Mastering Price Action - First of a Series of Publications - VOLUME
Learn How To Use This Indicator for Understanding Market Sentiment, Confirmation of Trends, Identifying Potential Reversals, and More. Fresh examples using NDX, TSLA, AAPL, META, AMD, IWM and NVDA.
EDUCATIONAL CONTENT: PRICE ACTION - VOLUME
Price action is one of the most important indicators to master in trading, the question is: What Is Price Action?
Price action isn't a single concept, but rather an approach to analyzing the market by focusing on the raw price movement itself, often visualized through candlesticks and volume. Here's a breakdown:
Price Action:
Core Concept: Price action focuses on the historical movement of a security's price to identify potential trading opportunities. It assumes that price reflects all the available information, including fundamentals, market sentiment, and supply and demand.
Focus: Instead of relying on complex indicators, price action traders analyze the "highs," "lows," "opens," and "closes" of a security over time, typically visualized using candlestick charts.
Candlesticks:
Visualizing Price Movement: Candlesticks are a popular way to represent price action on a chart. Each candlestick depicts the open, high, low, and close price for a specific timeframe (e.g., daily, hourly).
Pattern Recognition: By studying candlestick patterns, traders can identify potential support and resistance levels, trend continuations, or reversals. These patterns are formed by the arrangement of the "wicks" (high and low) and the "body" (open and close) of the candlesticks.
Volume:
Trading Activity: Volume refers to the total number of shares or contracts traded for a security within a specific timeframe.
Confirmation and Context: While price action is the core focus, volume plays a supporting role. High volume can confirm the strength of a price movement (upward breakout with high volume is more bullish than a breakout with low volume). Conversely, low volume can indicate a lack of conviction behind a price move.
Combining Price Action, Candlesticks, and Volume: