Reading the Price Action Story

Price action analysis involves interpreting candlestick charts to identify high-probability trading setups. By telling the story behind price movements, candlestick patterns reveal shifts in supply and demand.

Part 1 – Key Bullish Candlestick Patterns

Bullish patterns indicate strengthening upside momentum. For example, the hammer shows buyers stepping in during a downtrend, pushing prices up off lows by the close. This hints upside reversal potential. An engulfing pattern also signals momentum change as bulls overwhelm bears in a large real body up-candle consuming the prior down-candle.

Part 2 – Key Bearish Candlesticks Patterns

Bearish reversals after uptrends show selling pressure coming in. For instance, shooting star candles have small real bodies centered under long upper wicks reflecting rejection of higher prices. Dark cloud cover patterns see bears take over, driving prices down after an advance to close below the prior candle’s mid-point.

Price Action Basics

Beyond candle patterns, price action analyzes structure. Impulsive moves show market acceptance of new prices while corrections suggest uncertainty. Momentum increase during impulses but wanes during contractions. Identifying these cycles aids timing.

Key Support and Resistance Levels

Areas previously acting as support or resistance help identify potential turning points. Bounces off support imply underlying demand with tests rejecting lower prices. Resistance halts advances as supply limits upside. Watching price behave around these levels provides trade signals.

A Price Action Strategy

Combining analysis around support, resistance and momentum with candlestick patterns provides high probability setups. For example, a pullback to support showing bullish rejection like a hammer signals potential long trades. Bearish momentum shift on a test of resistance indicates possible shorting opportunity.

In summary, reading price action context, via candlestick patterns and structure around key zones, defines tactical edge for traders. Mastering this skill helps time entries, manage risk and forecast price direction.

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