{"id":5926,"date":"2024-06-17T12:25:56","date_gmt":"2024-06-17T12:25:56","guid":{"rendered":"https:\/\/wp-api.pocketful.in\/blog\/?p=5926"},"modified":"2025-03-25T06:41:52","modified_gmt":"2025-03-25T06:41:52","slug":"price-action-trading","status":"publish","type":"post","link":"https:\/\/wp-api.pocketful.in\/blog\/price-action-trading\/","title":{"rendered":"What is Price Action Trading &amp; Price Action Strategy?"},"content":{"rendered":"\n<p>Did you know there is a simple yet powerful concept in trading that focuses solely on the movement of price over time to gauge market sentiments?<\/p>\n\n\n\n<p>We are talking about Price Action Trading, which primarily focuses on trends, chart patterns, candlestick patterns, and major historical price movements to gauge market sentiments. Candlestick patterns help to identify the relationship between buyers and sellers over a period of time by analyzing the open, close, high, and low prices of the candlestick.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/wp-api.pocketful.in\/blog\/price-action-trading\/#What_is_Price_Action_Trading\" title=\"What is Price Action Trading?\">What is Price Action Trading?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/wp-api.pocketful.in\/blog\/price-action-trading\/#Merits_of_Price_Action_Trading\" title=\"Merits of Price Action Trading\">Merits of Price Action Trading<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/wp-api.pocketful.in\/blog\/price-action-trading\/#Limitations_of_Price_Action_Trading\" title=\"Limitations of Price Action Trading\">Limitations of Price Action Trading<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/wp-api.pocketful.in\/blog\/price-action-trading\/#Strategies_Used_in_Price_Action_Trading\" title=\"Strategies Used in Price Action Trading\">Strategies Used in Price Action Trading<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/wp-api.pocketful.in\/blog\/price-action-trading\/#Best_Price_Action_Trading_Strategies\" title=\"Best Price Action Trading Strategies\">Best Price Action Trading Strategies<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/wp-api.pocketful.in\/blog\/price-action-trading\/#How_to_Trade_Using_Price_Action\" title=\"How to Trade Using Price Action\">How to Trade Using Price Action<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/wp-api.pocketful.in\/blog\/price-action-trading\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/wp-api.pocketful.in\/blog\/price-action-trading\/#Frequently_Asked_Questions\" title=\"Frequently Asked Questions\">Frequently Asked Questions<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\" id=\"h-what-is-price-action-trading\"><span class=\"ez-toc-section\" id=\"What_is_Price_Action_Trading\"><\/span>What is Price Action Trading?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Price action in trading analyses the price performance of a security, index, commodity, or currency to predict the future. If price action analysis tells us that the price is about to rise, one might want to take a long position, or if one believes that the price action is signaling a negative trend, one might choose to initiate a short trade.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-merits-of-price-action-trading\"><span class=\"ez-toc-section\" id=\"Merits_of_Price_Action_Trading\"><\/span>Merits of Price Action Trading<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Simple to understand: <\/strong>This is its biggest advantage; candlestick patterns can be observed on the charts without the need for any complicated technical indicators. <a href=\"https:\/\/wp-api.pocketful.in\/blog\/trading\/candlestick-patterns\/\" target=\"_blank\" rel=\"noreferrer noopener\">Candlesticks<\/a> itself give the signal of trend change; it\u2019s confirmation or buying and selling signals. Along with that, a few other chart patterns can be observed with a wider time frame, that candlesticks make to give mid to long-term signals like Double bottom, Rounding bottom, Head &amp; Shoulders, etc.<\/li>\n\n\n\n<li><strong>Easily accessible: <\/strong>Price Action uses only candlesticks which are easily accessible in charts as compared to complicated indicators.<\/li>\n\n\n\n<li> <strong>Without any Lag:<\/strong> All the technical indicators have some lag before generating signals, but Candlesticks move in sync with the price movement.<\/li>\n\n\n\n<li><strong>Develop Independent thinking: <\/strong>As this method needs close observation and analysis, it engages traders\u2019 analytical and critical thinking skills to make informed trading decisions.<\/li>\n\n\n\n<li><strong>Universal Application:<\/strong> Traders can make use of price action across all asset classes such as equities, currencies, commodities, etc.