Have you been looking for an article which explains price action in one spot? Today’s your lucky day as Elite CurrenSea (ECS) is releasing its largest volume of work, ever. Download a full version of guide in a PDF format here.
The price action guide covers all imaginable angles (let us know if anything is missing!) from candles to candlestick patterns and from path of least resistance to price swings. It offers a full 360 degree overview of everything connected to price action.
The article has more than 10,000 words and 50 pages, but don’t let that scare you. You can easily browse the topics by using the subheadings and we added an overview of the contents at the very start so you can choose the subtopics as you please.
How did the idea for this Price Action Guide start?
Elite CurrenSea always is looking to help the trading community and its followers. So we reached out to you on Twitter via my twitter handle @ChrisSvorcik. We asked a simple question: what guide would you like to see next and offered 3 answers: Price Action, Patterns, and Fundamental Analysis. The clear winner, as the image below shows, was Price Action which received 45% of the vote!
— Chris Svorcik (@ChrisSvorcik) April 9, 2019
We know that you might be excited to dive into our ultimate price action guide head first, but some followers already know parts of this guide so we decided to offer an overview of the contents first. Here below you will see all of the subheadings that you can find in this article, which should help you with finding the paragraphs that are most interesting to you. There are 14 sub paragraphs in total:
Alright, with that introduction behind us, let’s start!
The candlestick is the basic and smallest unit of measurement on the chart – regardless of the time frame. The candlestick is like the 1 cent coin with the Euro or US Dollar, because there is a not smaller unit of accounting. Of course, there are some traders that use bars while others use line, renko or range bar charts. Nowadays most traders choose the candlestick as the basic building block of a chart… Both Nenad and I (Chris) use candlesticks in our ecs.SWAT and ecs.CAMMACD approaches so the focus of this article will be on them.
The credit for candlestick development and charting goes to a legendary rice trader named Homma from the town of Sakata, Japan. There is a high probability that his original ideas were modified and filtered over time, eventually evolving into candlestick trading we use today.
Candlesticks provide a wide range of visual hints and thanks to them we can understand price action trading in a much easier way. Time frame trading with Japanese candlestick charts also allows traders to grasp market sentiment. Thanks to rice trader Homma to Steve Nison (who introduced the concept to the West), candlestick charts offer a much deeper depth of information than traditional bar charts.
All of the candlesticks on any given chart represent the flow of price of a particular instrument and time frame. Each single, individual candlestick represents one building block of that larger picture. Traders can connect those building blocks to construct larger structures. For instance, traders can (sometimes) connect multiple candlesticks to build bigger entities like candlestick patterns. The same logic can be used for language. Words form sentences which again form paragraphs. Or, you can compare candles to pieces of Lego (the children’s toy), which are used to build bigger structures like a house.
With trading it works like this:
In the next section we will explain step by step all of the building blocks that make up the larger market structure. As mentioned above, the single candle is the smallest unit and the largest is the entire market structure of the chart. Here is the sequence for a full overview. The next paragraphs will discuss all of these building blocks.
Bottom of sequence (smallest)
The candlestick is either bullish or bearish:
The candle consists of a body, nose, and the tail (wick or a shadow):
A price closing where it opened or very close to where it opened is called a “doji”. You don’t need to memorise names and descriptions of the candlesticks because it is not needed for successful trading. Nevertheless, it is helpful for any price action trader.
The candlestick offers four data points per candlestick:
The same information is provided for each candlestick regardless of the time frame and financial instrument. All candles have the exact same composition. So a candlestick on the daily chart would show the price of the open, close, high and low for each day. The 4 hour or 15 minute chart also indicate the open, close, high and low but of the respective lower time frames.
The main difference between the time frames is how quickly a new candlestick appears on the chart. A daily chart will only get a new candle at the start of each trading day. A weekly chart will take a full week before a new candlestick is available. Lower time frames of course change quicker. A 15 minute chart will get a new candle every 15 minutes as long as the market is open.
The importance of a candlestick does depend on the time frame. The candlesticks from higher time frames offer more value than from lower time frames. A daily chart candlestick has more weight and significance than a candlestick from a 30 minute chart. The same is true for a 60 min candle, which has more importance than a 1 minute candlestick.
The colour of the body in the candle tells us whether it is a positive or negative candle session. In an uptrend or bullish market, the buying often happens at the open price. As the price rises, a white candle is formed. The length, or the distance, between the open and the close reflects the dominance of the bulls. But keep in mind the character of the candle is never fully known until the candle closes.
