Proper way of reading price action?

<p>Check for support and resistance levels. Support and resistance areas are local structures which show previous reaction points. Support and resistance levels/areas are usually used to find high probability turning points or breakouts.</p>

<p>When we combine wave analysis with support and resistance, and swing high and swing low concepts, you are already looking at a robust method. Wave analysis is an often-overlooked topic in technical analysis and when you hear the term ‘waves’, you’d typically think about Elliott Wave theory.</p>

<p>Trendlines are arguably more subjective because drawing trendlines is more of an art than a science. When it comes to using trendlines, I suggest you focus on 2 main concepts:</p><ol style="list-style-type: lower-roman;margin-left:90.8px;"><li><p>The initial break of a trendline which can signal a shift in trend direction.</p></li><li><p>The retest of a trendline as a ‘safer’ entry opportunity.</p></li></ol>

<p id="isPasted">The proper way of reading price action involves analyzing the raw movement of price on a chart to interpret market psychology and identify high-probability trade setups. It focuses on key components without relying heavily on lagging technical indicators.&nbsp;</p><p><strong>Key Components of Price Action Analysis</strong></p><p><strong>Candlestick Analysis</strong>: Each candlestick tells a story about the battle between buyers and sellers within a specific timeframe.</p><p><strong>Body Size</strong>: A long body (green/white for bullish, red/black for bearish) indicates strong conviction and momentum in that direction. A small body or a Doji (where open and close are nearly equal) signals market indecision.</p><p><strong>Wick Length</strong>: Long wicks (shadows) indicate a rejection of a specific price level. For example, a long lower wick after a downtrend suggests that sellers pushed the price down, but buyers overwhelmed them and pushed it back up, a potential bullish reversal signal.</p><p><strong>Patterns</strong>: Look for common patterns like pin bars (long wick, small body), engulfing patterns (a large candle body fully covering the previous one), and inside bars (a smaller candle contained within the previous candle's range).</p><p><strong>Market Structure</strong>: This reveals the overall framework and direction of the market.</p><ul><li>Uptrends are characterized by a sequence of higher highs (HH) and higher lows (HL).</li><li>Downtrends are marked by lower highs (LH) and lower lows (LL).</li><li>A break in this sequence, such as an uptrend failing to make a new higher high, can be an early warning of a potential trend reversal.</li></ul><p><strong>Support and Resistance (S/R) Levels</strong>: These are key horizontal or dynamic price zones where the market has previously paused or reversed due to strong buying (support) or selling (resistance) pressure.</p><ul><li>Identify these levels by looking for historical peaks and troughs on your chart.</li><li>The best trade opportunities often occur when price action signals (like a pin bar) form at these significant S/R levels. A broken support level often becomes the new resistance, and vice versa (role reversal).</li></ul><p><strong>Volume Analysis</strong>: Volume confirms the strength or weakness behind a price movement.</p><ul><li>A breakout above resistance with high volume is a strong, credible signal.</li><li>A breakout on low volume is a potential false breakout or "fakeout". </li></ul><p><strong>The Proper Process</strong></p><ul><li>Start with a Clean Chart: Remove all unnecessary indicators to focus purely on price.</li><li>Identify the Larger Context: Use higher timeframes (e.g., daily or 4-hour charts) to determine the dominant market structure and direction.</li><li>Wait for Price to Reach Key Levels: Exercise patience and wait for the price to reach a major support or resistance zone before looking for entry signals.</li><li>Look for Clear Price Action Signals: Once at a key level, look for specific candlestick patterns (pin bars, engulfing, etc.) that indicate a high-probability entry point aligning with the overall trend.</li><li>Use Risk Management: Define your stop-loss and profit targets based on the market structure and the specific pattern to manage risk effectively. </li></ul><p>By combining these elements, you can interpret the real-time story of the market and make more informed, disciplined trading decisions.&nbsp;</p>