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-limitations-of-price-action-trading\"><span class=\"ez-toc-section\" id=\"Limitations_of_Price_Action_Trading\"><\/span>Limitations of Price Action Trading<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Not for all markets: <\/strong>Price action is not a perfect method in all market conditions.<\/li>\n\n\n\n<li><strong>Time Consuming: <\/strong>Interpretation of candlesticks can be more time consuming as compared to technical indicators because it relies on traders understanding and skills to interpret the patterns accurately. This can impact the decision-making.<\/li>\n\n\n\n<li><strong>No automation: <\/strong>In price action, most of the traders do manual execution as it is difficult to deploy fully automated price action strategies. This can lead to emotional bias, which eventually hampers the profitability.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-strategies-used-in-price-action-trading\"><span class=\"ez-toc-section\" id=\"Strategies_Used_in_Price_Action_Trading\"><\/span>Strategies Used in Price Action Trading<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image aligncenter size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"1024\" src=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Social-strategy-pana-1.png\" alt=\"Strategies used in Price Action Trading\" class=\"wp-image-5946\" style=\"aspect-ratio:1.3333333333333333;object-fit:cover;width:319px;height:auto\" srcset=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Social-strategy-pana-1-1024x1024.png 1024w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Social-strategy-pana-1-300x300.png 300w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Social-strategy-pana-1-150x150.png 150w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Social-strategy-pana-1-768x768.png 768w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Social-strategy-pana-1-1536x1536.png 1536w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Social-strategy-pana-1-96x96.png 96w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/Social-strategy-pana-1.png 2000w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>A pattern is formed by a group of candles over a certain period of time that creates a unique shape and carries a specific meaning. Such patterns help traders analyze the behavior of buyers and sellers during the formation of the pattern and predict the future direction of price movements.<\/p>\n\n\n\n<p>There are various price patterns that traders should keep an eye on, including Double-bottom and Triple bottom patterns, head and shoulders patterns, cup and handle patterns, wedge patterns, pennants, triangle patterns, and more.<\/p>\n\n\n\n<p>However, correctly identifying these patterns requires traders to have a good understanding of each pattern and observe price charts on different time frames.<\/p>\n\n\n\n<p><strong>Read Also: <\/strong><a href=\"https:\/\/www.pocketful.in\/blog\/price-action-analysis\/\">Price Action Analysis: An Easy Explainer<\/a><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-best-price-action-trading-strategies\"><span class=\"ez-toc-section\" id=\"Best_Price_Action_Trading_Strategies\"><\/span>Best Price Action Trading Strategies<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There are numerous Price Action strategies, but learning each one can be challenging. To simplify things, we&#8217;ve explained a few key strategies below for your convenience.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-1-hammer\">1. Hammer<\/h3>\n\n\n\n<figure class=\"wp-block-image aligncenter size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"648\" height=\"213\" src=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-20.png\" alt=\"Hammer\" class=\"wp-image-5931\" style=\"width:666px;height:auto\" srcset=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-20.png 648w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-20-300x99.png 300w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-20-150x49.png 150w\" sizes=\"auto, (max-width: 648px) 100vw, 648px\" \/><\/figure>\n\n\n\n<p>The hammer candlestick pattern, which consists of a short body and a long wick, is found at the bottom of a downward trend.<\/p>\n\n\n\n<p>The colour of the body can vary, but green hammers indicate a stronger bull market than red hammers. If the pin bar\/hammer pattern has a long lower tail, this tells the trader that there has been a trend of lower prices being rejected, which implies that the price could rise from here. Generally, the next day is the confirmation day, and if the next day\u2019s price crosses the high of Hammer, then a strong buy signal is generated. Stop loss is the low of Hammer, the entry point is a bullish breakout above Hammer\u2019s high and can continue with the trend till it gets any reversal signal.