Hello fellow steemians, it's a wonderful week and a great pleasure to attend this week's lecture of the beginner's course. All thanks goes to the Almighty Allah and also a big thanks goes to Professor @lenonmc21 who took his time and make sure to digest this lecture to our understanding. This lecture was really helpful as I learned a lot from it.
Below is my homework submission post.
Price action can be defined as a trading strategy and technique usually employed by traders that enables them to read and examine the condition of the market, and make their personal trading decisions according to the current and real price movements instead of depending entirely on the available technical indicators. One of the use of price action is that it is used to interpret and define the features of a safe price movements. The price movement I am talking about is frequently analyzed with respect to changes in asset price in the current data history.
The price action trading method and technique is not in one way dependent on technical analysis tools because it excludes and avoids the components and factors of the fundamental analysis but rather lay more emphasis on current and past asset price movements. A lot of traders are now beginning to focus more on price action trading methods because the method allows them to generate and get a lot of profit within the shortest period of time.
The balance point in my understanding refers to the last candle that end a trend pattern in a market graph. This means that the last candlestick that is always formed before there is a trend reversal or change in price movement is the balance point. Other traders and investors also refers to the balance point as the breakeven point. A breakeven point because that is where the trend breaks giving rise to the formation of a new pattern or trend. It is important for every trader to know the balance point, not only knowing it but be able to locate and mark it on a chart.
In order to locate the balance point, go to the recent trend formation and locate the last candle that was formed before the recent pattern. After locating it, you now have to draw two horizontal lines at the top and bottom of the candlestick. The top of the candlestick is the high point and the bottom is the low point.
The balance point is often a crucial and important point where traders who want to take profit quickly are mostly interested in. This is because this balance point serves as a point of support and resistance, a point of market entry and they also indicates a possible price reversal. Most traders who wants to take profit quickly are advice to make market entries at this point.
screenshot of COTI/USDT
Looking at the chart above, I have marked the balance point with two horizontal lines. One at the bottom and one at the top. Those are the high and low of the candlestick.
screenshot of BTC/USDT
Another example of balance point on a chart is shown above.
Below are the steps we need to follow in order to run a price action analysis with the Break-even point.
- Step 1: I am going to run the price action analysis on the trading view platform using the break-even point.
- Step 2: Before we carryout this analysis, it's incumbent on every trader to choose the time period they can work perfectly within without any distractions. In this step, a trader can choose to work within two time frames or he can choose to work within one time frame. It all depends on him and how comfortable he can be able to work within his chosen time frame.
For instance, if I am a trader and I want to make profits using the Break-even strategy, I will choose to work my charts within a 1 hour time frame. This one hour is going to be used to observe carefully and determine the current market trend before making any entry decision.
- Step 3: The third thing to do after choosing your preferred time frame is to go to the highest. The highest here indicates the time frame we chose to work with in step one. So I will decide to work with the time frame of 1 hour in my case. The next thing is to identify and note the most significant and essential regions with horizontal lines where there is price reaction. One reason why we note and mark this points is to use them as probable marks to take profits.
- Step 4: The next step is to now observe the market very well and identify whether the market is in the uptrend or downtrend. After identifying the market condition, you now move on to spot your equilibrium or balance point. After that, we now look out for the valid points of entries into the market.
In breakeven price action trading technique, the price action trader usually make use of layouts and setups to determine possible positions for entries and exits in the market. Each of the setups and layouts used by the trader has it's best and ideal point of entry. Other traders also make use of price action signals when exiting the market. This simply means that traders enter the market at one layout and then exit the entire position after realizing that a negative setup is appearing.
On the other hand, the trader can decide to exit the market rather at a profit target or at a loss level which was already predetermined. This sort of exit from the market is normally established on the earlier resistance and support levels of the graph.
Before we enter the market, we need to observe and look for a break in a candle. After identifying that, we now enter the market instantly. After entering the market, the price action trader will position the first Stop Loss below the candlestick that gave him the signal to enter if he is going long. If he is going short, then he will place the Stop Loss order above the candlestick. And if it happens that the market reacts and move as anticipated, then we will
move the Stop Loss up to one tick below the candle.
In my opinion price action strategy is more effective than the use of technical indicators in trading. My reason is elaborated below.
1). Price action is very simple and better for beginner's: The studying and understanding of price action trading strategy and technique is somehow simple and easy as compared to the use of technical indicators. For beginner's who are new and not familiarised with the market trends are advised to start using the price action trading strategy because it's simple to understand and interpret.
2). Indicators sometimes gives fake signals: Some indicators especially the leading indicators mostly give traders fake and false signals. This signals can make the trader to make a very bad and wrong trading decision. An indicator can signal you that there is going to be a price reversal but the chart might move in the opposite direction. This feature of some indicators makes it not recommended for traders who are not well experienced in the market. But with price action strategy, the trader analyse the market and make decisions based on real time and real movement of the candlestick patterns. This prevents the trader from making wrong decisions and wrong entries.
3). In price action trading, traders do analysis based on the current state of the market and they also analyze in real time according to what the price is projecting to them. But with indicators it's not the same because, they can either notify you about what will happen to the price in future (leading indicators) or they will signal you the state of the market after the price reversal have commenced (lagging indicators). This sometimes makes the trader to enter the market late and miss out on some important and profitable engagements in the market.
4). Traders can sometimes combine or apply about five different indicators on a chart to give them market signals. This is effective but one way or the other, it makes the chart looks messy and difficult to study especially for beginners. But with price action strategy, the chart is always clear and neat which makes it easy to identify relevant points on the chart without difficulty.
But one important thing we need to know is that, both the price action trading strategy and the use of technical indicators are all effective and sometimes depends on the trader and how experienced he is. But, it's more advisable to use the price action trading strategy because we analyse in real-time and what the price is showing us.
First of all, I am going to perform this trade on the trading view platform and inahve decided to pick the pair of COTI/USDT.
I also choose a time frame of 1 hour to work with.
- I then look out for the recent or current market trend, and then identify the balance point or the breakeven point.
- I then study the chart, identify and mark the support and resistance levels also known as the key levels.
- The next thing I did was to exchange COTI to USDT, and I did so by taking a buy trade.
- After I entered the market and placed the buy order, it was then executed.
If you can see, I placed my stop loss at the middle of the candlestickn the downtrend and that's the breakeven point.
In the chart below, you will see three horizontal lines with different colors and indications. Well, they are the stop loss line, the loss line and the take profit line reading from top to bottom.
Trading with price action technique is very simple and easy for beginners to understand because it doesn't need a lot of explanation and practice as compared to technical indicators. This method of trading also allows traders to take profit quickly into the market after entering a trade. Another importance of the price action strategy is that, there is nothing like wrong signals given to a trader because we trade with real time price changes and movement.
Although technical indicators are effective in carrying out analysis of the market condition, but I will advice every trader to adopt the use of the price action technique because you are able to trade in real time as well as make the best entry and exit in the market.
Thank you.