Price action is a form of technical analysis used to identify buy or sell opportunities when trading stocks, commodities, indices, equities, or anything with data. When traders talk about price action, they are referring to the fluctuations in the price of financial products. Technical traders gauge a financial assets price action by monitoring patterns and indicators to help them identify trading opportunities in otherwise random price movements.
If you are new to trading, learning price action analysis makes for a great starting point. Price action trading is often used by institutional and retail traders who use [leverage] to place large trades based on anticipated smaller price movements.
A popular form of technical analysis used to identify price action is candlestick charts. Traders use these to help them put price movements into context. Although very “technical” technical analysis is still very personal and unique to each trader; two different people can be presented with the same price action but then arrive at different conclusions about what the pattern signifies.
Key takeaways:
- Price action refers to the fluctuations in the price of a financial product.
- Price action trading can be used as a trading strategy where trades are executed strictly based on a financial product's price action.
- Institutional and retail traders use leverage to place large trades to benefit from small underlying price movements.