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-2-bullish-engulfing\">2. Bullish Engulfing<\/h3>\n\n\n\n<figure class=\"wp-block-image aligncenter size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"599\" height=\"208\" src=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-22.png\" alt=\"Bullish Engulfing\" class=\"wp-image-5933\" style=\"width:639px;height:auto\" srcset=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-22.png 599w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-22-300x104.png 300w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-22-150x52.png 150w\" sizes=\"auto, (max-width: 599px) 100vw, 599px\" \/><\/figure>\n\n\n\n<p>The bullish engulfing pattern is formed by using the two candlesticks. The first candle is a short red body which is completely engulfed by a larger green candle. That\u2019s called bullish engulfing. It signals a potential trend change from down to up, so the next day, even if the price opens a little bit lower, it will be a buying opportunity as bulls are in control and will push the price higher eventually.<\/p>\n\n\n\n<p>The reversal of Bullish engulfing is Bearish engulfing, which occurs after an uptrend.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-3-three-white-soldiers\">3. Three White Soldiers<\/h3>\n\n\n\n<figure class=\"wp-block-image aligncenter size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"589\" height=\"207\" src=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-24.png\" alt=\"Three White soldiers\" class=\"wp-image-5935\" style=\"width:639px;height:auto\" srcset=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-24.png 589w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-24-300x105.png 300w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-24-150x53.png 150w\" sizes=\"auto, (max-width: 589px) 100vw, 589px\" \/><\/figure>\n\n\n\n<p>It is a very strong bullish signal that occurs after a downtrend. It\u2019s a three-candle pattern and consists of consecutive long green candles with small wicks and long bodies, which open and close progressively higher than the previous day. The potential direction is up.<\/p>\n\n\n\n<p>In contrast, the reversal of Three White Soldiers is Three Black Crows, which signals a strong bearish trend after an uptrend.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-4-hanging-man\">4. Hanging man<\/h3>\n\n\n\n<figure class=\"wp-block-image aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"592\" height=\"214\" src=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-26.png\" alt=\"Hanging man\" class=\"wp-image-5937\" srcset=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-26.png 592w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-26-300x108.png 300w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-26-150x54.png 150w\" sizes=\"auto, (max-width: 592px) 100vw, 592px\" \/><\/figure>\n\n\n\n<p>The hanging man is a bearish pattern and it\u2019s the opposite of a hammer. It has the same shape as of a hammer but forms at the end of an uptrend, so, it\u2019s a bearish signal. It indicates that there was a significant sell-off during the day. The large sell-off is often seen as an indication that the bulls are losing control of the market. The next day, a lower close confirms the downtrend. One can continue with the short trade till get any reversal.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-5-head-and-shoulders-pattern\">5. Head and Shoulders Pattern<\/h3>\n\n\n\n<figure class=\"wp-block-image aligncenter size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"596\" height=\"212\" src=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-28.png\" alt=\"Head and Shoulder Pattern\" class=\"wp-image-5939\" srcset=\"https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-28.png 596w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-28-300x107.png 300w, https:\/\/cms-resources.pocketful.in\/blog\/wp-content\/uploads\/2024\/06\/image-28-150x53.png 150w\" sizes=\"auto, (max-width: 596px) 100vw, 596px\" \/><\/figure>\n\n\n\n<p>As the name suggests, the head and shoulders pattern is a market movement that looks a bit like the head and shoulders. The head and shoulders trade is one of the most popular price action trading strategies as it\u2019s relatively easy to choose an entry point (generally near the neckline after the breaking of the shoulder) and set a stop loss around or above the left shoulder and set the target at the downside till the length of the head.<\/p>\n\n\n\n<p>A similar pattern can be reversed, called reverse head and shoulder. It works as a bullish signal and gives upside targets.