12.08.2020
Price Action

Price Action: All You Need To Be The Ultimate Action Hero

What does price action mean in trading?

If you live in the 21st century, you’ve probably heard of Bitcoin and all other sorts of trading, Forex, and so on. I can name two facts you probably know for sure. 

One. Traders make serious money. 

Two. They often jump out of 150-floor windows. 

The truth is not as dramatic but some of that is the truth. You can make serious money trading, yes. And it is a very stressful profession (especially day trading) and especially if you come in from the casino niche and you’re used to betting all on red. 

You’ve heard there’s money to be earned on Forex Trading, so you buy $50 000 worth of blue chips using your life’s savings and they turn out to be less blue than you think – you now have less than 10% of the original amount. Just as easily, by the looks of it, fortunes are made. So that’s why the stress.

One of the best things about reading texts from reputable sources is that they save you a heck of a lot of stress. For example, never working with less than 6% of your capital at any given day  will save you a lot of money left in wine bars. 

No stress

The best way to minimize stress and maximize ROI (which is what billionaire investors do) is to study good trading strategies, including good price analysis strategies. One of the simplest, effective, and proven-to-work ways is using Price Action Analysis, a trading startegy that will give you a boost you never even dreamed of. Although Elliott Waves and Price Action are not the same things, they both focus on how the prices moved in the past so that you can predict the future. Or futures

Why do I want to know about price action crypto strategies?

If applied right, Price Action will make you a consistent income. And it’s wicked fun! This is me using price action and feeling the adrenaline. But you have to do it right. 

Is Price Action reliable? You can go ahead and look at my results. It’s very reliable. I’ve been a trader since 2011. It’s extremely reliable. I would not trade anything else. I’m a Price Action convert. Samuel Morton 

Why decide on Price Action crypto trading?

There is no guarantee that because something happened in the past it will happen again. But it’s much better to make an educated guess when things get personal and you’re risking money. Because markets tend to repeat themselves, you can very accurately predict where the price is going next based on where it was before and where it’s moving now. If you want to skip the techy stuff and move straight to the action, you’ll probably find this video by Samuel Morton interesting:

Just watch these first. 

In simpler terms, you know the traffic stops at a zebra, so based on your previous experience you should probably cross there instead of just anywhere. Same way with analysis. Although it doesn’t give you guarantees, it’s much better to study analysis first. Let’s get to know more about the easiest one that provides real results. 

But why use price action trading cryptocurrency?

There are many reasons why you want to start with Price Action (if you’re a beginner) or make it a living (if you’re a pro). The three most important ones are:

  1. It’s easy.
    There’s no need for a degree. No need to study elliptic curve cryptography or gravitational fields with negative mass – or do quantum computing in your mind while juggling 10 plates and fighting off a tiger (while keeping one eye on the charts). 
    Price Action is easy. And it’s actionable. 
  2. Works everywhere.
    In addition to being simple to learn and use on trading platforms for most people, Price Action works across all markets, whether you’re trading commodities or crypto or stocks, and with all kinds of timeframes. 
  3. It’s the best feeling in the world, using it.
    People will tell you that money is the root of all evil. Don’t believe them! Money buys you puppies. And puppies are happiness. Also, you can save lives with money and make all your dreams come true. So it happens that there is no better feeling in the world than learning something, and making your own money by being smart, strong, and in control. 
Use price action

Maybe the money you buy will help you survive in World War 3. Or get you a flat in Ibiza when Tim Draper’s prediction comes true. If you can have fun while doing something that works and makes you money – it doesn’t get much better than that. 

Price action in crypto: what’s what 

Before you get into the more nuanced aspects, it’s important to make sure you got the terminology right. Let’s go through the basics quickly:

Uptrend 

Good news! The price is going up. The other two positions are 1) a downtrend and 2) insignificant  changes/a ranging market. An uptrend is sometimes called a bullish market, and a downtrend – a bearish one. If the price is higher at the end of the graph than at the beginning – it’s an uptrend. See? Technical analysis is not so bad. 

Swing Lows and Swing Highs

Swing Lows is a bottom point of a trend: a signal that the price is beginning to drop. When the price starts going up (trend reversal) and it reaches the highest point it becomes a Swing High. Then it starts going down again and it’s only a matter of time until a new Swing Low is reached. While you’re on this, moving averages will help you make sense of it all faster. 

The ranging market 

Sometimes the financial market isn’t going much up or down. Weill, it’s constantly going up and down but the price stays pretty much the same. It looks like a lifeline and the highs and lows are more or less equal. 

Resistance 

You may have heard about “resistance levels” used in discussion of Bitcoin price. Resistance is the highest point a price reaches in a segment. The markets move in patterns: the price typically goes up to the resistance level, then down, then up again to the level of resistance. The lower level, accordingly, is the support level (if you didn’t get this, no worries, there’s more below). 

Retracements 

As trend lines go, food for thought: don’t confuse retracements with reversals! Retracements are similar but they can mean the difference between winning and losing:

A retracement is defined as a temporary price movement against the established trend.

Another way to look at it is an area of price movement that moves against the trend but returns to continue the trend.

