how to use price action
price action is not generally seen as a trading tool like an indicator but rather the data source off which all the tools are built swing traders and trend traders tend to work most closely with price action eschewing any fundamental analysis in favor of focusing solely on support and resistance levels to predict breakouts and consolidation even these traders must pay some attention to additional factors beyond the current price as the volume of trading and the periods being used to establish levels all have an impact on the likelihood of their interpretations being accurate many institutions have begun leveraging algorithms to analyze prior price action and execute trades in certain circumstances in a 2020 report to congress the securities and exchange commission sec noted that the use of algorithms in trading is pervasive 1 these automated systems are fed price action data and can deduce outcomes and determine potential future price action limitations of price actioninterpreting price action is very subjective it s common for two traders to arrive at different conclusions when analyzing the same price action one trader may see a bearish downtrend and another might believe that the price action shows a potential near term turnaround of course the time period being used also has a huge influence on what traders see as a stock can have many intraday downtrends while maintaining a month over month uptrend the important thing to remember is that trading predictions made using price action on any time scale are speculative the more tools you can apply to your trading prediction to confirm it the better in the end however the past price action of a security is no guarantee of future price action high probability trades are still speculative trades which means traders take on the risks to get access to the potential rewards price action does not explicitly incorporate macroeconomic or non financial matters impacting a security 