What is price action, how to understand it?

 As the words suggest Price[space]Action, the term has to be broken down to understand the definition practically.

In simple words,

Definition of Price: is the value of a stock or currency or asset at the moment. Just like today's gold, silver, or USD value with respect to any other currency.

Definition of Action: is the movement of this price to a higher or lower value depending on supply or demand (in terms of stock) or increase or decrease in the economy (in terms of currency).

The term 'price action' also includes a factor of time which basically is not visible by name but has to be considered to predict the direction of the price. That's why price action is the movement of an asset's price to a higher or lower direction within a given time period. The time period could be 1 Sec to 1 Year.

While you read these lines, the price in a live chart under a 1-sec time frame would have moved up and down 20 or 30 times. Yes, this is how fast price moves when you see it in 1 sec time frame.

Why and how does the price move so frequently?

This is because, every second around the world people buy or sell goods, currency, or any assets. As this activity goes on the supply or demand keeps rising and falling in terms of stock and the economy of the countries keeps fluctuating simultaneously which results in currency rate fluctuation as well.

The price moment is also influenced by the major events that happen in the country. 

For example: during the Covid -19 pandemic, when the lockdown was forced people almost stopped using vehicles which resulted in less fuel consumption, which further reduced the demand for oil, and oil prices went down. This is a classical slow drop. 

But when the lockdown was relaxed, the price of oil immediately went up as people started to use their vehicle more than public transportation due to social distancing purposes.

So, by this, you should understand that price can fluctuate slowly or very quickly or moderately. There is no specific speed of price movement and it could move at any speed depending on the supply and demand of stocks or raise or fall in the economy.

Another main understanding that as a trader we all need is to always read the price movement as high or low and not as moved up or down. This is because anything that goes up must come down is the definition of gravity but not price as it may go up and stay up for as long as the market wants.

Who takes the price to higher and lower levels?

If you understand this article till now, then your answer should be Buyers and Sellers. If not, then read the following. 

When people buy a stock too much, the supply has to be quick and huge to meet the need of people. This is when the price of assets rises due to heavy demand and vice versa when the selling or supply of the asset is more than the demand, the price of the same assets falls. Imagine, if both buyers and sellers are purchasing and selling at the same time. The price will also go up and then come down because both buying and selling orders are executed with a difference of milliseconds may be.

Understanding this Price Action concept will help you trade binary options because binary options trading is all about short time period trading or day-trading.

You can find detailed 2 videos on this playlist here which will help you understand the price movement in depth. Watch both parts -1 and 2 for full details.

More for Readers: How to read the retracements?

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⛔ This is not investment advice, your capital is at risk. You should never invest the money that you cannot afford to lose ⛔