Stock Price Action 1-2-3 method in the Stock Trading Market
Stock Price action is the use of only charts to trade Stock, without the use of technical chart indicators. When trading with this method, candlestick stocks trading 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 trading market moves based on what they see on the stocks trading charts and market movement analysis alone.
This strategy is used by many traders; even those that use technical indicators also integrate some form of stocks price action in their 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 stock 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 stock. 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
Investors use stocks price action to try and predict where a stock trend direction might go. The stock 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 trading market is trending or ranging or reversing its direction.
As with any other Stock 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 trading market is ranging, it is best to determine if the stocks trading market is trending or not before you start using this strategy.
Combining This Strategy With other Indicators
Good indicators to combine with are:
- Moving Average
Investors should use these two indicators to confirm if the direction of breakout is in line with the stock 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 stock signal may be a stock trading whipsaw.
Just like any other indicator in Stock Trading, 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