Price action is one of the most accurate ways of trading. Normally the change of trend is traded. There are a number of steps required to achieve the setup of this strategy:
- Determine the High (H)
- Determine the Low (L)
- Determine the Higher Highs (HH)
- Determine the Higher Lows (HL)
- Determine the Lower Highs(LH)
- Determine the Lower Lows (LL)
A down trend forms from a series of LH and LL. On the other hand, an up trend forms from a series of HH and HL. Following the diagram above, one can identify the following: L, H, HL, HH, HL. The uptrend was not confirmed becuase the next step was a LH. As soon as the price crossed below the previous HL, a short trade was opened. The downtrend followed with a series of LL, LH, LL etc. The below diagram describes the same scenario, however on the upside.