Chapter 3: Price Action Fundamentals

Forex University – Intermediate Technical Analysis Mastery Chapter 3: Price Action Fundamentals

Module 1: Technical Analysis Foundations

Chapter 3: Price Action Fundamentals

Introduction

Welcome to Chapter 3 of our technical analysisA method of forecasting future price movements based on the study of historical price data, charts, and indicators. journey! In this chapter, we will explore the fundamental concepts of price action trading, one of the most powerful approaches to analyzing and trading the forex market.

Price action trading focuses on the movement of price itself, rather than relying on indicators or oscillators. It is often described as the “purest” form of technical analysisA method of forecasting future price movements based on the study of historical price data, charts, and indicators. because it concentrates on what matters most: the actual price movement on your charts. By understanding price action, you’ll be able to read the “language” of the market directly, without the delay or distortion that can sometimes come from indicators.

By the end of this chapter, you will understand how to use price as your primary indicator, identify trends through price movement, recognize supportA price level where buying interest is strong enough to prevent the price from falling further. and resistanceA price level where selling pressure is strong enough to prevent the price from rising further. through price action, analyze market structure, interpret candlestick patterns, and apply price action confirmation techniques.

Understanding Price as the Primary Indicator

In technical analysisA method of forecasting future price movements based on the study of historical price data, charts, and indicators., price is the ultimate indicator. While there are hundreds of technical indicators available, they all derive their values from price data. By focusing directly on price, you eliminate the lag that comes with most indicators and get the most current information about market sentiment.

Why Price Is the Most Important Factor

Price reflects all known information

According to the efficient market hypothesis, all known information about a currency pairTwo currencies quoted together, showing the relative value of one against the other (e.g., EUR/USD). is already reflected in its price
This includes economic data, geopolitical events, and market sentiment

Price shows actual supply and demand

Price rises when buying pressure exceeds selling pressure
Price falls when selling pressure exceeds buying pressure
Price moves sideways when buying and selling pressures are balanced

Price is real-time

Unlike indicators that are calculated based on historical price data, price itself shows what’s happening right now
This eliminates the lag that comes with most indicators

Price is universal

All traders see the same price (allowing for minor differences between brokers)
This creates a level playing field for analysis

The Psychology Behind Price Movement

Understanding the psychology driving price movement is crucial for price action trading:

Fear and greed cycles

Greed drives prices up as traders chase momentum
Fear drives prices down as traders rush to exit positions
These emotional cycles create recognizable patterns on charts

Smart money vs. retail traders

Large institutional traders (“smart money”) often take positions opposite to the majority of retail traders
Price action can reveal where smart money is positioning

Market memory

Price tends to react to levels where it has reacted before
This creates recurring supportA price level where buying interest is strong enough to prevent the price from falling further. and resistanceA price level where selling pressure is strong enough to prevent the price from rising further. levels

Crowd psychology

Markets move in trends because traders tend to follow the crowd
Reversals occur when the crowd sentiment shifts

By understanding these psychological factors, you can better interpret what price action is telling you about market sentiment.

Trend Identification Through Price Movement

One of the most important skills in price action trading is the ability to identify trends based solely on price movement. While indicators can help confirm trends, price action provides the most direct and current information about trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). direction.

Price-Based Trend Definition

In price action trading, trends are defined by the pattern of highs and lows:

Uptrend: A series of higher highs (HH) and higher lows (HL)

Each peak is higher than the previous peak
Each valley is higher than the previous valley
This shows increasing buying pressure

Downtrend: A series of lower highs (LH) and lower lows (LL)

Each peak is lower than the previous peak
Each valley is lower than the previous valley
This shows increasing selling pressure

Sideways/Ranging Market: No clear pattern of higher highs and higher lows or lower highs and lower lows

Peaks and valleys occur at roughly the same levels
This shows balanced buying and selling pressure

Swing Highs and Swing Lows

Swing highs and swing lows are the building blocks of trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). analysis in price action trading:

Swing High: A peak formed when a price bar (or candlestick) has lower highs on both sides

Represents a temporary ceiling where selling pressure overcame buying pressure

Swing Low: A valley formed when a price bar (or candlestick) has higher lows on both sides

Represents a temporary floor where buying pressure overcame selling pressure

To identify swing highs and lows:

Look for at least one bar on each side with a lower high (for swing highs)
Look for at least one bar on each side with a higher low (for swing lows)
The more bars on each side, the more significant the swing point

Trend Strength Assessment

Not all trends are created equal. Here’s how to assess trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). strength using price action:

Slope of the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend).

