Price action is the movement of a security’s price plotted over time. Price action forms the basis for all technical analysis of a stock, commodity or other asset chart. Many short-term traders rely exclusively on price action and the formations and trends extrapolated from it to make trading decisions. Technical analysis as a practice is a derivative of price action since it uses past prices in calculations that can then be used to inform trading decisions.

  • Price action generally refers to the up and down movement of a security's price when it is plotted over time. ... Technical analysis formations and chart patterns are derived from price action. Technical analysis tools like moving averages are calculated from price action and projected into the future to inform trades.

  • Dow theory explains the movement of the trend with respect to demand and supply, whereas price patterns explains the nature and characteristics of the trend and also its significance.

  • A double top is an extremely bearish technical reversal pattern that forms after an asset reaches a high price two consecutive times with a moderate decline between the two highs. It is confirmed once the asset's price falls below a support level equal to the low between the two prior highs.

  • A double bottom pattern is a technical analysis charting pattern that describes a change in trend and a momentum reversal from prior leading price action. It describes the drop of a stock or index, a rebound, another drop to the same or similar level as the original drop, and finally another rebound.

  • A head and shoulders pattern is a chart formation that appears as a baseline with three peaks, where the outside two are close in height and the middle is highest. In technical analysis, a head and shoulders pattern describes a specific chart formation that predicts a bullish-to-bearish trend reversal.

  • The inverted head and shoulder pattern is a accumulation pattern.

    – Should have significant rally before the trend.

    -period of the trend is 3 months

    – left shoulder should have high volume

    -head should be high

    right shoulder should have no significance in volume

    long position can be made after breakout.

  • The cup pattern is accumulation pattern

    It usually takes a longer term (more than a year)

    Volume is low in the bottom

    long position can be created when the cup is filled

    It is a typical investment pattern.

  • If the price trend is seen in the type of flag, i.e the steeper pole and side way movement and followed by the breakout on the same side is identified as flag pattern.

  • Entry price should be just after the break out

    Exit price should be just after the price movement has reversed the direction

    Stop loss at the point where the breakout gap is filled.

  • 1) There should be a 5 wave Corrective pattern to form a triangle shaped structure.
    2) The triangle area should be minimum of 1.5 months.
    3) The break out is expected at around 70% zone and volume is required to confirm the break out.

1 Comment
  1. Naresh 12 months ago

    Hi sir,
    We really appreciate the time and effort you put into this practice session.

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