10 Price Action Strategy Trading Tips:
A thread 🧵👇
A thread 🧵👇
Higher highs & higher lows define the market is in an uptrend. Lower highs and lower lows define the market is in a downtrend. Trading inside a defined price range a sideways market. Defining what type of market you are in helps you go in the direction of least resistance.
Where price is in relation to the moving average in its time frame can show the current trend.
An entry is placed due to price reaching a predetermined level that creates a signal. A trading signal must have an edge, it must be based on a historical pattern then managed so it creates bigger wins than losses.
A stop loss is a price level that should not be reached if the trade is going to work out. This is the price where you admit you’re wrong and take a small loss before it becomes a big loss as the odds shift against you. A stop loss along with position sizing sets the trade risk.
A profit target is the best case scenario of where price could trend until the odds of further profits shift against you. Your profit target sets the reward for your trade.
The MACD can quantify if the market is showing momentum in one direction based on the direction of the signal line crossover.
The RSI can signal if a market has moved too far too fast in either direction. Long positions risk/reward ratio can be diminished at the 70 RSI and a short position can be close to reversing back higher at a 30 RSI.
When the price range expands by twice as much as it has been trading at, that is a sign of volatility and increased risk in both directions. It is usually a good signal to trade smaller.
A breakout of a previous trading range usually signals the odds of price continuing in that direction unless the breakout fails and returns inside the previous range.
A market usually continues to move in the direction of a price gap unless the gap begins to be filled.
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