Using price action trading can seem like a strange way of doing business at first. It is based on patterns and looks most often at the history of a trading price. This is how some day traders make their money, and it can be lucrative if done well. However, you need to have the right patterns and understand them well before you can see success. This is why it is important to understand what happens when you are using them before you try them out. Creating your own patterns might be something much further down the line for you.
What Happens When You’re Trapped
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A trapped trader is someone who has found the market turning against them. They are now in a losing position, and this is usually due to early action. They have entered the market before the signals were triggered, or on only very weak signals. Not waiting for confirmation can lead to a losing position of this kind. The price action pattern which brought them to this point will now be considered as a failure. Normally, trapped traders will then have to leave the market. This is one of the downfalls of the price action system. However, experimentation can lead to success.
What Happens When it Works Out
The great thing about these patterns is that they can pay off if you get them right. For instance, using ii and iii patterns can actually help you to minimize any losses. The idea is to place one entry above and one entry below the pattern, one to buy and one to sell. The idea is that you then have one order that can be executed and one which will back you up if the market does not do what you had predicted.