Market Price moves in swings. A price swing is when markets moves like what a wave does.
So in an uptrend, price will be making higher highs and higher lows like the figure shown below:
So in an uptrend, price moves in swings like this chart shown below:
And in a downtrend, price will be making lower highs and lower lows:
So in a downtrend, price moves in swings like the chart shown below:
3 Reasons Why It’s So Important For You To Understand Market Price Swings
If you want to be really good price action trader, you have to understand this concept of how price moves in swings. This is especially true if your style of trading is trend trading or swing trading.
Because if you don’t understand how price moves in swings, this is what you are going to end up doing:
- You will execute trades at the very wrong spot! For example, in a downtrend, you will sell when the market is just doing an upswing! Not good!
- Which means, you will get stopped out or you need to put in a large stop loss. Large stop loss does not necessarily mean large risk if you do position sizing based on the stop loss distance. But if you don’t then that’s a large risk you are taking.
- If you have a large stop loss, then you’ve got to wait a while before the market makes downswing before you to start seeing profits on your trade.
Here’s an example of what I’m talking about:
It’s really not a good situation to be in. Every traders wish is that “the moment a trade is placed, it goes to profit immediately.” But we know the market is not like that, sometimes that happens, and sometimes it doesn’t.
That’s the nature of the market.
So in an uptrend, you should be looking to buy on the downswing. In a downtrend, you should be looking to sell on an upswing.
And the best way for doing that is by using Price Action (reversal candlesticks) as shown below:
Now, this chart below is what actually happens in real life trading environment:
By now you should have an understanding of price swings and their importance and use in trading.
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