In contrast, during a bearish market, a dark body candle is created, which means sellers are entering the market on the open and selling the price lower to the close. But once again, only when the candles closes will a trader be sure if it’s a bearish or bullish candle.
Candlestick charts provide great insights into the market dynamics based on the shape and colour of the candle’s body when comparing it to previous candles.
That said, each candlestick provides a ton of value and information. Here are some vital questions it covers:
The wick length can represent a price low and/or high when comparing it with an open or close price from the real body of the candle. This may provide insights on the market’s rejection for a resistance or support price level.
The longer the tail, wick or shadow as they are often called, the more likely it indicates a trend reversal because demand is increasing or supply is reducing. A wick at the bottom of the candle could indicate the end of the downtrend for instance.
Conversely, tails, wicks or shadows at the top of up-trending real candle bodies, may indicate that demand is slowing or supply is increasing. Again, a large shadow, relative to the real body, may signify a stronger reversal, with the strongest being when a pin bar is formed.
Read her more information about how to use the candlestick wick to measure true or false breakouts or see the video below.
Now it’s time to check your progress after finishing the first part on candlesticks.
Question 1: What does the candlestick with the purple box indicate to traders?
Which answer is correct?
A) indecision, there are no significant wicks on either side, which means indecision.
B) bullish, the candle closed bullish so an uptrend continuation is likely.
C) bearish, there is a strong wick on the top of candle with a close near the low.
Question 2: What does the candlestick with the purple box indicate to traders?
Which answer is correct?
A) indecision, there is no wick so candles provides little information.
B) bullish, the candle is a retracement of a larger uptrend.
C) bearish, the candle closed near the low, is a reasonable size and closed below the previous close.
Curious what are the answers?
See the answers below the video!
In the meantime, check out Nenad’s webinars series called Price Action Trading School (PATS) here below.
The answers to the quiz questions are:
Now that we covered the basics, it’s time to discuss the candlestick patterns. Candlestick patterns are one of the core methods of price action trading. In some cases one specific candlestick can also be a candlestick pattern but other times you need to see a group of candles display a certain pattern.
One of the most used candlestick patterns is the so called “Pin Bar”. Pin Bars effectively indicate current buyers and sellers. If the tail is longer than the body, then it’s a strong signal that the price might turn.
As mentioned above, candlesticks are the basic building blocks for every trader. Some candlesticks will have more “value” than other candles due to their size, wick, or strong candle close, whereas other candles will be insignificant and offer no extra insight because they could be relatively small or close as a Doji (close is equal to open).
Candlestick patterns indicate an even bigger message. Although each candlestick provides some information to traders, candlestick patterns provide more value as their meaning and impact is larger than just a single candlestick.
As you probably have noticed, traders can analyse the charts in a much deeper way when using candlesticks and candle patterns. The main benefit is that the information from candles is instant and without any lag, such as most indicators.
This section will dive into all of the candlestick patterns. It includes an explanation how to read candlesticks but also a full overview of the main candlestick patterns and how to interpret them. Candlesticks and their patterns are a main aspect of both trading systems ecs.SWAT and ecs.CAMMACD.
The next parts will explain bearish and bullish candlestick patterns. We also divided the article in reversal and continuation candlestick patterns, which means that there are 4 parts:
Let’s first start with the bearish ones.
The number of candles in the configuration – 3
Here is a summary of all candlestick patterns:
Price Action trading has a lot to do with candlestick patterns. Nenad’s CAMMACD system uses some of these patterns for trading purposes.
Question 1: What candlestick pattern is visible in the purple box?
Which answer is correct?
A) bearish engulfing twins.
B) bullish squeeze.
C) harami cross.
The previous two parts showed you how to read candlesticks and how to understand candlestick patterns. Now it’s time to discuss the next step of the hierarchy, which is price swings.
Price swings are groups of candles that “belong to each other”. The candles make one swing because they share certain characteristics together. Swings are considered to be a group of candlesticks where the majority share:
Simply said, price swings are either impulsive (strong) or corrective (weak) and they are either bullish or bearish. It is important to know that strong price movement is called impulse or momentum whereas weak price action is known as corrective or consolidation. The strength or weakness of price flow can be understood by analysing whether price is behaving impulsively or correctively.
