In this article series, we will teach you the Price Action basics that will be the basic building blocks of your analysis. Even if you are not a price action analyst/trader, you must know these concepts as a trader.
I am going to cover some important topics in this article. These will be a first step in understanding the price behaviour. Before going into that let me explain candlestick chart first. Technical charts are of various types, line chart, candlestick chart, heikin ashi chart, bar chart. I used candlestick chart as it gives better visualization.
Candlesticks: Candlestick represents a price action between a certain time period. For instance, 4H candlestick represents the price action of a 4H duration. Now, each candlestick has 4 price points called as Open high Low close(OHLC). There are two types of candlestick, one which represents that close<open(Bearish price action candle) & another in which close>open(Bullish price action candle).
Price action Basics (Part 1):
1. Swing High:
Swing High is a 3 candle pattern where the candle to the left and right have lower highs as compared to the middle one.
2. Swing low:
Swing low is a 3 candle pattern where the candle to the left and right have higher lows as compared to the middle one.
3. Trading Range:
The Price range between the Swing high and swing low is a trading range. We will go into a detailed explanation of trading range in a separate article, later.
4. Different Types of lows and highs:
Suppose we are analyzing an asset onto three timeframes(Why three Timeframe?? we will discuss it later). If we want to denote the lows and highs on the lowest time frame among the three, then we can denote them as follows. Out of below three, HTF is the most significant one and LTF is the least significant one. Let us use EURUSD MWD TF for this example. The chart below will give a fair idea about the different types of Highs and Lows
A) Higher time frame (HTF) Highs and lows
B) Intermediate time frame(ITF) Highs and lows
C) Lower time frame(LTF) Highs and lows