What is price action and what does it tell you?

Price action refers to the price movement of an underlying security plotted over time and is the basis upon which traders use technical analysis to predict future price movements rather than entirely depending on technical indicators. Price action largely corresponds to how traders analyze charts based on historical price movements while the study of fundamental analysis is mostly ignored.

Price action not only tracks price movements of a security but also plots price trends, breakouts and chart formations like continuation, reversals and candlesticks patterns which are then analyzed by traders to arrive at trading decisions. Besides, price action leads to behavioral and psychological analysis which could vary based on the individual perception of traders although specific analysis like a moving average crossover or the MACD would match the same action from a large section of traders.

To conclude, price action is monitored by a large section of traders comprising of investors, speculators, hedgers, fund managers, and proprietary trading firms. In addition to recognizing trading patterns, price action is hugely beneficial in triggering entries, exits and stop losses and is employed on a wide range of securities such as equities, commodities, FX and fixed income instruments.