A Beginner's Guide to Price Action Trading

Price action trading is a style of trading that is carried out based on the past performance of an asset, either digital or physical asset, such as its open, high, low, and close.

In simpler words, price action trading is trading that is done by considering how a particular asset or assets moved in the past.

Doing so helps you to determine the performance of such assets and make informed trading decisions based on the price action.

It is important to note, however, that price action should not be used to forecast what the market will do, rather it should be used to note what the market is doing.

Now, the knowledge of price action trading helps you have better and more precise charts, and therefore, enables you to get the best entry and exit points.

How does the Market Move?

The market moves in four phases and these are:

Accumulation
Advancing
Distribution
Declining

It is useful to differentiate these phases to be able to use a good trading strategy each time the market enters that particular stage.

For instance, should you rather buy or sell depending on the stage the market has entered?

To answer these questions and more, let me go further to explain what these phases mean.

The Accumulation Stage

This stage occurs after there has been a price decline and the market begins to range in a downtrend.

Here's how you can know for sure:

If the asset has declined over the last 5 months or more
In a decline, it appears to be a range market with distinct Support and Resistance zones.
The 200-day Moving Average is gradually flattening out.
Around the 200-day Moving Average, the price swings back and forth.

The Advancing Stage

The market can be said to be in an Advancing phase if the market begins to move in an uptrend with several higher highs and lows.

How can you tell?

In the Accumulation stage, it occurs when the price breaks over resistance.
There are a series of higher highs and lows
The price is above the 200-day Moving Average
The 200-day Moving Average is beginning to trend upward.

Note: If by chance you spot that the market is in an Advancing stage, the right strategy is to buy and not sell.

Be on the lookout and take advantage of buy breakouts or pullbacks.

The Distribution Stage

The market has entered a distribution stage after there has been a price rise, and the market begins to range in an uptrend.

How to be sure:

It occurs after the price have risen over the last 5 months or more (on a Daily timeframe)
In an uptrend, it appears to be a range market with distinct Support and Resistance zones.
The 200-day Moving Average is gradually flattening out.
Around the 200-day Moving Average, the price swings back and forth.
In the Distribution stage, there's a high potential for a downside (price decline) if the price breaks below Support.

The best approach to take in such situations is to either short the breakdown of Support or wait for the breakdown to occur, before taking the bold step to sell on the pullback.

The Declining Stage

The market enters a declining Stage when there is a downtrend with a series of lower highs and lows.

One can point this out when:

In a Distribution stage, it occurs after the price breaks out of Support.
A series of lower highs and lows can be seen.
The price is below the 200-day Moving Average
The 200-day Moving Average is indicating a downward trend.

The M.A.E Trading Formula in Cryptocurrency

The M.A.E Trading Formula is also a price action trading strategy a good trader needs to know.

This is simply:

Market structure
Area of value
Entry trigger

MARKET STRUCTURE

Firstly, it is important to determine the stage the market is currently in.

For instance, is it in an uptrend, downtrend, or range?

This knowledge is very useful as it will help you to enter into trades that have little or least resistance.

Practically, here's what you should do:

You can buy and sell in a range of market

Be out to buy in an uptrend market

Be out to sell in a downtrend market

AREA OF VALUE:

An area of value helps you to know where to enter a trade.

While there are different areas to enter your trade, trading at an area of value will enable you to buy low and sell high.

For example:

Support and Resistance

Respective Moving Average

Trend line

ENTRY TRIGGER

The entry trigger helps you to know when to enter the market.

Practically, it is good to enter when the market shows signs of reversal.

It can be in the form of reversal price patterns like:

Hammer

ShootingStar

BullishEngulfing Pattern

Bearish Engulfing pattern

Price Action Trading: A Beginner's Guide for Traders