Japanese Candlesticks 

Candles are another way of representing price charts and conveying action analysis. Candles are a much better way to represent information for a variety of reasons. But you probably want to know what they are, so let’s get to the point. 

Candles consist of the body and the wicks. Professionals will tell you there is way more to this but the body of the candle represents where the price began and where it ended up for the period. For example, if on the chart one candle is an hour, the bottom of the candle can be at 76 and the tip at 78, meaning that the price went up from 76 to 78 in an hour (pounds or dollars, blockchains, Bitcoins, whatever). 

However, the price doesn’t just stay there forever. The wick shows where the price went during and how it came back. For example, our candle’s wick can go up to 84 and then down to 78, meaning that during that hour the price fluctuated from 76 to 84 and then came back down to 78 at the end of the hour. Confused? Check out more detailed explanations here.

Engulfing candles

Engulfing candles form the beginning of a new trend. They are important. What are they? If you see a candle that is bigger than the previous one (that the previous one can fit into) and it’s going in the opposite direction, you’ve got an engulfing candle on your hands.This very likely means a massive change in the direction the market is going (i.e. there are many more buyers now with more power). At this point you want to ride the wave. Here’s how it works in more detail. 

Engulfing candles

Selling pressure: Pin Bars 

Pin bars are candles whose body is small but the wick is very long. Typically there is no wick on the other side, or it’s very small. As you remember, wicks mean that the price travels. In the case of long wicks, someone exerted pressure. For example, if there is a pin bar with a very long wick that is going downwards (bearish), that means sellers came in and pushed the price down a lot in that short amount of time – by selling. 

Pin Bars

As far as price predictions go, pin bars mean the power is building up short-term and changing hands (indicative of trend reversals). Usually, these mice with long tails are indicative of a lot of buyers (sellers) coming in, which often means a strong trend beginning. 

Strategy

So why do you need to know about long-term strategies, candles engulfing other candles and why “Head and shoulders” is better than other types of shampoo? Some people swear by this type of trading. And there are even real results. Let’s see how the trader from this example came to the conclusions that made him a Price Action convert. 

Pin bars mean trend changes 

Pin bars’ wicks mean lucky breaks for some of us: pressure from someone on the other side of the trend and major changes. For example, if a trend is going up (a bullish trend) and then there is a small candle with a tail at the top (wick) that is at least twice its size, the price seems to be going down. 

That highly likely means there is a trend reversal about to happen. If you look for “Pinocchio” bars specifically, you can often spot where the price is going. Usually, pin bars mean very specific changes.

Engulfing candles mean trend reversals 

Engulfing candles are candles of the other color (usually candles that indicate the trend going up and green and down are red but they can be other colors too) and they are normally huge – at least twice the size of the previous candle. Engulfing candles mean serious trend reversal more often than not. Essentially you’re looking for pin bars, engulfing candles, and resistance and support to indicate where the price is going. 

Resistance 

Resistance is the top level the price historically reached on one section of the chart. When the price reaches that level again, it goes down again – but it can also “break through” (commonly used term). The same line at the bottom is called support. Pretty much the same rules apply. It’s more likely than not that the price will go down when it reaches resistance, and that it will come up again when it gets to the support level. Factor it in. 

Head and shoulders 

Head and shoulders are a trend that you need to look out for because it allows predicting where the price is likely to be going. Don’t ask us about what weird creature’s head and shoulders they are (maybe an octopus’s) but apparently this shape looks like head and shoulders. Spotting it can be useful, just like with double tops and double bottoms (not to be confused with double chins). 

Double top 

Here’s a typical double top. Its structure is very similar to that of head and shoulders. The only difference is that there are now two heads. Before it gets even more disturbing, let’s wrap up. 

Double top

Price Action Indicators

Price Action Indicators are additional tools that highlight trend directions and movements for you. Are they useful? Yes, but only to an extent. The temptation for new traders is to use indicators to save time on fully analyzing the chart. This is a mistake! 

Make sure to study as much as you can and take in as much data as possible. You can benefit from using indicators but by no means can they substitute the real thing. 

However, that is not to say the usage of indicators is wrong. Some traders combine price action and indicator technology. 

What does price action mean in trading?

The best things about Price Action are, well, a legion, but not only is it the foundation of all technical analysis – but it also applies in all spheres and niches. 

It works very well in the cryptocurrency world, and we encourage you to pick a beautiful and well-thought-through platform to try it on. There’s no feeling like the chase (and making money). 

Is that a pin bar? Is the trend going up? Should you bet on it? It’s just you against the world. Try your might! 

Oh, and don’t forget to set a stop-loss order. 

Summary 

Price Action has probably the best investment/dividends ratio among strategies on the market today. It doesn’t take a whole lot to learn it, it’s fiercely loyal, and there’s still room for danger and excitement. Price action also applies to all niches, including the crypto world. 

Let’s see if you find one of the most functional exchanges today, Nominex, useful for this kind of analysis. Registration is momentary, demo mode is enabled, the navigation is uber-simple, and all the functionality you could need is all there. It’ll take you less than 20 seconds to register and get to work. Which way is the market going here? 

Nominex

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