Price Action 1-2-3 method in the Indices Market

Price action is the use of only charts to trade Indices, without use of chart indicators. When trading using this technique, candlestick charts are used. This trading strategy uses lines & pre-determined patterns like the 1-2-3 pattern which either develops or sequence/series of bars.

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

This trading strategy is used by many traders: even those that use indicators also integrate some sort of price action in their strategy.

The best use of this technique is achieved when the signals generated are combined with line tools to provide extra confirmation. These line tools include trend-lines, Fibo retracement, support and resistance levels.

Price Action 1-2-3 Break-out

This trading strategy uses 3 chart points to determine the break out direction of indices. 1-2-3 method uses a peak & a trough, these points forms point 1 and point 2, if the market crosses above the peak the trading signal is long, if it falls below the trough the trading signal is to go short. Breakout of point 1 or point 2 it it forms the third point.

Trading Price Action 1 2 3 Method Price Breakout in Index

Series of break outs on Chart

Trading Price Action 1 2 3 Method Price Breakout in Index

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

A trending market moves in a specific direction while a range market moves sideways, generally after getting to a support or resistance area.

Observing the behavior of price action provides this data of whether the market is trending or ranging or reversing its direction.

As with any other Indices strategy this method should also be combined with other confirming indicators to avoid whipsaw signals. The 1-2-3 pattern can give good signals in a trending market but will give whipsaws signals when the trading market is range-bound, it's best to determine if the market is trending or not before you start using this strategy.

Combining Together This Strategy with other Trading Indicators

Good technical indicators to combine with are:

Moving Average Indicator

Investors should use these 2 indicators to confirm if the direction of breakout is in line with the price trend direction shown by these 2 trading indicators. If the direction also is the same as those of these indicators then traders can open a trade in direction of the trade signal. If not investors should not open a trade as there's more likely a chance that this signal may be a indices whipsaw.

Just like any other indicator in Stock Index Trade, stock price action also has whipsaws and there's a requirement to use this strategy as a combination together with other trading signal strategies as opposed to just using this strategy alone.

Combining Together Indices Price Action 1 2 3 Method with Indicators RSI and Moving Averages

Combining with other Technical Indicators - RSI and Moving Averages

Study More Guides & Topics:

Trade Stock Indices

Price Action 1-2-3 method in the Indices Market

Price Action 1-2-3 Break-out

Series of break outs on Chart

Combining Together This Strategy with other Trading Indicators