Advantages and Disadvantages of Price Action Trading
ADVANTAGES OF PRICE ACTION TRADING——
1)It helps you to trade in real time——-
Price Action gives you the edge in real time frame as
it does not include technical indicators most of which
are lagging nature as they are derives using past price
and volume data.
2)Easy to understand——
Understanding price action is an easy task because you
are only looking at just price data points, which
makes it easy to identify .
3)It is very simple to trade—-
If you can understand where to plot support and
resistance then price action trading will become
very easy for you.
4) It is back tested and time tested strategy ——
The main principles of price action trading such
as trends , support and resistance have been
back tested from many years.
5) It provides clear entry and exit levels——
By using the concept of support and resistance
which is the heart and backbone of price
action trading , you can see proper demand and
supply zones and can easily identify entry and
exit levels for your trades.
DISADVANTAGES OF PRICE ACTION TRADING ———
1)Contradictory in terms of consensus view —
Price action often gives different signals on different
time frames, which may create confusion to
newcomers. For example in case of a particular stock
when analyzed on different time frames, I might see a
Bullish Marubozu and you might spot a bullish engulfing
Or you night find trend line support and I might find the
horizontal support. Hence one has to be very careful.
2) It gives false signals —
Using price Action will not always give you correct signals
( Which none of the setup or strategy gives). It is not that
you will be able to make money on every trade you do
So you have to learn to stay with false signals.
3) Provides very few trading opportunities——
The number of opportunities you will get will be very few
in case of price action trading as compared to trading based
on indicators. So you have to make sure that you will wait
for the right opportunity and then act on it. Hence it is
often said that price action trading is a waiting game and
requires patience.
4) Sometimes signals are difficult to predict ——
A person who is completely new to trading or technical
analysis might find price action trading to be tough in the
form of bullish and bearish candle or chart patterns as
compared to indicator based trading.
( ahead)