Steeper slopes indicate stronger trends
Gradual slopes indicate weaker trends

Size of candles/bars

Larger candles in the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). direction suggest stronger momentum
Smaller candles suggest weakening momentum

Pullback behavior

Shallow pullbacks that quickly resume the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). indicate strength
Deep pullbacks that take time to resume the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). indicate weakness

Swing point progression

In strong uptrends, each higher high is significantly higher than the previous one
In strong downtrends, each lower low is significantly lower than the previous one

Trend Transitions

Trends don’t last forever. Here’s how to identify potential trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). changes using price action:

Break of structure

In an uptrend: Formation of a lower low (breaking the pattern of higher lows)
In a downtrend: Formation of a higher high (breaking the pattern of lower highs)

Failure swings

In an uptrend: Failure to make a new higher high followed by a break of the most recent higher low
In a downtrend: Failure to make a new lower low followed by a break of the most recent lower high

Momentum shifts

Decreasing candle size in the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). direction
Increasing candle size against the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). direction

Consolidation after a trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend).

Price moving sideways after a strong trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). often precedes a reversal
The longer the consolidation, the more significant the potential reversal

Support and Resistance Through Price Action

SupportA price level where buying interest is strong enough to prevent the price from falling further. and resistanceA price level where selling pressure is strong enough to prevent the price from rising further. are fundamental concepts in all forms of technical analysisA method of forecasting future price movements based on the study of historical price data, charts, and indicators., but price action traders have specific ways of identifying and trading these levels without relying on indicators.

Price Action-Based Support and Resistance

In price action trading, supportA price level where buying interest is strong enough to prevent the price from falling further. and resistanceA price level where selling pressure is strong enough to prevent the price from rising further. are identified through actual price behavior:

Swing points

Swing highs often become resistanceA price level where selling pressure is strong enough to prevent the price from rising further. when approached from below
Swing lows often become supportA price level where buying interest is strong enough to prevent the price from falling further. when approached from above

Rejection candles

Long wicks showing rejection from a level
The longer the wick, the stronger the rejection

Consolidation areas

Areas where price moved sideways for a period
The longer the consolidation, the more significant the level

Round numbers

Prices ending in 00 or 50 (like 1.2000 or 1.2050)
These have psychological significance for traders

Types of Support and Resistance in Price Action

Price action traders recognize several types of supportA price level where buying interest is strong enough to prevent the price from falling further. and resistanceA price level where selling pressure is strong enough to prevent the price from rising further.:

Horizontal levels

The most common and easily recognized
Based on previous swing highs and lows

Dynamic levels

Moving levels that change over time
Often based on trendlines or moving averages

Diagonal levels

Trendlines connecting multiple swing highs or swing lows
Represent dynamic supportA price level where buying interest is strong enough to prevent the price from falling further. or resistanceA price level where selling pressure is strong enough to prevent the price from rising further.

Zones rather than exact levels

Price rarely respects exact prices
SupportA price level where buying interest is strong enough to prevent the price from falling further. and resistanceA price level where selling pressure is strong enough to prevent the price from rising further. are better viewed as zones

Role Reversal

One of the most important concepts in price action trading is role reversal:

SupportA price level where buying interest is strong enough to prevent the price from falling further. becoming resistanceA price level where selling pressure is strong enough to prevent the price from rising further.

When price breaks below a supportA price level where buying interest is strong enough to prevent the price from falling further. level, that level often becomes resistanceA price level where selling pressure is strong enough to prevent the price from rising further. when approached from below
This occurs because traders who bought at supportA price level where buying interest is strong enough to prevent the price from falling further. and didn’t sell are now looking to exit at breakeven

ResistanceA price level where selling pressure is strong enough to prevent the price from rising further. becoming supportA price level where buying interest is strong enough to prevent the price from falling further.