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-how-to-trade-using-price-action\"><span class=\"ez-toc-section\" id=\"How_to_Trade_Using_Price_Action\"><\/span>How to Trade Using Price Action<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Traders can follow below mentioned steps to trade using price action:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Identify the asset class and market you want to trade.<\/li>\n\n\n\n<li>Analyze the patterns and trends.<\/li>\n\n\n\n<li>Decide whether to go long or short.<\/li>\n\n\n\n<li>Build a trading plan, for e.g., entry price, exit price, risk reward ratio, stop loss levels, etc.<\/li>\n\n\n\n<li>Execute the trade, monitor the position, and make a timely exit.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-conclusion\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Price action trading is a powerful tool used by traders all around the world across different markets. It provides a systematic way to analyze the market and gives the direction to initiate a trade. Traders look out for price action signals for the emergence of a trend.<\/p>\n\n\n\n<p>Unlike technical analysis, the Price Action focuses on the price itself and not on other indicators. The more expert a trader will be, the more likely repeated patterns of behavior from buyers and sellers can be found out and traded upon.&nbsp;<\/p>\n\n\n\n<p>Following a set of price action trading rules is important to achieve consistent performance. Always be mindful of the risks involved in trading and make decisions accordingly. Further, for new traders, it is suggested to do paper trading at the initial stages; this will allow them to trade in a virtual environment until they get the confidence and clarity to go live.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-frequently-asked-questions\"><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span>Frequently Asked Questions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n<div class=\"saswp-faq-block-section\"><ol style=\"list-style-type:none\"><li style=\"list-style-type: none\"><h3 class=\"\">Is Price Action Trading Relevant?<\/h3><p class=\"saswp-faq-answer-text\">Yes, it\u2019s relevant as it is used to understand the price action and involves looking at the patterns and identifying the key indicators.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">What do you mean by Price Action Analysis?<\/h3><p class=\"saswp-faq-answer-text\">Price action is the process of analyzing historical price trends to forecast the direction of prices in the future. It is generally done by analysing the candlestick patterns, which show the relationship between buyers and sellers in a given time period.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">Is Price Action Trading Good for Beginners?<\/h3><p class=\"saswp-faq-answer-text\">Yes, price action is suggested to beginners as it is a good starting point for understanding the market through historical trends and predicting future market movements based on that.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">Are there any strategies involved in Price Action Trading?<\/h3><p class=\"saswp-faq-answer-text\">Yes, there are a number of different price action methods that traders use to predict market movements, like Head &amp; Shoulder, Hanging Man, etc.<\/p><li style=\"list-style-type: none\"><h3 class=\"\">What are Candlesticks Patterns?<\/h3><p class=\"saswp-faq-answer-text\">Candlestick patterns help traders to identify the relationship between buyers and sellers over a period of time by analyzing the candlestick\u2019s open, closed, high, and low prices.<\/p><\/ul><\/div>","protected":false},"excerpt":{"rendered":"<p>Did you know there is a simple yet powerful concept in trading that focuses solely on the movement of price over time to gauge market sentiments? We are talking about Price Action Trading, which primarily focuses on trends, chart patterns, candlestick patterns, and major historical price movements to gauge market sentiments. Candlestick patterns help to [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":6420,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"is_paper_insight":false,"paper_insight_image":0,"paper_insight_pdf":0,"paper_insight_ppt":0,"footnotes":""},"categories":[16],"tags":[],"class_list":["post-5926","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-trading"],"acf":{"freelancer":"Twinkle Ranpise"},"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v20.13 (Yoast SEO v21.2) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Price Action Trading: Meaning, Strategies &amp; How to Use? | Pocketful<\/title>\n<meta name=\"description\" content=\"Price action trading is a method that allows traders to analyze the market and make trading decisions based on the observed price movements. 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