Stocks Price Action 1-2-3 method in the Stocks Market

Stocks Price action is the use of only charts to trade Stocks, without the use of technical chart indicators. When trading with this method, candlestick charts are used. This strategy uses lines and pre-determined 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 stocks market moves based on what they see on the stock charts and market movement analysis alone.

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

The best use of this method is achieved when the signals generated are combined with line studies so as to provide extra confirmation. These line studies include stocks trend lines, Fibonacci retracement, support and resistance levels.

Stock Price Action 1-2-3 Breakout

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

Series of breakouts on Stocks Trading Chart

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

A trending market moves in a specific direction while a ranging market moves sideways, normally after hitting a support or resistance level.

Observing the behavior of stocks price action provides this information of whether the stocks market is trending or ranging or reversing its direction.

As with any other Stocks 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 stocks market is ranging, it is best to determine if the stocks market is trending or not before you start using this strategy.

Combining This Strategy With other Indicators

Good indicators to combine with are:

• RSI

• Moving Average Stock Trading Indicator

Investors should use these two indicators to confirm if the direction of breakout is in line with the stocks 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 the direction of the signal. If not investors should not open a trade as there is more likely a chance that this stocks signal may be a stocks whipsaw.

Just like any other indicator in Stocks, stocks price action also has whipsaws and 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 and Moving Averages