How price action trading can help you earn short-term profit

Having just one strategy does not ensure profitable trades. Trades based on indicators may fail because indicators are lagging, but price action never fails. So, no wonder price action is favoured among the trading community.

In Gujarati language it is said 'Bhav bhagvan che,' meaning Price is God for one who trades. Price is the heart of trade which in turn determines several other factors. Several trading theories like Dow theory is also based on price action.

Price action is a systematic trading practice aided by technical analysis tools and recent price history where traders are free to take their own decisions within a given scenario to take trading positions as per their subject of behavioural and psychological state.

Price action trading is an approach to price prediction or speculation. It is used by retail traders, speculators and trading firms. Price is determined by demand and supply. Success rate of a trade depends on the entry level.

Experienced traders following price action keep multiple options for recognizing trading patterns, entry and exit levels, stop loss and other related observations.

The traders set a floor and ceiling for a particular stock based on the assumption of low volatility and no breakouts.

When the stock price lies in the range the trader can take positions assuming the floor and ceiling acting as support and resistance levels or take an alternative view that the stock will breakout in either direction.

Price action trading is better suited for short to medium term limited profit instead of long-term investments just closely assisted by technical analysis tools, but the final trading call is dependent on the individual trader offering flexibility instead of enforcing strict set of rules to be followed. It is up to the individual trader to decide, test, understand, and act on what are the requirements for the best possible profit opportunities.

(The author is a homemaker who dabbles in stock market investments)