Get to know Price Action Confirmations
Commonly used confirmators are support and resistance levels, either in the form of horizontal lines or in the form of moving averages. The formation of price action formations can be directly observed on the trading chart, as well as the confirmator levels in question. With a combination of price action and support or resistance levels, a trading signal with a fairly high probability will be obtained.
There are two types of confirmators that traders can use, namely based on the Support Resistance level or the help of the Moving Average indicator.
Confirm Price Action With Support Resistance
In forex trading, the price formed actually follows the mechanism of buying and selling power (buy-sell) that exists in the market. Therefore, there are certain levels that traders indirectly agree on as price reversal points, namely when selling power weakens (while buying power strengthens), or when buying power weakens (while selling power strengthens). These price reversal points are referred to as Support and Resistance.
In relation to being a Price Action confirmer, traders need to see how many times these Support Resistance levels have been tested. The more often the Support or Resistance level is tested, the more valid the trading signal will be. The Price Action formed at this level shows the current market sentiment.
To test the strength of the Support Resistance level, traders should use a high time frame, such as 4H or Daily. If you use a low time frame such as 15M or 1H, there will usually be a lot of noise (signal error), so the S/R levels cannot be considered valid even though they have been tested several times. Meanwhile, to determine the right entry momentum, traders can use the help of technical indicators, such as RSI, Stochastic, MACD, and ADX indicators.
Confirmation of Price Action with Moving Averages Exponential Moving Average (EMA) indicators, especially EMA-8 Daily and EMA-21 Daily, are often used as a confirmation of Price Action that occurs, especially in trending market conditions. EMA is capable of forming dynamic Support or Resistance levels.
How to Confirm Price Action
Confirm Price Action When Trending
The following is an example of a Price Action setup that occurs at Support and Resistance levels for a Downtrend (main trend) market condition with a correction (retracement). Based on the chart above, it can be seen that there are several candlestick patterns formed at the Support and Resistance levels (horizontal lines). This formation can be used to set entry and exit levels, especially for Pin Bars that experience rejection at the Resistance or Support level, and long-tail Pin Bars are formed near the new Support level.
Confirm Price Action When Sideways (Ranking)
In sideways (ranging) market conditions, the best confirmator is at the Support and Resistance levels. This kind of market condition can be seen through the Oscillator and ADX indicators where the trend is not strong enough. It appears that the bar formation formed at the Support and Resistance levels (Inside Bar and Pin Bar) is quite valid as an entry signal.
However, for a market that is consolidating like this, traders must be careful in determining the exit target. Also make it a habit to anticipate if the direction of price movement suddenly reverses and turns into trending. This is where the importance of the Risk/Reward Ratio in the trading plan. Notice when the Support level has been broken with the formation of a long tail Pin Bar. The next two days, the price seemed to have fallen sharply and market conditions became a downtrend. By the time this Pin Bar is formed and Support is broken, actually the ranging conditions above have been completed and turned into trending (Downtrend).
Comments
Post a Comment