6 Price Action Tips You Can Learn In 6 Minutes

Price action is not just about candle sticks, chart patterns and volume analysis.

Rather, it’s reading the sentiment of the markets, identifying areas of value, and finding high value set ups.

There are many ways to analyze price action, the key is to focus on a few key methods and know how to apply them effectively.

So today, you’ll learn 6 of my favorite price action trading tips and how to implement them in your trading.

Rock on.

DIVERGENCE IS A POWERFUL INDICATOR

My single favorite price action method is looking for divergence. The premise is that when a new high or low in a security is not confirmed by the indicator, it lets us know a potential reversal could be imminent.

For example, a bullish divergence occurs when price makes a LOWER low, but the indicator makes a HIGHER low.

Below is an example using AAPL. The stock made a low in December 2018, then made a lower low in January 2019. But, RSI made a higher low indicating that the strength of the selling was declining.

This shows that the downside momentum is slowing, even though prices are continuing to make new lows, and the trend may soon reverse.

Bearish divergences occur when prices make a HIGHER high, but the indicator makes a LOWER high.

Here you can see MCD going through a nice rally, but making successively lower highs on RSI and MACD is also trending lower. Shortly after, the stock had a big fall.

Divergence doesn’t have to use an indicator like RSI or MACD either. Another important divergence to watch for is between the SPX and VIX.

If SPX is making a new panic low, but VIX is not making a new high, this is a great sign that the bottom might be in.

The most famous example of this is from March 2009 when SPX made it’s final bottom. Even though stocks were plunging to the depths of the bear market lows, VIX was not nearly as high as it was on the prior decline.

This is telling us that there was much less panic in the market and SPX went on to start one of the greatest bull market runs in history.

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Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are ...

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