Chapter 1: What Makes up Price Action
Before we dive into the strategies, I want to first ground you on the four pillars of price action.
If you can recognize and understand these four concepts and how they are related to one another, you are on your way.
Pillar 1 - Candlesticks
I have listed candlesticks here, because this is the most popular form of charting in today's trading world. Historically, point and figure charts, line graphs and bar graphs were the rave of their day.
Not to make things too open ended at the start, but you can use the charting method of your choice. There is no hard line here.
However, for the sake of not turning this into a thesis paper, we will focus on candlesticks. The below image gives you the structure of a candlestick. To learn more about candlesticks, please visit this article that goes into detail about specific formations and techniques.
Candlestick Structure
The key point to remember with candlesticks is each candle is relaying information and each cluster or grouping of candles is also conveying a message. You have to begin to think of the market in layers.
Pillar 2 - Bullish Trend
This is a simple item to identify on the chart and as a retail investor you are likely most familiar with this formation.
A bullish trend develops when there is a grouping of candlesticks that extend up and to the right.
Think of a squiggly line on a 45 degree angle.
Make sense?
Pillar 3 - Bearish Trend
Bearish trends are not fun for most retail traders. Shorting (selling a stock you do not own) is likely something you are not familiar with or have any interests in doing. This formation is the opposite of the bullish trend.
This is where a security will trend at a 315 degree angle.
Pillar 4 - Flat Market
Get ready for this statement, because it is big. The market in general terms is flat about 80% of the time for day traders.
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