Price Action
Tue, Apr 15Price action refers to the movement of a financial asset's price. The analysis of price action is a component of technical analysis.
Instead of relying on chart pattern recognition or using technical indicators, which are based on price movements and tend to lag, price action focuses on the essential elements of trading. By examining price movements over a specific timeframe, traders can gather all the necessary information to effectively trade trends, breakouts, and swings.
Japanese candlestick charts are perhaps the most widely utilized method of price action analysis. Price reacts to all known news, indicating that price movements reflect the collective perspective on breaking news rather than the opinion of any single individual.
The core principle of price action analysis is that price is never incorrect. Therefore, if you are incurring losses, it means you are mistaken. Your responsibility as a trader is to manage this risk and close the trade. Understanding risk management is a crucial step toward becoming a more proficient trader.
Not everyone is speculating or responding to news. Every day, billions of dollars are exchanged in markets by entities that are not engaging in speculation. This could include an insurance fund rebalancing its portfolios at the month's end, a central bank managing its currency exposures, or a large American smartphone manufacturer purchasing camera sensors from Japan in JPY.
Regardless, price action considers all global capital flows at any given moment, providing a comprehensive view of what the market thinks about the currency pair displayed on your chart.
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