When price breaks above a resistanceA price level where selling pressure is strong enough to prevent the price from rising further. level, that level often becomes supportA price level where buying interest is strong enough to prevent the price from falling further. when approached from above
This occurs because traders who missed the breakout are waiting to buy on a pullback

Trading Support and Resistance with Price Action

Here’s how price action traders use supportA price level where buying interest is strong enough to prevent the price from falling further. and resistanceA price level where selling pressure is strong enough to prevent the price from rising further.:

Bounces

Enter long positions when price bounces off supportA price level where buying interest is strong enough to prevent the price from falling further. with a bullish candlestick pattern
Enter short positions when price bounces off resistanceA price level where selling pressure is strong enough to prevent the price from rising further. with a bearish candlestick pattern

Breakouts

Enter long positions when price breaks above resistanceA price level where selling pressure is strong enough to prevent the price from rising further. with strong momentum
Enter short positions when price breaks below supportA price level where buying interest is strong enough to prevent the price from falling further. with strong momentum

Retests

Enter long positions when price retests broken resistanceA price level where selling pressure is strong enough to prevent the price from rising further. as new supportA price level where buying interest is strong enough to prevent the price from falling further.
Enter short positions when price retests broken supportA price level where buying interest is strong enough to prevent the price from falling further. as new resistanceA price level where selling pressure is strong enough to prevent the price from rising further.

Confluence

Prioritize levels where multiple forms of supportA price level where buying interest is strong enough to prevent the price from falling further. or resistanceA price level where selling pressure is strong enough to prevent the price from rising further. align
For example, a horizontal level that also aligns with a trendline

Market Structure Analysis

Market structure analysis is a more advanced form of price action trading that focuses on the overall structure of market movements rather than individual candlesticks or patterns.

What is Market Structure?

Market structure refers to the arrangement of swing highs and swing lows that form the “skeleton” of price movement. By analyzing this structure, traders can identify the current market phase and anticipate potential future movements.

Market Structure Components

The key components of market structure include:

Swing highs and swing lows

The building blocks of market structure
Connect these points to see the overall structure

Higher highs, higher lows, lower highs, lower lows

The relationship between swing points defines the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend).

Equal highs and equal lows

Areas where price makes multiple attempts at the same level
Often indicate strong supportA price level where buying interest is strong enough to prevent the price from falling further./resistance

Structural breaks

When price breaks the pattern of highs and lows
Signal potential trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). changes

Market Structure Phases

Markets typically move through four main phases:

Accumulation

Sideways movement after a downtrend
Smart money accumulating positions
Characterized by equal lows and higher highs

Markup

Uptrend phase
Characterized by higher highs and higher lows
Momentum increases as more traders join the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend).

Distribution

Sideways movement after an uptrend
Smart money distributing (selling) positions
Characterized by equal highs and lower lows

Markdown

Downtrend phase
Characterized by lower highs and lower lows
Momentum increases as more traders join the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend).

Identifying Structural Shifts

Market structure shifts provide valuable trading opportunities:

Break of market structure (BMS)

In an uptrend: When price makes a lower low, breaking the pattern of higher lows
In a downtrend: When price makes a higher high, breaking the pattern of lower highs

Change of character (CHoCH)

When price behavior changes significantly
For example, from large trending candles to small consolidation candles

Shift in momentum

When price moves more quickly or slowly than before
Often precedes a structural break

Trading Based on Market Structure

Here’s how to use market structure in your trading:

TrendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). continuation

Enter in the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). direction after a pullback respects the market structure
For example, enter long when price makes a higher low in an uptrend

TrendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). reversal

Enter against the previous trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). after a break of market structure
For example, enter short after price makes a lower low in an uptrend

Range trading

Trade bounces between structural supportA price level where buying interest is strong enough to prevent the price from falling further. and resistanceA price level where selling pressure is strong enough to prevent the price from rising further. during accumulation or distribution phases

Breakout trading

Enter in the direction of the breakout when price breaks out of an accumulation or distribution phase

Candlestick Patterns and Their Significance

Candlestick patterns are a crucial component of price action trading. They provide insights into market psychology and can signal potential reversals or continuations.

