Price Action Trading for Beginners
Price action is one of the most important things that you need to be familiar with when it comes to trading in Forex and other markets.
PA trading strategies differ greatly from fundamental analysis, as it completely ignores fundamental analysis for the most part.
Today we are here to provide you with a PA trading course, an introduction for beginners. Right now, we want to explain what exactly price action trading is, how it works, why people use this method, and more.
What is Price Action Trading?
In layman’s terms, price action refers to the characteristics of an asset’s price movements. In most cases, this movement is analyzed in terms of and compared to price changes in the recent past. To simplify this definition, PA trading is a specific type of trading technique that allows traders to read markets and to make subjective decisions based on both recent and actual price movements.
This is much different from many technical trading strategies, which rely very heavily on technical indicators.
With that being said, PA trading is still dependant on technical analysis tools, but just not as much as technical trading, and what is important to note is that this type of trading wholly ignored fundamental analysis. What is also important to note is that many traders rely on PA trading to generate a profit over a very short amount of time.
What Does it Tell You?
Now that you know what this type of trading is, you might be wondering what PA trading can tell you. Well, the main point of this trading methodology is to find and interpret trends, breakouts, and reversals. If you can find and understand trends, breakouts, and trend reversals, it will assist you in finding the best entry and exit points for trades. Something else to be aware of here is that technical analysts often use price action to calculate technical indicators.
Benefits of PA Trading
You might be wondering what the whole point of this type of trading is. If you are new to price action trading, you might not be aware of the fact that it comes with several benefits. Let’s take a look at the benefits of this type of trading right now.
- One of the main benefits which many people love about this type of trading is its simplicity. As opposed to pure technical trading which can overload your charts with indicators, oscillators, lines, retracements and more, although PA trading does rely on technical indicators to a certain extent, it’s not so heavy in this area that it overcrowds your screen. This type of trading does not cause you to over-analyze everything such as in fundamental trading, and this can make life much easier and less stressful.
- The second main benefit of price action trading is that it allows you to trade in real time. When you rely on something like candlesticks and nothing else, you can see and understand exactly what is happening in a given market at any given point in time. This type of trading is very clear and quite easy to understand, which is why so many people choose it.
- The third benefit, as we touched on in the above section, is that PA trading is a great way to spot and analyze trends, breakouts, and reversals.
- PA trading does have a lot of support, and the reason for this is because it combines recent price history with various technical analysis tools to identify trading opportunities based on a trader’s interpretation of the data. The fact of the matter is that everybody can find a style of PA trading and a strategy that works for them. Due to the high level of interpretation involved here, people like it due to its versatility.
Drawbacks of Price Action Trading
For all of the simplicity and various benefits that come with price action trading, it does also come with some drawbacks that you need to be aware of. For instance, it is not uncommon for two traders to come to totally different conclusions when using this trading style, and the reason for it is because it is very subjective.
One trader might see a bullish uptrend whereas another trader might interpret the data as a sign of a reversal in the works. The point here is that this trading style is subjective and much of it is based on speculation. Where there is speculation, there is lots of room for error, which is especially the case for newbie traders.
Price Action Trading Course – The Basics
Finally, let’s provide you with a concise example, a bit of a rundown of how exactly price action trading works. Although our explanation here is not going to be overly comprehensive, it should provide you with a relatively clear, albeit simplistic picture of what exactly is going on here. An important note here is that a single strategy may not offer you with enough trading opportunities, which is why PA trading involves two main steps.
- The first step here is to identify a scenario, such as a stock or currency pair going into a bullish or bearish trend.
- The second step is to identify various trading opportunities within that scenario, such as if a stock is going to retreat or overshoot. Of course, the hard part here is that this type of trading is highly subjective, so it is possible to come to varying conclusions.
Price Action Trading for Beginners – Final Thoughts
The bottom line is that although PA trading is not the easiest type of trading in the world, it does come with a bit of simplicity, and being able to trade in real time is a big bonus too. Now, here today, we have provided you with a basic overview of what PA trading is. In the following weeks, we will be reviewing some of the best price action trading strategies that you can have in your arsenal. Stay tuned for more!