Indices Price Action 1-2-3 method in the Stock Indices Market

Indices Price action is the use of only charts to trade Stock Indices, without the use of technical chart technical indicators. When trading with this method, candle charts are used. This strategy uses lines and predetermined patterns such as the 1-2-3 pattern that either develops or series of bars.

Traders use this strategy because this analysis is very objective and allows the one to analyze the stock indices market moves based on what they see on the stock index charts and market movement analysis alone.

This strategy is used by many traders: even those who use technical indicators also integrate some form of price action in their trading strategy.

The best use of this technique is achieved when the signals generated are combined with line studies so as to provide extra confirmation. These line studies include stock indices trend lines, Fibo retracement, support and resistance areas.

Indices Price Action 1-2-3 Break-out

This strategy uses three chart points to determine the break-out direction of a stock indices. 1-2-3 technique uses a peak and a trough, these points forms point 1 & point 2, if market moves above the peak the trading signal is long, if it moves below the trough the signal is to short. Break-out of point 1 or point 2 forms the third point.

Series of breakouts on Stock Indices Trading Chart

Investors use stock index price action to try and predict where a stock indices trend direction might go. The stock indices market is either trending or ranging.

A trending market moves in a specific direction while a range market moves sideways, normally after getting to a support or resistance level.

Observing the behavior of stock index price action provides this data of whether the stock indices market is trending or ranging or reversing its direction.

As with any other Stock Indices Trading strategy this method should also be combined with other confirming indicators to avoid whipsaws. The 1-2-3 pattern can give good signals in a trending market but will give whipsaws when the stock indices market is ranging, it is best to determine if the stock indices market is trending or not before you start using this strategy.

RSI and Moving Averages

Good technical indicators to combine with are:

• RSI

• Moving Average Indicator

Investors should use these two indicators to confirm if the direction of break out is in line with the stock indices trend direction shown by these two indicators. If the direction is also the same as those of these indicators then investors can open a trade in direction of the signal. If not investors should not open a trade as there is more likely a chance that this stock indices signal may be a stock indices whipsaw.

Just like any other indicator in Stock Indices, stock index price action also has whipsaws & there a requirement to use this as a combination with other signal as opposed to just using this strategy alone.

Combining with other Indicators - RSI & Moving Averages