Single Candlestick Patterns

These patterns involve just one candlestick but can provide valuable information:

Doji

Open and close are at the same or nearly the same price
Indicates indecision in the market
Significant when appearing after a strong trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend).

Hammer

Small body at the top with a long lower wick
Appears in downtrends
Indicates rejection of lower prices (potential reversal)

Shooting Star

Small body at the bottom with a long upper wick
Appears in uptrends
Indicates rejection of higher prices (potential reversal)

Marubozu

Long body with very small or no wicks
Indicates strong conviction in the direction of the candle
Bullish when green/white, bearish when red/black

Spinning Top

Small body with upper and lower wicks of similar length
Indicates indecision
Less significant than a doji but still shows uncertainty

Multi-Candlestick Patterns

These patterns involve two or more candlesticks and often provide stronger signals:

Engulfing Patterns

Bullish Engulfing: A bearish candle followed by a larger bullish candle that completely “engulfs” the previous candle
Bearish Engulfing: A bullish candle followed by a larger bearish candle that completely “engulfs” the previous candle

Harami Patterns

Bullish Harami: A large bearish candle followed by a smaller bullish candle contained within the previous candle’s range
Bearish Harami: A large bullish candle followed by a smaller bearish candle contained within the previous candle’s range

Morning Star and Evening Star

Morning Star: A large bearish candle, followed by a small-bodied candle, followed by a large bullish candle (bullish reversal)
Evening Star: A large bullish candle, followed by a small-bodied candle, followed by a large bearish candle (bearish reversal)

Tweezer Tops and Bottoms

Tweezer Top: Two or more candles with the same high
Tweezer Bottom: Two or more candles with the same low

Candlestick Pattern Context

The context in which a candlestick pattern appears is crucial for its interpretation:

TrendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). context

Reversal patterns are more significant when they appear after a strong trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend).
Continuation patterns are more significant when they appear during a pullback in a trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend).

SupportA price level where buying interest is strong enough to prevent the price from falling further./resistance context

Patterns are more significant when they appear at key supportA price level where buying interest is strong enough to prevent the price from falling further. or resistanceA price level where selling pressure is strong enough to prevent the price from rising further. levels
For example, a hammer at supportA price level where buying interest is strong enough to prevent the price from falling further. or a shooting star at resistanceA price level where selling pressure is strong enough to prevent the price from rising further.

Timeframe context

Patterns on higher timeframes are more significant than those on lower timeframes
Confluence of patterns across multiple timeframes increases significance

Volume context

Patterns accompanied by high volume are more significant
For example, a bullish engulfing with high volume is a stronger signal than one with low volume

Trading Candlestick Patterns

Here’s how to effectively trade candlestick patterns:

Wait for confirmation

Don’t enter immediately when a pattern forms
Wait for the next candle to confirm the expected direction

Use appropriate stop loss placement

For reversal patterns: Place stops beyond the pattern’s extreme point
For continuation patterns: Place stops beyond the pattern’s pullback extreme

Consider risk-reward ratio

Don’t take trades with poor risk-reward ratios even if the pattern is valid
Aim for at least 1:2 risk-reward (risking 1 to gain 2)

Combine with other price action elements

Use patterns in conjunction with trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). analysis, supportA price level where buying interest is strong enough to prevent the price from falling further./resistance, and market structure
The more confluence factors, the stronger the signal

Price Action Confirmation Techniques

Price action traders use various confirmation techniques to increase the probability of successful trades. These techniques help filter out false signals and identify high-probability setups.

