Introduction to Price Action
Investors and analysts often perform different analyses for the stock and commodities that are traded in the market. These analyses include both functional analysis and technical analysis. These analyses are done by considering different factors in regards to the commodities and stocks that are traded.
Understanding these factors that form an important part of such analyses is essential to all traders both individuals and organisations. One such factor that is involved in the technical analysis of the stocks or commodities is the price action. This is a very important part of the technical analysis and forms the basis of all technical analysis and is therefore important to understand.
What is Price Action?
Price action refers to the movement of the security’s price which is plotted over a particular time period. This is an important factor or strategy as most traders solely depend on this for making important trading decisions. Price action is also important for analysts as it forms the basis of technical analysis of the stocks or commodities involved.
Price action is presented on charts in different forms to make it easy to understand for the traders. Technical analysis and its derivatives depend on this price action. Many technical analysis derivatives like the moving averages are calculated from price action. Hence, it is an important factor in the technical analysis of stocks or commodities.
Traders use different chart patterns like the candlestick chart patterns to understand the price action more easily as these patterns indicate the upward and downward movement of the security’s prices more specifically and clearly which makes it simple for the traders to understand. Candlestick patterns like harami cross, engulfing pattern and three white soldiers are most commonly used for this purpose.