This creates four different types of price movements, which in some ways can been seen as the “DNA” or “heart beat” of the market:
|Direction / Speed||Impulsive||Corrective|
|Bullish||Bullish impulse||Bullish correction|
|Bearish||Bearish impulse||Bearish correction|
Each of these four variations represents a seperate “price swing” or “wave”. Every price swing is either bearish or bullish and either impulsive or corrective.
It takes time and experience to recognise which price action belongs to one price swing… But the above table provides a key starting point. You will also be able to spot price swings better when using our ECS rules and guidelines.
You might be wondering: what is the benefit of knowing this information about the price swing?
Price swings provide key information about the market structure. Traders that correctly analyse and understand price swings have the following advantages:
Price swings are important because of these nine reasons:
Traders must have a clear and logical system of identifying one price swing because without a rules based approach, traders will misinterpret the chart and be unsure about their analysis. In fact, most traders fail in trading, analysing the waves, and trading the waves because they do not use a systematic method for understanding and reading price swings.
Based on above info, traders can make better decisions about their trades, such as skipping setups, managing open trades, and entering trade setups. Price swings are not the only factor for trading decisions, of course, but certainly play a key role in our analysis.
The next step is how can you recognise price swings, which we will explain in the next paragraph. Just by identifying price swings correctly, traders are able gain a significant edge over a larger group of traders who are not aware of price swings, price patterns, impulse and correction. After that, we will discuss how to actually use price swings.
All in all keep in mind that it is very important to use a systematic approach for spotting price swings because without it, traders will not be able to properly analyse the price charts. It would be similar to a ship sailing on open waters without compass. Recognising price swings, knowing the start and end of such swings, and analysing that information properly is.
Ps. the answer to the quiz question on candlesticks is answer A!
In some cases these 6 methods will indicate the same price swing but be aware that each method could also indicate a different price swing. And that is perfectly acceptable. Price swings can vary depending on the tools and methods used and all of them can be equally logical. It is up to the trader to choose the price swing that makes the most sense but the mentioned methods will provide a solid basis.
Usually impulsive price action belongs to one price swing whereas corrective price action belongs to one bigger price swing as well.
Let’s examine what traders should consider as impulsive (strong) or corrective (weak) price action. Here is an an overview:
Impulsive price action is characterised by a couple of main factors:
Corrective price action is characterised by factors that are mostly the opposite of impulsive candles:
Test: What groups of candles represent impulsive price action in this chart? Are A, B, C, and D indeed considered to be impulsive pieces of price action? Write down true or false for all four answers and check the correct answer at the end of the chapter.
The HMA moving average (setting 20) helps identify what is momentum and what is correction. A switch from bearish to bullish and vice versa often is a warning signal that a swing might be completed. The main advantage of the HMA (compared to impulse and correction) is that approach is fully automated because the HMA is an indicator. Hence it removes any need for discretionary decisions.
Candles that are moving around the HMA are often periods of correction. In a range the HMA angle will frequently switch from up to down and down to up whereas in a trend price will create a sustained HMA angle for a longer period of time.
Another perspective to consider is the candlestick close or open and low or high versus the HMA. When the candle is fully above or below the HMA, then this often indicates a decent or strong momentum.
The image below shows how price is in a range (on the left) and how it builds several swings up and down within the range before moving down lower with a strong impulse. Once price is moving lower impulsively, the HMA stays bearish until there is a small pullback before continuing lower again with a bearish HMA. Each HMA change can be considered a completed swing.
The fractal indicator helps traders find key support and resistance levels, which are also potential turning spots on the chart. Traders can either use the standard fractal indicator on their MetaTrader4 platform or use the ECS fractal indicator for the MT4 platform. Each fractal indicator, just like the HMA moving average, is automatically plotted on the chart.
The fractal indicator can help with determining swings. Here are the details:
A trader can use the points from one fractal to the next fractal as a price swing. The price action between a support and a resistance fractal could be considered as a separate price swing. If there are two fractals on the same side (either at support or resistance), then it is best to use the fractal that provides the longest price swing. Simply said, all price action between one support and one resistance fractal is considered a price swing.
Here below we added an image. All the purple boxes and arrows have been added to indicate the start and end of each price swing. Each arrow is one price swing. The orange box represents fractals that are not used for a price swing because there are 2x support or resistance fractals present. In these cases it is best to use a larger price swing.
