who cannot afford to spend all day watching the charts.
- Allows Traders to Maintain Objectivity – Knowing exactly what to look for before entering a position fosters objectivity and limits frustration. You can sit and wait calmly, only checking the market at regularly scheduled times for your edge.
- Works Well in Both Range-Bound and Trending Conditions – A majority of trading methods are effective in trading ranges but not trends or vice versa, but with this type of analysis, you can get accurate signals regardless of the market conditions.
Step 3: Learn Price Action Trading Tips
As you may have realized by now, price action trading is a relatively easy concept to grasp. However, mastering it is another matter altogether. Here are some tips and tricks that may improve your performance:
- Avoid entering trades when the market is far from the moving average. When a market is trending, it will usually revert to the moving average. Always identify the moving average in question to determine the potential strength of the trend.
- Look for a sharp counter-trend to predict when a reversal is about to begin. Most other methods of predicting counter-trends often result in false signals. But if a market has been moving in one direction, a sharp counter-trend will almost always signal a reversal.
- Identify areas of value from which to trade based on support and resistance. Before you can buy low and sell high, you need to define lows and highs. Pay attention to both horizontal and dynamic support and resistance time so you can make the right moves.
- Trade with the trend for higher profit potential. Traders often make the mistake of focusing so hard on minor market moves that they miss the major ones. Doing the opposite will increase the chances of trading successfully.
- The longer a range, the harder the trend. Have prices been ranging for an extended period? Traders in all corners of the globe will notice that and either queue to trade the breakout or short the resistance. If price trades above resistance, shorts will be squeezed and everyone will join the bandwagon. Due to this imbalance of buy/sell pressure, the price will end up trending for longer than usual.
- For more information on price action trading, we recommend this price action trading course at ForexSchoolOnline.com.
Step 4: Place a Trade Order
Assuming that you have chosen to create an account on eToro and have already deposited some funds, you can easily start trading by following the steps below.
For price action trading, one of the best markets that you can try is the crypto market. Search ‘Bitcoin’ on the search field and eToro will show you its dedicated page for Bitcoin.
The Bitcoin page also has charts, stats and news articles about Bitcoin. If you’re new to cryptocurrency price action trading, it is highly recommended that you take some time to check out the crypto educational resources and research studies that eToro provides for all of its users.
Once you’re ready to place an order, click on the ‘Trade’ button.
On the order form, you will need to fill out the amount of BTC you want to buy. Your purchased BTC will then go to your eToro crypto wallet within a few seconds.
Unlike a host of other trading approaches which anticipate moves, price action reads the market. It eliminates all the noise and focuses on the most essential element, which is the price. While that makes it highly effective, it is no guarantee of success.
With the above information on how price action trading works, the best trading platforms for the method and handy tips for using it, you have all the necessary tools to make it work. Note however that having theoretical knowledge does not translate to success. Like any other trading strategy, it takes time and practice.
For everyone who appreciates minimalism and simplicity, price action trading will likely become your go-to trading approach. Also, for anyone who ends up trading using a different approach, mastering this one will certainly enhance your performance since trading and price action are inextricably linked.
What are support and resistance?
Support refers to a level where demand is so high that price is unlikely to drop further. Resistance is a level where price has gone too high causing buyers to become hesitant and stop buying.
How do price action traders use moving averages?
They use them to determine support and resistance levels, identify trends, understand the market structure and spot extremes in price among other things.
What are candlesticks?
Candlesticks are thin vertical lines that show the trading range within a given period. Price action traders use different candlesticks to read the market and make trading decisions.
What does social trading mean?
Social trading is a way of investing that works more or less like a social network. Investors can observe the activities of peers and pro traders and mirror their strategies or exchange notes.
What is a CFD?
Contracts for Difference (CFD) refers to a form of derivative trading where you can speculate on the price of an asset without owning the actual asset.