Price action tip # 1: Trend structure

Any good price analysis should start with a trend structure analysis. To do that, we can follow the classic Dow Theory, which says:

As a trend following trader, you can keep looking for entry points in the direction of the trend, and when the structure is broken, it's time to exit and look for a new trend.

Buying dips (waiting for prices to fall, then buying) during an uptrend may be an option for you. Or, you can look for trend reversals and then catch the trend as soon as it changes.


Price action tip # 2: Momentum

Trader's ability to read momentum from price action charts is a handy tool, and many indicators also use momentum information like RSI, MACD, CCI, Stochastic ... So it's measurable. Measuring momentum without having to look at the indicators is an advantage as you can find trading signals early.

When we talk about momentum, we often mean the strength of the trend. To measure it, we need to consider the size of the candlestick, the ratio between the candlestick's tail and the real body, as well as the ratio between bullish and bearish candles. Some of the following points will help you better understand momentum:
  • Long candles with small tails often signal high momentum.
  • A bullish candle more than a bearish candle also often signals an increase in momentum.
  • Small candles with long candlesticks present indecision and lack of momentum.
Below, we can see that, in the first half of the chart, the Bulls have taken control. The candles are mostly green in color and the number of bullish candles is also much larger. However, in the second half of the chart, things changed and we suddenly started to see strong bearish candles.


Price action tip # 3: Price action barrier

Searching for confluence zones on a chart can help you find new trend reversals or breakouts.

To identify such high impact areas, you can use support - resistance or supply/demand.

You will have to look for clear swing highs and swing lows as well as support and resistance levels hit multiple times. Then, use your own setups and signals to timing the trade according to your strategy.

Just draw a few support and resistance zones on the price chart below and you can see how those areas help us better understand the chart.

We can clearly see price push-pulls at similar areas and how a breakout can lead to great new trades.


The important thing is, you shouldn't let your chart get too cluttered and I recommend that you only consider the most recent price action, focusing only on the most key thresholds. There are a lot of amateur traders who just use too many resistances and fail to do anything.

Price action tip # 4: The classic price action structure

There are dozens of price action structures and models, but I focus on a few!


One of the most popular models is the Head & Shoulders (Head & Shoulders) model. By delving deeply and analyzing the different Shoulder-Head-and-Shoulders patterns, you will learn a lot about price action and how the market moves.


For example, the picture above shows the big red candle which then broke the neckline and confirmed the new trend structure (lower highs and lower lows), which is the final piece of the puzzle and is the signal to The downtrend is increasing.


In addition, a simple Shoulder-Head-Shoulder pattern can also signal a trend rejection as it is often best used after trending markets when looking for a reversal. . So you can see, after a false breakout (price rejection), the market usually starts an uptrend, then it continues to accelerate until it moves to the top. From here, the market is almost unable to break the previous highs. It tells us that, even though the market made higher highs, there is not much momentum here and the price has barely been able to break higher. As such, it is highly likely that the price will reverse.

Price action tip # 5: rejections

Here's where everything you've learned above comes together:
  • A retraction can occur when a trend structure in Dow's theory is coming to an end.
  • The strongest price retracements can come with strong momentum.
  • Recovery usually takes place at support/resistance levels.
  • And price retrieval can be combined with classic models like a triangle or double top / double bottom ...

Price retrieval, if it were the complete inspiration for a pattern, would be a great trading signal for Price Action traders!

Epilogue

As you can see, each of the tips above doesn't sound so formidable by itself, but by putting all the clues together you can form strong and findable trading signals the scent for me!

Price action analysis doesn't really need to be too complicated, and the best trades usually appear in front of your eyes immediately if you train yourself to be sensitive to price action.