Read previous article to know the other strategies for successful price action based on The Balance.
4. Long Wick Candles
Long wick candlesticks are one of traders’ favorite day trading setups. The setup consists of a major gap up or down in the morning, followed by a significant impulse, which then retreats. This price action produces a long wick. For experienced traders, they know that this price action is likely to be tested again.
A ton of seller, entered this position too late, which made them all hold onto the bag. Back pressure will be comparatively weak, so what can not go down has to go up again. This leads to a push back to highs on retest.
5. Measure Previous Swing Length
As a trader, you can let your emotions and especially hope to take over your logic. You will look at the price chart and see wealth right before your eyes.
Did you know that in stocks there are often dominant players who consistently trade certain securities?
These traders watch their favorite stocks. Given the appropriate level of capitalization, this select trader can also control the price movements of this security.
What you can do to understand price action is to measure previous price changes.
When you do the analysis, you will see the percentage of general movements will appear right on the chart. For example, you might notice that the last 5 moves of a stock were all 5% to 6%.
If you are swing trading, you are probably looking at an 18% to 20% range. The thing is you should not expect a stock to suddenly double or triple its previous swing.
6. Little Without Pricing
Do not get too stuck on Fibonacci, for some traders this might cross into the analysis gimmick zone. However, in its simplest form, lacking retracements is positive evidence that the main trend is strong and likely to continue.
The key is that you want the retracement to be less than 38.2%. If so, when the stock tries to test its previous swing high or low, there is a chance that the breakout will continue in the direction of the main trend.
This is especially true once you have crossed the 11am time frame. This is because the breakouts after the morning tend to fail. So, in order to filter these results, you will want to focus on stocks that are consistently tending in the right direction.