In the stock market stocks always move in the swings. let’s say there is stock named abc private limited and opening price of the stock is 100$ and the closing price of the stock is 150$. Most o the time price of the stock will not rich directly the way is shown below.
The stock moves in zig zag or will make swing before it reaches its final target. There are lot of buying and selling opportunities in between this. Using price action strategy you can take advantage of these swings and make profit easily.
Lets now discuss the golden rule of price action trading. These are quite simple and easy to understand:
Rule 1: Higher low + Higher high = Uptrend:
Let us say the market today opens at 10$ . We will call this low. Now lets say the stock reaches 35$. We will call it high. The stock again went down to 20$. Let us call it higher low and finally the market went up and closed at 50$. We will call this higher high. We call the 2nd level as higher low because the starting low is lower then the next one or you can say the next low is higher than the previous one.
When ever you see this type of graphs in the chart, we call this as up trend in the market. If this kind of structure is not formed, we will not call it as uptrend as the rule is not complete. This higher low and higher high confirmation is therefore a must for the trend to be considered as uptrend. In this type of situation we need to look for buying opportunities in the stock market.
Rule 2: Lower high + Lower low = Down trend
In this example you will see the current price of the stock is 50$, at this point we will mark high. Now let us say the price of the stock decreased and went down to 35$. We will mark it as low and slowly the price of the stock went up and hit 40$. We will mark it as lower high and finally the stock price become 20$ we call this as lower low. Now we call this lower loop because this final low is lower than the previous low. We call the mid level as lower high because that lower high is higher than the previous high. As soon you see this trend, it is a confirmation that market is making a down trend and you should then look for selling opportunities in the market.
Traders once you are able to find out these up and down trend opportunities correctly you will surely be able to make lot of profit. This is one of the most important part of the battle. These rules can be applied when you trading with stocks, commodity, future, etf and crypto currencies. So these rules can be used in all time frames. That means these rules can be used when you are trading in intraday and swing trading.
In the live market stock can these three moves only in the market. You can pick any stocks in the market, you will see these three things happening.
Take a note when ever market is in the consolidation you should not make any position. Since at this state market is in unsure state and is unable to break support and resistance level. If the buyers win the stock will break the resistance level and go up. During this time we can look for buying opportunities on the other side if the stock break support level you can see stocks going down. During this time you can take shorting opportunities. But is the stock is within a range we should not enter the trade. If you take the trade during market consolidation there are high likely hood that market will go against you. Also, the duration taken to achieve our target is very high during consolidation. Tis is there better not to get into the trade when ever the market is in the sideways and in consolidation.