Using Price Action As Your First Indicator in Technical Analysis


Reviewed by Nick Cawley, August 4, 2022

What is Price Action?

Price motion is the research or analysis of value motion in the market. Traders use value motion to kind opinions and base choices on tendencies, key value ranges and appropriate threat administration. Trend identification is ceaselessly utilized because the preliminary step in value motion buying and selling. All different aspects to cost motion indicators require a development foundation to start value motion analysis.

Characteristic value motion chart:

Price Action as Your First Indicator

Technical analysis setups usually start with value motion because the preliminary type of analysis. The very first thing to recollect when utilizing an indicator is that it’s a perform of value motion. The indicator itself will not be the final word instrument in relation to buying and selling, however somewhat comes in behind value motion. Price motion governs the data that the indicator will finally present on the chart. As such, a dealer should decide what value motion is doing (i.e. the development) earlier than consulting the indicator for an entry sign. Once the development is decided, the dealer can then seek the advice of the indicator for an entry sign in the route of the development.Traders trade on the value motion of an instrument due to this fact, the main focus is on the change in value versus the change in indicator worth. Some merchants base buying and selling choices and analysis purely on value motion while different desire a mixture of value motion and technical indicators which function a help system.

Technical indicators are derivatives of value motion – value motion governs the data that indicators present on the chart. These indicators are calculated utilizing various periodic value information which give substantiation for entry, exit, and cease distance standards. Trend identification can be necessary in market analysis to establish how the market is performing on a holistic scale (time-frame dependent).

USD/ZAR value motion instance:

price action with stochastic indicator

The USD/ZAR chart above reveals the symbiotic relationship between value motion and technical indicators in an archetypal trade setup. The chart association begins with value motion by figuring out the upward development (blue line) which additionally serves as a help degree in this occasion. The addition of the shifting common (MA) additional confirms the short-term development route with the foreign exchange value being above the 20, 50 and 200 shifting common strains.

Using the stochastic oscillator suggests the market is almost in oversold territory which factors in direction of additional bullish/upward motion. Timing the entry would require keeping track of the stochastic in addition to the value motion because it approaches the help (blue line). Once value reaches this degree, merchants would look to enter into a protracted place with applicable threat administration.

Price Action and Technical Indicators: A Summary

Price motion is a broad technical analysis method that comes with numerous buying and selling methods which merchants apply to investigate the markets. Technical indicators work effectively in conjunction with value motion to permit merchants to formulate extra correct trade choices.

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