PRICE ACTION ANALYSIS FOR INVESTMENT

What is Price Action

Price Action is the movement of a stock price, plotted for a certain duration of time, out of which, the trend of the stock movement can ideally be extrapolated.

There are three metrics used in Price Action. They are:

Price
Pattern
Volume

All other parameters like Trend Line, Support, Resistance, Break Out, Break Down, etc. are derived from these metrics of Price Action.

Whether Price Action Analysis is useful for Investment

Yes, the Price Action Analysis can be used for all types of trading and investments.

Investors who are into Technical Analysis, normally look for Bullish Patterns formed by the Price Movement. Some of the Bullish Patterns are:

Reverse Head and Shoulder
Cup and Handle
W Pattern
V Pattern
Double Bottom
Pull-back Buy

Whenever any stock forms certain pattern, traders and investors look for a right location and time, from where they can take their position so that the risk is minimum and reward is more. This type of analysis is called as Price Action analysis.

Normally, new traders/investors when take trade they go for catching the stock which is already run away from its break-out level. Taking position at such area would be risk-prone as Stop Loss range are high at that location.

Actually, when Stock Price is forming any pattern or moving inside a range and it tries to break out from that pattern or range, then Price action has to be looked into. However, when stock price flies away from the break-out level then Price Action results into Momentum. For Momentum there are indicators used in Stock market charts like RSI, Bollinger Band, etc.

Ideally retail traders identify the trades by looking into the indicators. Since Indicators are derived from the Price, so by the time they take the trade it is already late. So retail traders takes the trade when the momentum is already started on the stock prices.

Hence, if a stock is identified through Price Action analysis, it gives more value to the investment.

We had posted in our previous blogs like VIMTALABS, SUBROS, based on such Price Action analysis, which, we feel would be useful for traders to gain knowledge on price action concept.

We invite readers to go through the below videos to get a better understanding on Price Action Analysis.