Price action is a highly complex term for the beginners as usually they are taught that it is the change of the price of a currency pair in a particular period. The definition leaves them baffled as if the price action is just a change in the price then there are many strategies to make profits with it; then what mainly is trading through price action? In this article, I am going to clear this confusion.
There are four important terms that you must know to understand price action:
- Outside Bar
- Inside Bar
- Up Bar
- Down Bar
Outside Bar: Outside bar engulfs the open and close of the previous or next bar. Also famous by the name of ‘mother bar’, the outside bar has a high which is higher and a low which is lower than the price of the previous or the next bar.
Inside Bar: An inside bar is an indicator of the indecisiveness of the market. Also famous by the name of narrow range bar, it has a high that is subjacent than the previous bar and a low that is higher than the previous bar.
Down Bar: Down bars is an indication that the sellers are in control. Also known as ‘bearish bar’, the high of the down bar is subjacent than the preceding bar’s high and the low is higher than the previous bar’s low. In the chart, the low of the down bar is lower than the previous one. This means the sellers govern the price of a currency pair.
Up Bar: Up bars is an indication that the buyers are governing the price of a currency pair. Also known as ‘bullish bar’, this bar has a higher high and a higher low than the previous bar.
In a bullish bar, the closing price is higher than the closing price of the previous bar, but in some cases, you may see that the closing price is lower than the opening price. This is considered bullish as the high and low of the bar is still higher than the high and low of the previous bar. This type of bar is created when the trade is highly aggressive.