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

Price action is the use of only charts to trade Indices, without use of trading chart technical indicators. When trading using this method, candle charts are used. This strategy uses lines & 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 trading 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 tools to provide extra confirmation. These line tools include trend-lines, Fibo retracement, support & resistance levels.

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 and point 2, if market moves above the peak the trading signal is long, if it falls below the trough the signal is to short. Breakout of point 1 or point 2 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 Stock 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, normally after getting to a support or resistance area.

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 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 This Strategy with other Trading Indicators

Good technical indicators to combine with are:

Moving Average Indicator

Investors should use these two indicators to confirm if the direction of breakout is in line with the market trend direction shown by these two trading indicators. If the direction also is the same as those of these indicators then traders can open a trade transaction 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 whipsaw.

Just like any other indicator in Indices Trading, stock price action also has whipsaws and there is a requirement to use this strategy as a combination with other signal strategies as opposed to just using this strategy alone.

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

Combining with other Indicators - RSI & Moving Averages

Study More Tutorials & 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 This Strategy with other Trading Indicators