What is price action?
Price action trading means making decisions from the raw price chart — candles, swings, levels — rather than relying mainly on lagging indicators. Every candle tells a story of who won the battle between buyers and sellers during that period.
Candlestick anatomy
Long bodies = strong conviction. Long wicks = rejection of those prices. Small bodies = indecision.
Single-candle patterns
Multi-candle patterns
Market structure: trends & ranges
Break of Structure (BOS): when price breaks the last higher low in an uptrend (or last lower high in a downtrend), the trend may be changing.
Support, resistance & supply-demand zones
- Support — a price zone where buying stops a fall.
- Resistance — a price zone where selling stops a rise.
- Role reversal — broken resistance often becomes support (and vice versa).
- Supply / demand zones — areas where price left sharply; institutions often have unfilled orders there.
- Round numbers — Nifty 25,000, Gold 4,000, EUR/USD 1.1500 act as psychological levels.
Breakout vs fakeout
A real breakout closes decisively beyond the level with strong volume and often retests it. A fakeout quickly snaps back inside the range — trapping late traders. Waiting for a close and retest filters many fakeouts.
Risk management: the real edge
Position size formula:
Example: Capital ₹2,00,000, risk 1% = ₹2,000. Entry ₹500, SL ₹490 → risk per share ₹10 → quantity = 200 shares. Target at ₹520 gives a 1:2 risk-reward.
| Win rate | R:R 1:1 | R:R 1:2 | R:R 1:3 |
|---|---|---|---|
| 40% | Loss | Profit | Profit |
| 50% | Break-even | Profit | Profit |
| 60% | Profit | Profit | Profit |
(Before costs.) With a 1:2 risk-reward, you can be wrong more often than right and still come out ahead.
A simple price action trading plan
- Mark the trend on a higher timeframe (daily / 4-hour).
- Mark key support/resistance and supply/demand zones.
- Drop to a lower timeframe (1-hour / 15-min) and wait for price to reach your zone.
- Enter on a confirmation candle (engulfing, pin bar, inside-bar breakout).
- Stop-loss beyond the zone; target the next opposite level (min 1:2).
- Journal every trade and review weekly.
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Educational content only — not investment advice. Rules and tax rates mentioned are as understood at the time of writing and may change; verify with official sources (SEBI, RBI, Income Tax Dept.) or a qualified adviser.