Confirmation Through Multiple Timeframes

One of the most powerful confirmation techniques is to check for alignment across multiple timeframes:

Higher timeframe trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). alignment

Ensure the trade is in the direction of the higher timeframe trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend).
For example, only take long trades when the daily chart shows an uptrend

Multiple timeframe pattern confluence

Look for similar patterns or signals across different timeframes
For example, a bullish engulfing on both the 4-hour and 1-hour charts

Higher timeframe supportA price level where buying interest is strong enough to prevent the price from falling further./resistance

Confirm that the entry point aligns with supportA price level where buying interest is strong enough to prevent the price from falling further./resistance on higher timeframes
This increases the significance of the level

Confirmation Through Price Behavior

The way price behaves after a signal forms can provide important confirmation:

Follow-through candles

Strong candles in the expected direction after a pattern forms
Indicates conviction in the new direction

Rejection of levels

Price quickly moving away from supportA price level where buying interest is strong enough to prevent the price from falling further. or resistanceA price level where selling pressure is strong enough to prevent the price from rising further. after testing it
Indicates strong reaction to the level

Momentum comparison

Compare the momentum of the move in each direction
Stronger momentum in the new direction confirms the signal

Volume confirmation

Increasing volume in the direction of the breakout or reversal
Decreasing volume during pullbacks in the new trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend).

Confirmation Through Failed Moves

Sometimes the most powerful signals come from failed moves:

Failed breakouts

Price breaks above resistanceA price level where selling pressure is strong enough to prevent the price from rising further. or below supportA price level where buying interest is strong enough to prevent the price from falling further. but quickly reverses
Often leads to strong moves in the opposite direction

Spring and upthrust

Spring: Price briefly breaks below supportA price level where buying interest is strong enough to prevent the price from falling further. then quickly reverses higher
Upthrust: Price briefly breaks above resistanceA price level where selling pressure is strong enough to prevent the price from rising further. then quickly reverses lower

Failure to make new extremes

In an uptrend: Failure to make a new higher high
In a downtrend: Failure to make a new lower low

Confirmation Through Multiple Signals

The confluence of multiple price action signals greatly increases probability:

Pattern + level + structure

A candlestick pattern
At a key supportA price level where buying interest is strong enough to prevent the price from falling further./resistance level
That aligns with market structure

Inside bar + trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). + level

An inside bar (a bar completely within the range of the previous bar)
In the direction of the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend).
At a key supportA price level where buying interest is strong enough to prevent the price from falling further./resistance level

Engulfing + pin bar + structure break

An engulfing pattern
Followed by a pin bar (a bar with a long wick)
That breaks the previous market structure

Practical Application: Price Action Trading Strategies

Now let’s explore some practical price action trading strategies that combine the concepts we’ve covered.

The Trend Continuation Strategy

This strategy focuses on entering in the direction of the established trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). after a pullback:

Identify the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend).

Confirm an uptrend (higher highs and higher lows) or downtrend (lower highs and lower lows)
Verify the trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). on a higher timeframe

Wait for a pullback

In an uptrend: Wait for price to pull back to supportA price level where buying interest is strong enough to prevent the price from falling further. (previous higher low, trendline, etc.)
In a downtrend: Wait for price to pull back to resistanceA price level where selling pressure is strong enough to prevent the price from rising further. (previous lower high, trendline, etc.)

Look for confirmation

Bullish candlestick pattern at supportA price level where buying interest is strong enough to prevent the price from falling further. in an uptrend
Bearish candlestick pattern at resistanceA price level where selling pressure is strong enough to prevent the price from rising further. in a downtrend

Enter the trade

Enter long after confirmation in an uptrend
Enter short after confirmation in a downtrend

Set stop loss and take profit

Stop loss: Below the recent swing low (for longs) or above the recent swing high (for shorts)
Take profit: At the next significant resistanceA price level where selling pressure is strong enough to prevent the price from rising further. (for longs) or supportA price level where buying interest is strong enough to prevent the price from falling further. (for shorts)

The Breakout Strategy

This strategy focuses on entering when price breaks out of a consolidation pattern:

Identify a consolidation pattern

Rectangle, triangle, flag, or pennant
The longer the consolidation, the more significant the breakout

Wait for the breakout

Price closing beyond the pattern boundary
Preferably with increased volume

Look for confirmation

Rejection of the broken level when retested
Strong momentum in the breakout direction

Enter the trade

Enter in the direction of the breakout after confirmation
Alternatively, enter on the retest of the broken level

Set stop loss and take profit

Stop loss: Below the pattern low for bullish breakouts or above the pattern high for bearish breakouts
Take profit: Based on the pattern’s measured move (the height of the pattern projected from the breakout point)

