As a day trader, we have different tools in our toolbox that work together to form our strategy and assist us in making decisions on what to buy and when to buy. Price action is important to leverage when determining when to enter and exit a position.

Before we dive into an example, let's discuss what price action is exactly. According to Investopedia's definition, price action is "the movement of a security's price plotted over time." It is not an indicator, but allows us to recognize trends to determine entry and exit points for a position. By looking at the candles on a chart, in conjunction with indicators we use, we begin to find these entry points.

Let's see an example of this in action. The example below is the 5-minute chart for PG&E Corp. (PGE) as seen on WeTradeHQ's platform with data chart by TradingView.com:

So, there are a few things I'd like to note about the above chart from December 4th. As you can see at 12:10, the candle shows the price breaking the resistance, and what we are looking for first is confirmation of a new support. From 12:15-12:40, the support has formed. Since we know new old resistance's become new supports, you can see the support line at $9.48 and looking forward, I have the new resistance at $10.07. At 12:40, we see a run of green candles (blue bubble) toward the new resistance. What's important for price action is the diminishing green bars of the candle. Each bar gets progressively smaller as times elapses indicating a resistance. Sure enough, you can see the candle bouncing off the resistance and a downward trend with diminishing red bars (red bubble). Are you seeing the trend? Now as that red bar gets smaller, we can feel confident a pattern is coming into play. Now, I'm simply looking for confirmation of an uptrend and entry point. For this stock, I entered at $9.85 and sure enough, you can see the run (green bubble) it made breaking through the resistance allowing me to realize hefty profits.

What's important to remember is that I used this with other indicators and stayed patient to seek confirmation. I stuck to my plan, remained patient and found my entry. The next important piece is my exit. Watch my video below to find out how I determined my exit point and also I review price action for the Advance Micro Devices stock (AMD).

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Disclaimers:

• Past performance is not an indicator of future performance
• This post is illustrative and educational and is not a specific offer of products or services
• Information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein
• Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed
• All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change