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).
- Market Structure/ Profile
- Price trend
Price in the market always lies in one of the following profile
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.
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 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.
Price forms a triad of consolidation, expansion and retracement and moves from one profile to another
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.
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).