If you have it in mind to be a professional traders and think of trading as a sustainable source of income, then you need to know some things just as well and as deeply as you know yourself!
One of those things is price. Yes, the notion of price itself. How does it move? How does it change? And in general the behavior that prices exhibit. When you have a deep and precise understanding of the behavior of prices, it is then that you can rely on your intuitions as a skilled and experienced trader.
So if you want to take the first step in that direction, read this article as we will focus on price behavior to see what it is and how you can take advantage of price action trading in the forex market for profitability and prolonged success.
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What Is the Meaning of Price Behavior?
The concept of price behavior is directly related to the actions that price take in the market. To fully understand this notion, you need to consider the concept of price as a living being or a dynamic phenomenon. In this way you can attribute this behavior to it. And prices do indeed exhibit behavioral patterns.
But where does this behavior in prices originate from? The behavior of prices can be found in the behavior of the traders themselves. Indeed it is the behavior of the market participants themselves that ultimately determine the behavior of the prices.
This is where we get to notions such as market sentiment and the overall mindset of traders in any specific market. The overall approach and behavior of traders toward that market will manifest itself in the behavior exhibited by prices.
This is most readily seen in the price action. We can say that price action is the closest implication of price behavior or the movements and changes that are seen in them.
Basically, price action is any change that takes place in prices. But it is not merely the change itself. Price action is a whole approach to trading on its own. In this way you can build the foundation of your trading process on price behavior and price action.
Now let’s see what price action is and how you can use it for better understanding of price behavior.
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How to Use Price Action to Understand Price Behavior?
As we discussed above, price action is basically any change that takes place in the price of assets in any market. This can, for instance, be the forex market and the price of trading pairs in this market.
But the thing about price action is that it is not only the change that takes place in price. It is more than that. Price action is a whole approach or method to trading.
It is a rather straightforward and simplified method of market analysis and especially analysis of price patterns. In price action analysis, as the name suggests, the entire weight of analyzing the market is put on the prices themselves. In this way, the trader does not have to consider other factors such as fundamental factors to understand the market. They can rely only on prices to interpret and extract market patterns.
This can be a huge advantage of price action market analysis. The mere simplicity of the method amid all the complex and highly detailed methods of market analysis. But the thing about price action is that it can turn a bit one-sided. What does it mean?
Well, because in this method the trader is only focusing on prices and their changes, then other potentially important factors might go unnoticed.
In this way the mentality and mindset of the trader will play a role in analysis, which is of course wrong since your emotions should not be able to play a role in your trading decisions.
So what is the solution? If you want to understand price behavior in order for it to help you in trading, you need to employ proper strategies and techniques that have been developed for this purpose. And that is exactly what we are going to discuss in the next section.
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How to Trade with the Help of Price Action?
So far we talked about price behavior and its relationship with price action. We also discussed price action and what it means in the market. Now it is time to discuss some real and applicable methods and techniques to use price action in trading.
The most readily available option for using price action in trading is to use candlestick charts. These charts are perhaps the most popular method for reading price action and using them to execute positions in the market.
The way candlestick charts work is a great manifestation of the simplicity of price action. Unlike most other trading charts that might be overly cluttered with analysis tools and indicators, a candlestick chart is really clean and easy to look at, which is one of the reasons why they are so popular.
On a candlestick chart you only see information related to the price action. And each candlestick that is recorded on the chart is representative of one trading day and the price changes that occurred during that day. Also, one of the most important information that such patterns can provide for you is sudden price change in the market like breakouts or reveals in the price.
At this stage all you need to do is to learn how to use and read candlestick patterns. These patterns can then help you rely only on price changes and be able to make a decision as to what to do in the market.
But relying on one form of analysis only is never the perfect idea. To make things more reliable, you can use other indicators to get a confirmation on your analysis. Whatever analysis you may have obtained, you can use other information to confirm it. In this way price action and using price behavior become so much more accurate.
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Conclusion
What is the most important thing in any market? Prices of course. This means if you can understand the behavior of prices and how they change, you have taken a huge step ahead toward the right direction. For this reason, we discussed price behavior and price action in this article to show you how traders can use price behavior to benefit in their trades.