The Reversal Strategy

This strategy focuses on entering when a trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). is likely reversing:

Identify a potential reversal point

Overextended trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). (multiple large candles in one direction)
Price approaching major supportA price level where buying interest is strong enough to prevent the price from falling further./resistance
Signs of momentum divergence

Look for reversal patterns

In a downtrend: Hammer, bullish engulfing, morning star, double bottom
In an uptrend: Shooting star, bearish engulfing, evening star, double top

Wait for structure break

In a downtrend: Price makes a higher high, breaking the pattern of lower highs
In an uptrend: Price makes a lower low, breaking the pattern of higher lows

Enter the trade

Enter in the direction of the potential new trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). after confirmation
Use a smaller position size than for trendThe general direction in which a market is moving (uptrend, downtrend, sideways trend). continuation trades (higher risk)

Set stop loss and take profit

Stop loss: Beyond the extreme point of the reversal pattern
Take profit: At the next significant supportA price level where buying interest is strong enough to prevent the price from falling further./resistance level

The Range Trading Strategy

This strategy focuses on trading bounces between supportA price level where buying interest is strong enough to prevent the price from falling further. and resistanceA price level where selling pressure is strong enough to prevent the price from rising further. in a ranging market:

Identify a range

Price oscillating between horizontal supportA price level where buying interest is strong enough to prevent the price from falling further. and resistanceA price level where selling pressure is strong enough to prevent the price from rising further.
At least two touches of both supportA price level where buying interest is strong enough to prevent the price from falling further. and resistanceA price level where selling pressure is strong enough to prevent the price from rising further.

Wait for price to approach range boundaries

Price approaching supportA price level where buying interest is strong enough to prevent the price from falling further. from above
Price approaching resistanceA price level where selling pressure is strong enough to prevent the price from rising further. from below

Look for confirmation

Bullish candlestick pattern at supportA price level where buying interest is strong enough to prevent the price from falling further.
Bearish candlestick pattern at resistanceA price level where selling pressure is strong enough to prevent the price from rising further.

Enter the trade

Enter long at supportA price level where buying interest is strong enough to prevent the price from falling further. after confirmation
Enter short at resistanceA price level where selling pressure is strong enough to prevent the price from rising further. after confirmation

Set stop loss and take profit

Stop loss: Below supportA price level where buying interest is strong enough to prevent the price from falling further. for longs or above resistanceA price level where selling pressure is strong enough to prevent the price from rising further. for shorts
Take profit: At the opposite range boundary

Conclusion

Price action trading is a powerful approach that focuses on the most important aspect of the market: price itself. By understanding how to use price as your primary indicator, identify trends through price movement, recognize supportA price level where buying interest is strong enough to prevent the price from falling further. and resistanceA price level where selling pressure is strong enough to prevent the price from rising further. through price action, analyze market structure, interpret candlestick patterns, and apply price action confirmation techniques, you have gained the fundamental skills needed for effective price action trading.

Remember that price action trading is both a science and an art. The scientific part involves understanding the patterns and structures we’ve discussed. The artistic part comes from experience—developing an intuitive feel for the market that can only come with practice and screen time.

In the next chapter, we’ll explore Advanced Candlestick Patterns & Combinations, which will build upon the price action fundamentals you’ve learned here.

Key Terms

Price Action: The movement of price on a chart, analyzed without the use of indicators or oscillators.
Swing High: A peak formed when a price bar has lower highs on both sides.
Swing Low: A valley formed when a price bar has higher lows on both sides.
Market Structure: The arrangement of swing highs and swing lows that form the “skeleton” of price movement.
Break of Structure: When price breaks the pattern of higher highs and higher lows (in an uptrend) or lower highs and lower lows (in a downtrend).
Candlestick Pattern: A specific formation of one or more candlesticks that suggests a particular market sentiment.
Confirmation: Additional evidence that supports a trading signal, increasing its probability of success.

Lesson Content

0% Complete 0/1 Steps

Chapter 3: Price Action Fundamentals (Audio)

Previous Topic

Back to Course

Next Topic