When it comes to listed options trading, there are a variety of different techniques that can be used. Some traders prefer to use technical indicators, others may use fundamental analysis, and others may rely on price action trading. Price action trading is one of the most popular approaches because it is based purely on what the market is doing rather than relying on some indicator or analysis. It makes it a straightforward approach that anyone can use.
What is the price action trading approach, and why do professional options traders prefer it?
Price action trading is a technique that uses only the price information from a market to make decisions. It means that indicators, moving averages, and other technical analysis tools are not used. Instead, traders focus on support and resistance levels, candlestick patterns, and price action.
This approach is so popular because it is straightforward, and all you need to do is look at the price chart and decide based on what you see. It makes it easy for anyone to learn and start using right away, and it also eliminates the subjectivity of using indicators or other technical analysis tools.
Another reason professional options traders prefer this approach is that it can be used in any market. Whether you’re trading stocks, forex, or futures, price action can be used to make decisions, making it a very versatile approach that can be used in any market conditions.
If you’re looking for a simple and effective way to trade, then price action trading may be the right approach for you. It is easy to learn and can be used in any market conditions. Best of all, it is preferred by professional options traders.
Price action trading approach in detail – how to read charts, identify trends, and make trades
Now it’s time to take a more in-depth look at how this technique works.
When you look at a price chart, you’ll notice that it comprises a series of candlesticks. Each candlestick represents a certain period, such as 5 minutes, 1 hour, or one day. The candlestick’s body is the area between the open and close price, while the shadows are the highs and lows.
The first step in price action trading is identifying the overall trend. It can be done by looking at the candlesticks and seeing if they move mostly up, down, or sideways. If the candlesticks are mostly moving up, then the market is an uptrend. If they are mostly moving down, the market is in a downtrend. And if they are mostly sideways, then the market is range-bound.
Once you have identified the overall trend, you can start looking for entry and exit points. In an uptrend, you would buy near support levels and sell near resistance levels; in a downtrend, you would do the opposite and sell near support levels and buy near resistance levels. And in a ranging market, you would look to buy at the lows and sell at the highs.
The last step is to manage your risk. It means setting stop losses and taking profits at predetermined levels. By doing this, you can limit your losses and maximise your profits.
Price action trading is a simple yet effective way to trade the markets. Using this technique, you can make decisions based on what the market is doing instead of relying on indicators or other technical analysis tools. It makes it easy to learn and use, and professional options traders prefer it.
How to get started with the price action trading approach
Now that you know what price action trading is and why it’s so popular, you may be wondering how you can get started.
The first step is to find a good charting platform, where you will see the candlesticks and other information you need to trade. Some popular options include MetaTrader 4, TradingView, and NinjaTrader. For many of these platforms, you can also start trading with a paper or demo account, so that you can get the hang of the strategy before implementing it on your live trades.