For your information, normal fractal indicators would indicate the same as the ECS fractal indicator for the purposes of identifying price swings. But ECS fractal indicator provides us with deeper information about the trend, retracement, and potential for reversal. This information is explained in our ecs.Fractal guide. The video has been added here below.
For the purpose of this article, it is too complicated to explain the ins and outs of time patterns. For the moment, its best to use automaticated tools that represent time patterns by using a fractal indicator (with value 5 rather than 2 if you can change it in your trading platform) or the zigzag indicator with settings 10-5-3 (depth-deviation-backstep) for finding intermediate price swings on the the chart that closely reflect the idea used with time patterns.
Let’s first start with a fractal indicator value of 5. What does that mean? Let’s explain:
All of these purple boxes indicate a high or low that is higher or lower than 5 candles to the left and 5 candles to the right. All of the purple boxes are also a fractal but as you can see from the image, there are many fractals that did not qualify when using a setting of 5 candles. All the purples arrows indicate a price swing.
The image below shows the price swings that are valid for the zigzag indicator. Some of the price swings are similar to the time pattern ones, but there are a couple or price swings that are actually excluded as well.
Elite CurrenSea uses the Awesome Oscillator (AO) as a swing and wave trend indicator. The AO, which is created by the Elliott Wave expert, legendary trader, and Fractal creator Bill Williams, is in our view the best oscillator for analysing the waves of the Forex, CFD, and other financial markets.
The middle line (called zero line) is key. We analyse the AO bars that move away and back to the zero line for that purpose of identifying price swings:
The trader needs to analyse whether price action is corrective or impulsive in the place where price moved away and back to the 0 line.
A good second place however is reserved for own proprietary MACD indicator called the ecs.MACD. Although there a wide range of wave trend indicators that are mentioned online, the AO and the ecs.MACD are two of the most accurate wave trend indicators. We will now explain why.
You might be wondering, can Indicators really help with identifying price swing and waves (based on Elliott Wave Theory)?
Yes, they can. But keep in mind that not everyone agrees. We believe that both price action and the oscillator indicator can be of enormous help in understanding the Elliott wave structure. But there is a “dispute” among wave analysts and some believe that indicators do not play any (significant) role.
In any case, it can’t hurt to be open to both styles and to see which one fits your own analysis and trading the most. Based on your own experience, you can then choose whether you analyse Elliott Waves fully based on price action or whether you will follow our advice and a combine price with (an) oscillator(s).
The AO and ecs.MACD are both extremely valuable for identifying the correct price swings with a rules based approach. They are also equally valuable in determining wave patterns because wave analysis is simply an analysis of price swings. Once you understand price swings, you will be able to understand wave patterns quicker too.
In the field of Elliott Wave analysis, both oscillators provide key information about the exact price swing, wave count, and wave pattern outlook. Here are the three major benefits of using the AO or the ecs.MACD as a wave trend indicator:
If you do not use the AO or ecs.MACD, the problem is twofold when applying a discretionary approach to your wave analysis (and not a rules based method based on oscillators):
As you can see, the key to success in analysing and trading both price swings and the Elliott Wave Theory is by applying a systematic way of identifying one single wave, which can be done via the AO and ecs.MACD.
Here are the key factors to analyse:
How do you recognize on the price chart what is the correct price swing when analysing the zero line of our wave trend indicator, the AO or ecs.MACD?
As indicated above, the cross of the zero line is key for understanding price swings and wave patterns. Here is an example of how traders can understand the process in more detail.
The 1) indicates where the AO bar crosses 0 line. Find the same spot on the price chart (2). Find the most recent major bottom (or top) since that point (3). Swing is valid till price goes back to 0 line again (4).
The above image is an example where we zoomin to one spot of the chart. Let’s now show a chart now which shows a larger piece of the price action.
The above chart shows purple arrows, which indicate each time the AO bars cross the zero line. Each crossing of that zero line indicates the end of a price swing and wave pattern too. The purple boxes on the chart indicate the turning spot of each swing whereas the arrows show whether the price swing is a:
Compare the above chart to a naked chart that you can see here below. Would you be able to achieve the same consistency with the AO as without the AO? Would you truly be able to recognise the price swings as quick and with the same consistency?
That is possible for traders who have more experience but is much more difficult for traders that are beginning or intermediate. They are much better by using a rules based approach. All the rules connected to this and much, much more is what we fully explain in our ecs.SWAT methodology.
Analysing wave patterns is nothing more or less than understanding the sequence of price swings. It is a question of understanding the story behind the price action.
