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

Price action is the use of only charts to trade Indices, without the use of technical chart indicators. When trading with this method, candle charts are used. This strategy uses lines and pre determined patterns such as the 1-2-3 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 trading market moves based on what they see on the charts & market movement analysis alone.

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

The best use of this technique is achieved when the signals generated are combined with line studies so as to provide extra confirmation. These line studies include trend lines, Fibo retracement, support & resistance areas.

Price Action 1-2-3 Break Out

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

Series of breakouts on Trading Chart

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

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

Observing the behavior of price action provides this data of whether the trading 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 whipsaws. The 1-2-3 pattern can give good trading signals in a trending market but will give whipsaws signals when the trading market is ranging, it's best to determine if the market is trending or not before you start using this strategy.

Combining This Strategy with other Indicators

Good technical indicators to combine with are:

• RSI

• MA Indicator

Investors should use these two indicators to confirm if the direction of breakout is in line with the 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's more likely a chance that this signal may be a indices trading whipsaw.

Just like any other indicator in Indices Trading, stock 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 & Moving Averages