Price Action + Price Action Strategies - Crypto Academy / S4W4 - Homework post for @lenonmc21
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Theory
Define in your own words what Price Action is?
Define and explain in detail what the "Balance Point" is with at least one example of it (Use only your own graphics?
Clearly describe the step by step to run a Price Action analysis with "Break-even"?
What are the entry and exit criteria using the breakeven price action technique?
What type of analysis is more effective price action or the use of technical indicators?
Practice (Only Use your own images)
Make 1 entry in any pair of cryptocurrencies using the Price Action Technique with the "Break-Even Point" (Use a Demo account, to be able to make your entry in real-time at any timeframe of your choice)
Define in your own words what Price Action is?
Price Action is a sort of strategy employed by traders on the markets. It was conventionally used on stocks and traditional financial entities. Nonetheless, its application also encompasses cryptocurrency too. This strategy is the act of making judgments on the market solely based on the price movements, which are represented by charts such as the candlesticks on trading platforms. Price Action does away with the usage of indicators or any secondary elements that are commonly used to assess the performance of a cryptocurrency asset on the market.
The underlying principle for price action is the psychology and beliefs of other traders who are actively trading cryptocurrency assets within a specific period of time on the market. The actions and market decisions of all these traders on the respective market concerning a particular cryptocurrency generate the movement of the chart. These chart movements quite often begin to form patterns. Experienced traders or traders who are able to recognize the patterns at work are able to make forecasts about the next price direction of the asset.
The implementation of Price Action is fairly easy for traders of distinct backgrounds to apply. It is convenient and does not require much time from traders as compared to the application of some indicators during the trade. As a result, it is often the recommended entry point for most beginners who enter the cryptocurrency trading space. Even better, it is one of the intuitive ways that individuals without any experience of trading naturally resort to when analyzing charts of an asset.
Price Action is indeed a simple and effective strategy; however, it can be considered subjective or open to myriad interpretations. There leads to the possibility that a trader can wrongly interpret the movements of an asset’s price and end up with a bad market decision which can result in considerable losses. Hence, it is a strategy that is approached with caution and patience.
Define and explain in detail what the "Balance Point" is with at least one example of it.
The Balance point, which is also alluded to as the Breakeven point, refers to the last candlestick of a bullish or bearish chart representation of an asset's price movement. It marks the end of the respective trend direction, whether it is bullish or bearish, as well as the beginning of the reverse trend. It is more or less an equilibrium margin where no losses or profits are made because the initial price of the asset is now equal to the market value of the asset. Hence, the name: Break-Even. When implemented in a price action strategy, two horizontal lines are drawn to engulf the highest and lowest peaks of that particular candle. These demarcations are useful to traders in reaching a conclusive decision on how to go about their trades.
The photo above is also an example of a balanced point. This is also an hour chart of the TRXUSDT pair on trading view. The support and resistance levels of the last bearish candle, which is the balance point, have been marked with horizontal lines. The price direction of the asset was in a bullish trend right after the break-even point.
The image above is an instance of an identified balanced point. This is a 1-hour chart of the TRXUSDT pair on trading view. The support and resistance levels of the last bullish candle, which is primarily the breakeven point, have been marked with horizontal lines. The price direction of the asset was a bearish one right after the break-even point.
Clearly describe the step by step to run a Price Action analysis with "Break-even"
First, a time period for the chart must be selected. The length of the period depends on the trading style of the investor or trader. Traders who are seeking to enter the markets for a short period of time can select time frames of shorter length such as 15 minutes or 1 hour. Alternatively, swing traders on long-term traders can select a larger time frame for a more accurate analysis of the performance of the asset on the market. For the Price analysis, I will be selecting two Time frames as taught by the professor; thus, one hour and fifteen minutes time frame.
The next thing to do is to demarcate the support and resistance levels of the chart. This has a pivotal essence because the Take Profit and Stop Loss margins will be relative to these points.
In the 1-hour time frame graph of ETHUSDT above, the support and resistance levels have been identified across the board.
- The ultimate step has to do with traders identifying the breakeven points on the chart. These breakeven points are useful for determining the most competent entry periods of the market of the asset under consideration.
In the chart of the ETHUSDT pair, the breakeven points of the graph with 15 minutes time frame have been identified accordingly.
What are the entry and exit criteria using the breakeven price action technique
The main purpose of the Price Action strategy is to identify good market entry points so that traders can make profits off the market conditions. Hence, it is imperative that good risk management structures are put in place after an order is executed. So in this section, we shall consider the market entry and exit strategies with the breakeven points.
As mentioned earlier, a support and resistance margin for the breakeven point must first be established. Afterward, the trader must wait for a strong reversal trend to form before entering the market. A general thumb of rule is that traders must wait for the reversal to hit the support level in the case of a bearish reversal or wait for the reversal to enter the resistance margin for a bullish reversal.
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Once that point is reached, traders can enter the market with a buy order in the case of a bullish reversal or a sell order in the case of a bearish reversal. The Stop Loss in the event of a sell order must be set slightly above the resistance line drawn, and the Take Profit must accordingly be set proportionate to the Stop Loss. Thus, if the Stop Loss is 4% the Take Profit must also be 4%. Alternatively, The Stop Loss, if a buy order is executed, must be set slightly below the support line drawn, and the Take Profit must also be proportional to the Stop Loss in place.
What type of analysis is more effective price action or the use of technical indicators?
Neither Price Action nor technical indicators are perfectly accurate. Some indicators are best suited for certain time frames as well as some markets more than others. There are also various indications with distinct functions. Examples of such categorization include a leading indicator and a lagging indicator. Indicators are also notoriously known for generating false signals that can lead inexperienced traders into bad market orders.
Price Action, on the other, is not foolproof. It is broadly based on speculation and is primarily subjective. Predictions based on Price Action can fail, and if good risk management is not implemented, traders can lose significant portions of their capital. Regardless, it is also an effective strategy for making forecasts on a wide range of cryptocurrency assets on the market.
Applying either strategy has its merit and demerits, but it is recommendable for traders to combine these two forms of strategies for confirmatory purposes. This can help eliminate false signals and improve a trader's confidence in entering a market. The amalgamation of Price Action and Indicators will help traders secure more profits with good exit points.
Make 1 entry in any pair of cryptocurrencies using the Price Action Technique with the "Break-Even Point"
The ETHUSDT pair was selected for this trade. The time frame at work is 15 minutes. I chose this time frame because I do not plan to trade for long. I drew a horizontal line to demarcate the support and resistance level as well as the breakeven points on the chart.
The last bullish candle of the chart served as the breakeven point, after which a strong bearish movement followed. I waited for the bearish trend to hit the support line of the breakeven point before I opened a sell order. The reward to risk ratio at work is 1:1. The Stop Loss for the trade was set slightly above the resistance level of the balance point, whereas the Take Profit margin was set proportionally to the Stop Loss area.
The Tradingview paper trading account was used for this project as illustrated above.
Conclusion
Price Action is a very simple strategy to implement. It does not require the usage of technical indicators. Instead, price predictions are made by traders through analysis of the price chart solely. Price Actions are effective for price trend prediction but they are not always accurate. Accordingly, traders who rely on this strategy must put good risk management structures in place to protect their capitals from wipeout by means of a false signal.
This lecture has been indeed educative, and I thank Professor @lenonmc21 for the opportunity.
Good day @kwadjobonsu, please I need your help if you don't mind can you drop your telegram or discord ID.
If you're not comfortable with it I can drop mine.
I'm waiting for your reply
Thank you!
@richie034