Using Price Action As a Trading Strategy

The most common trading strategies are the following:

Stocks that are in demand to go up. Stocks that are not in demand are sold.


What exactly do I mean by these strategies? It's the simple belief that rising prices are an indication of a rising demand. So, when a stock rises, it increases the amount of trading that day.


What does price action mean? Price action is based on the fact that changes in price are obvious in order to be caught quickly. There are two types of price actions, long-term and short-term. They represent the direction of the market and also its short-term movements.


Is price action just speculation? Not necessarily! Prices are really there because people use them. No matter how much anybody wants to believe otherwise, it doesn't change the fact that prices move.


The second of the three strategies is that of momentum trading. This involves holding a position for a longer period of time than the start of the trade. The idea is to have a position for a longer period of time than the selloff period. It is called momentum trading because it follows the price in the direction of trend. In other words, if the price trend rises, the trader will hold on to his position and the price will eventually turn upward and continue to rise.


If the price moves against a particular stock or mutual fund in a particular direction, it may be possible to take advantage of the move. Of course, taking advantage of price action requires a sharp trader. It takes great skill and sometimes luck to be able to profit from the current price action.


When you look at momentum trading as a form of trading strategies, you can see how it is similar to using technical indicators. Each indicator has a certain level of accuracy, so that no one can make money without learning how to read it and know which ones to use.


This type of strategies differs from technical trading strategies. Technical trading are all about using simple technical indicators such as the MACD, RSI, moving averages, and etc. A technical trader may also look at the relative strength index (RSI) and other technical indicators. He can determine what trends are developing by the accumulation of numbers.


He may also look at currency rates to see whether or not currency moves are going to be favorable to him. Even if he is not a very good trader, the result is still good. He can make money on these.

His strategy of moving up with price action must be backed up by proper research and knowledge. What most traders neglect is the need to work on their research before they jump into a trade. In other words, you cannot just make up strategies based on hunches that are not backed up by any research.


Trading strategies are all the same. They are a series of rules or principles that tell us how to invest and when to make trading decisions. One should always be careful when using price action in trading to ensure that it does not become an indicator of trend and direction.

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