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Price Action Basics (Part 2)

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Price Action Basics

OVERVIEW 

In this article segment, we will dwell into some of the most important concepts of price analysis and build upon the concepts that we learned in the previous article(See Price Action Basics-Part1). 

Basic Concepts

  1. Market Structure/ Profile
  2. Price trend

Market Structure/Profile

Price in the market always lies in one of the following profile

  • Consolidation
  • Expansion
  • Retracement/Reversal
Consolidation

When we say the price is in consolidation, it means that price is unable to move up or down. During this time market makers try to keep the market in a tight range. They do this to allow the orders to build up on both sides of the market place. After consolidation phase price may expand lower or higher.

Expansion

Price moves away from consolidation into an expansion. When price expands quickly out of the consolidation, it indicates that market makers want to move the price to the next significant level of interest.

Retracement/reversal

Retracement means price moves back inside the trading range. Retracement indicates market makers are trying to move the price to the area of supports inside the created trading range.

download 2 6 edited - The TradeLog
Consolidation Expansion and Retracement

Price forms a triad of consolidation, expansion and retracement and moves from one profile to another

Price Trend

You might have heard this quote often ” Trend is your friend”. Yeah, Ok! But what is the trend? In Price action, terminology trend is defined as the higher highs-higher lows as uptrend and lower-lows and lower-highs as downtrend. Remember price should be in the Expansion or retracement market profile and not in consolidation market profile when you use this definition of trend.

Swing lows and swing highs(See Price Action Basics-Part1) are the significant price points that is used to identify the trend.

download 2 7 edited 1 - The TradeLog
Uptrend
download 3 - The TradeLog
Downtrend

So what happens when there are higher high but lower low and lower highs and higher lows?? That’s a consolidation market profile. That’s where the concept of liquidity and liquidity voids comes in (More on this soon).

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Power Engineer by Profession, Trader by passion,A millennial having a billion dollar Crypto dream, Price action analyst/Trader, Commodity future Analyst, currency futures trader.

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