With this information, mastering wave analysis is now within your reach.
But keep in mind that knowing how to do wave analysis is absolutely not necessary if you trade our ecs.SWAT method. The beauty of SWAT (Simple Wave Analysis & Trading) is that you can:
Trade the waves without knowing the waves.
We built our SWAT methodology in such a way that you can benefit from the waves without needing to use the wave patterns themselves.
Knowing the Elliott Wave Theory helps you identify price swings too. When price is building a specific wave (1, 2, 3, 4, 5, A, B, C, D, E, W, X, Y or Z), then it will help traders understand what can be considered one full price swing. A wave 1 for instance is clearly a separate swing from a wave 2. An ABC correction too has 3 swings. We will not address Elliott Wave Theory in this article but more can be found in our EW and Fib guide.
Now that you know which tools and concepts can be used to find, measure, and analyse the correct price swing on any chart, we wanted to provide you with more practical examples on how to identify momentum and correction.
Take a look at the chart below. It shows a currency pair with the SWAT software (MT4 indicators and template). Please examine the chart while keeping in mind all of the tools and ideas that were mentioned so far. Then see how it compares to our analysis of this chart, which is summarised below.
Here is our summary:
A similar scenario takes place on the next image. Take a look:
Before we move on to the next section (swings becoming patterns), we owe you the answer to our quiz. The correct answer to the Quiz on impulsive price action is:
The image below highlights the impulsive parts of price action. The red boxes indicate bearishness and the blue boxes show bullishness. This image indicates exactly where price shows impulsive price action.
The next step after price swings is price patterns. Price swings can be connected with each other to identify larger price patterns. By combining multiple price swings together, traders analyse larger price patterns which are also known as a chart patterns. Keep in mind, however, that not all price swings form a larger price pattern. It’s a possibility, not a must.
Chart patterns provides traders with deeper information about the chart dynamics and indicate more information about the anticipated direction (up/down/sideways), character (impulse/correction), and sentiment (continuation/reversal). All of these patterns can be grouped together into four groups:
Chart patterns provide traders with another layer of chart, technical, and wave analysis.
Continuation patterns are basically the same pattern for both an uptrend and downtrend. The main difference is of course the direction.
The main continuation patterns are summarised here:
Reversal patterns are basically the same pattern, one indicates bullishness and other bearishness. The main difference is again the direction.
Learning to recognise patterns takes time. You need to see the pattern, recognise it, know what to expect from it, and understand how to measure a pattern continuation, pattern failure (false breakouts (fakeouts)), and even false fakeouts. This does not happen overnight and takes time and effort to build up the experience and skill set needed to implement pattern trading in a proficient manner. The ecs.SWAT and ecs.CAMMACD methods, however, shrink that learning time and allows traders to master the skills needed in a much quicker time frame.
The best way to gain experience is by looking at hundreds of price patterns so that your brain becomes trained in spotting them on the chart. Pattern recognition skills are trainable and the more patterns you see, the easier it is for the brain to instantly see and recognise them. Experience with patterns is a big help in trading these formations too.
The best way to practice and build up experience is by analysing charts in the past. Look for price patterns on the price charts and see how the patterns behaved. Repeat this exercise dozens, even hundreds of times. The best way to train your brain for pattern recognition skills is by doing
Traders use a wide range of techniques to understand the price chart and find profitable entry points, ranging from technical analysis to wave analysis and from price action and candlestick patterns to indicators. All of these methods are based on “historical price”.
Nenad, Chris, and technical traders analyse these price charts with historical price to study how price moved in the past, which in turn, offers information about how it could move in the (near) future.
This technique is not only used in trading and charting but is equally valid for a wide range of topics such as weather, geology shifts (movements of continents), changes in the universe (change in planets, stars and universes), consumer patterns and much more. Historical data is also used for instance to understand, improve and forecast traffic jams, political changes, economic trends and a whole range of fields. Historical data is always a key component of any analysis.
Analysis of price via technical analysis is not different in this regard. Generally speaking, analysing the past helps us predict the future. The same is true for charts: analysing past price helps us predict the future of price movement. But traders must realise that the accuracy rate goes down when looking further into the future, which is why it’s more accurate to say: analysing the past helps us predict the immediate future.
Why do we emphasize the “immediate” future? Because forecasts are most reliable in the short-term and become more difficult when applied to the more distant future.
