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 technical indicators. When trading with this method, candle charts are used. This strategy uses lines and predetermined patterns such as 1-2-3 trading 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 who use 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 stocks trend lines, Fibonacci retracement, support and resistance areas.

Stock Price Action 1-2-3 Break-out

This strategy uses three chart points to determine the break-out direction of a stocks. The 1-2-3 technique uses a peak and a trough, these points forms point 1 & point 2, if market moves above the peak the signal is long, if it moves below the trough the trading 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 particular direction while a ranging market moves sideways, normally after getting to a support or resistance level.

Observing the behavior of stocks price action provides this data 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 Technical Indicators

Good technical indicators to combine with are:

• RSI

• Moving Average Indicator

Investors should use these 2 indicators to confirm if the direction of break out is in line with the stocks trend direction shown by these 2 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 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 & Moving Averages