Price action. Probably one of the most important aspects of trading with technical analysis.
It can predict whether the price will jump or fall, gain momentum or lose momentum. If
you don t understand price action, chances are, you won t be a successful trader.
Let me tell you why. Most indicators, even the popular ones like
moving averages, MACD, RSI, stochastic, all are lagging indicators. What I mean by that
is that they use the previous price as an input. So sure, it might give you a signal
to go in, but most of the time, the chart has already started going up or down before
the indicator give s the entry signal. This is the exact reason why price action
is such a powerful tool to understand. Because it can help you make decisions in real time.
No delay, no lag, pure in the moment trading. Now, I m definitely not saying to never use
indicators. Indicators can 100% help you make unbiased decisions when trading. Especially
when paired with price action. But what I am saying, is if you want to become
a successful trader, you definitely need to understand price action. That way you can
take trades that you are confident in. That s exactly what I m going to show you
in this video. 4 price action secrets that will help you trade more successfully and
make you a better trader. Let s get straight to it.
The first price action secret I m going to show you has to deal with the candle stick.
Most people when they look at the candle stick, mainly focus on the wicks. While the wicks
can be an important part when reading candle sticks, the body itself can tell just as an
important story. Let me show you how.
Take a look at this candle. It s characteristics are very specific. It s a large green candle
without any wicks. Whenever this candle is formed, it means buyers found this specific
price so attractive that they started buying in huge quantities.
The buying pressure was so high, that the price started going up. And The selling pressure
was so weak the sellers couldn t fight off the buyers. This is exactly why the specific
candle had such a strong close. Whenever you see a green candle like this,
it s an extremely bullish sign and also is a great mark for a support or resistance level.
One of the most important lessons in trading, is that the past can predict the future. And
that s exactly what happens here. We saw a green candle, with a big body and
no wicks. So we set a support level right here, because at this level, buyers really
like this price. And look what happens. We set a support level
because we saw a big green candle with no wicks, The price move s sideways for a bit,
then reaches this level again. Once it does it bounces off because buyers really like
this price. Then there s no turning back. The price skyrockets.
The second secret I want to show you is something called mean reversion. Mean reversion is just
a simple way of saying the price will always return to the average. Let me show you an
example. Here, we have a bunch of price movement. But
If we add a 50 day moving average. We can see a trend. Whenever the price dips way below
the moving average, it ends up returning upwards back to the average.
Same thing happens when the price goes to high, you can see here multiple times, the
price goes to high and it has a pull back to the average.
This is an important tool to keep in the back of your head. If the prices makes a big movement
away from the moving average, chances are it will return back to that line.
As an example here, the price make s a dip downwards, away from the moving average. This
would be a good time to buy, because we know mean reversion is a thing, and the price will
likely return back to the average. Which it does.
The next price action secret I want to tell you has to do with momentum. Momentum is a
huge part of trading and it can give you clues if chart is about to be bullish or bearish.
Momentum is the rate at which the price moves. So we can predict the price is going to go
up, if the chart is gaining momentum. Let me show you an example.
So here, you can see the chart is going up, but its very gradual and it s doing it pretty
slowly. Then, it has a slight pullback and the chart makes a sharp upward movement. So
this chart in itself is gaining momentum. Here we can the price movement upwards is
a lot more gradual than this one. This means a lot more buyers are entering
the market and gaining strength. Which means, the chart is gaining momentum.
And you know what happens? The price make s a slight downwards pullback, and does a
huge jump upwards. Momentum plays a huge role in trading and
it s definitely an important tool to understand to make you a better trader.
The fourth and final secret I m going to share with you has to deal with pullbacks. And it
s a very powerful concept to understand. Let me show you an example. When a chart moves
up or down, it does not move in a straight line. It has pullbacks. Pullbacks are the
price corrections right here which give the chart this jaggedly look.
Pullbacks are a sign that traders are taking profit, hence the size of the pullback can
give us a bunch of information on what s going to happen next with the chart.
If the chart is in an uptrend, and there is a weak downward pullback, that means less
traders are exiting their trades, which usually means a strong upward movement will happen
next. If there is a strong pullback, meaning more
traders are exiting their trades, odds are the price will start moving sideways, or even
worse, move in the opposite direction you want it to.
Now you might be asking yourself, how do I know if a specific pullback is weak or strong?
Well, let me show you. To do this, we are going to be using the fibonacci
retracement tool. This will help us realize if a pullback is strong or weak.
To use the Fibonacci retracement tool, simply go to trading view or whatever chart platform
you use, go to the side here, and click this top one.
Now, when you first select the Fibonacci, its going to have a bunch of different levels.
Which all these levels are a little much, and can really clutter your chart. So we are
going to keep it simple and delete some levels, so it s a bit easier to read and understand.
To do this just place the Fibonacci anywhere on the chart, click it, and then go up here
to the settings. You re going to want to uncheck all the levels
besides these. 0, 0.382, 0.5 0.618, and 1. This will give us less values to work with
and overall make it a lot easier to read. So how we are going to decide if a pullback
is strong or weak is by these lines. Let me show you an example.
So first thing we want to do is put are lower line, on the lowest low, and then drag the
upper line, to the highest high. So in this example we are going to be looking
for a long trade. We will consider a pullback weak if the price dips above the 0.382 level.
If the price dips below the 0.382 level, it s a strong pullback.
So like we were saying before, the weaker the pullback the better.
As you can see in this example here, we set are lines to the low and to the high, and
we can see the price rised, but then had a pull back only to the 0.618 line, which as
we discussed earlier is a weak pullback. This is a very bullish sign. We enter the
trade here, the price continues to go upwards after.
Let me show you an example of a strong pullback. So as you can see here, we set are points
to the highest high, and the lowest low. Then we can the prices move upwards, then has a
pullback under the 0.382 line, which we consider a strong pullback.
We can predict that after the price has a strong pullback it will start to move sideways
or reverse in the opposite direction. And just as we predicted, the price starts
to fall hard. Now, it s very important to note that any
of these price actions secrets by themselves, wont have a high win rate. But, when combined
together, or even paired with some indicators, It can be an extremely powerful tool.
I just shared you 4 different price action secrets, all I ask in return is if you take
2 seconds out of your day and like this video. If you need a powerful strategy to pair these
price actions secrets with, check out this video because I go super in depth in one of
my favorite strategies to use. Thanks for watching, and I ll see you guys
next time.