The reason is simple: the further we look into the future, the more difficult it becomes to analyse all aspects – including current, hidden, and unknown factors – because there are more variables along the way that can impact the future.
The path of the future can run in many different directions and so it is much easier to make a forecast when analysing events close(r) to now. This is also valid for the markets and the charts.
When analysing the charts now, traders can make a decent assessment about the next few hours or days ahead. But the longer a trader looks into the future, then there is an increasing chance that unknown variables might appear and impact the price in an unexpected way.This in turn makes it more difficult to predict long-term price movements. The further a trader tries to forecast into the future, the more difficult it becomes to forecast with a higher degree of accuracy. Of course, making an incorrect forecast would not lose you any money unless you make a bet. However, entering a trade setup that is aiming for a target 2 years from now is just simply more difficult because the market can undergo many changes.
Nenad, Chris and the entire ECS team use technical and wave analysis to understand how price moved in the past. We use this analysis to make estimates about how price is expected to move in the immediate future and then we look for potential trade setups. Sometimes we find setups and sometimes we don’t, which depends on how probable a certain trade setup is. Some charts are easier to analyse and hence, more reliable to predict in the near future, and more potential to find a high probability trade setup, whereas other charts can be enormously tricky and difficult.
Studying price is basically studying the “path of least resistance”. Let’s explain.
Price chooses the path of least resistance whether that is up, down, or sideways. If there is more supply than demand, price will move down. If there is more demand than supply, price will move up. Basically, the price chart shows the historical path of least resistance up to now. The chart shows how price has moved so far till now.
The shortcut for analysing price’s next step or movement is technical and wave analysis. Traders use this analysis to make a judgment about the future movement of price and the future path of least resistance.
Another way of understanding price and the path of least resistance is by comparing it to a stream of water like a river running down the hill. The water will find its path to a larger river, a lake, or sea by choosing its path of least resistance around bigger rocks and setting aside smaller rocks. Price does not make a left, right or straight motion of course but otherwise it is comparable to a river as price moves up, down, or sideways.
Let us take a look at an example such as the weather. Many people believe that meteorologists are bad at predicting the weather but studies show that nowadays the weather can actually be predicted with great accuracy (see Superforecasting: the Art and Science of Prediction” by Philip E. Tetlock and Dan Gardner.)
Although the weather forecasting is not seen as a field of study with high levels of accuracy, it is in fact surprisingly correct. When the weather team indicates that there is a 30% chance of rain, then three out of ten times it will rain and seven times it will not (when you analyse 10 situations with a 30% chance of rain).
There is just one limit and one exception (see Superforecasting: the Art and Science of Prediction” by Philip E. Tetlock and Dan Gardner.):
Although probability is an important aspect in life when taking all kind of decisions, humans unfortunately tend to be weak when trying to understand probability. A 10% chance of rain does not mean that there is no chance of rain. It just means that out of 10 days, it will rain only once. But in the mind of most people, a 10% chance of rain is equal to 0%. For most people, there is probably not much difference when the weatherman says that there is 5% or 30% chance, in both cases it shouldn’t rain.
Probability is important for understanding price charts and the path of least resistance. The path of least resistance is not fixed in stone but rather something more flexible.
The strength of the resistance versus the strength of the flow will determine the path of least resistance for rivers and price.
This means that traders can assess each situation on the chart and then determine the probability that price will continue higher, lower or sideways by analysing the flow and resistance.
What is flow and resistance for price charts? Let’s explain:
The decisive factor is whether the flow or the resistance is stronger. This will determine whether price will move with the trend or reverse and whether it will move up, down or sideways.
Let’s again examine a river (or creek) to simplify the concept: at points with resistance, the water will move around or away from the object. When the power of the water flow picks up, it will be easier for the water stream to push aside stronger points of resistance.
The most important factor is to compare flow versus resistance:
The same principle that is used for a river (flow versus rocks) can be used for price. With price charts, the flow and resistance can be understood by analysing these two aspects:
Like with a river, the interaction between flow and resistance determines the path of least resistance for the object, which is a river or price:
The above logic might seem complex to you at first but the most important aspect to understand is that:
As long as the flow is strong, momentum is likely to last unless a massive confluence of support or resistance is nearby. As long as the flow is weak, support or resistance is likely to stop price unless a significant breakout occur.
The next step is to further explain the character of price flow and support and resistance. With today’s guide we hope that you fully understand the role of price action. If you are seeking more guidance on S&R, then we also have full guide on support and resistance.
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