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 technical indicators. When trading with this technique, candle stocks charts are used. This strategy uses lines & pre determined patterns such as 1-2-3 trading pattern that either develops or sequence of bars.

Traders use this strategy because this analysis is very objective and allows the one to analyze the stocks market moves based on what they see on the stocks charts and market movement analysis alone.

This strategy is used by many traders: even those who 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, Fibo retracement, support & resistance areas.

Stocks Price Action 1-2-3 Breakout

This strategy uses three chart points to determine the break out direction of stock. 1-2-3 method uses a peak & 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 trading signal is to short. Break out of point 1 or point 2 forms the third point.

Series of breakouts on Stocks Trading Chart

Investors use stocks price action to try & predict where a stock trend direction might go. The stock market is either trending or ranging.

A trending market moves in a particular direction while a ranging market moves sideways, normally after getting to a support or resistance zone.

Observing the behavior of stocks price action provides this information of whether the stocks 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 market is ranging, it is best to determine if the stocks market is trending or not before you start using this strategy.

Combining This Strategy With other Technical Indicators

Good technical indicators to combine with are:

• RSI

• Moving Average Technical Indicator

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 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