Price Action Basics: Trends, Swings and Market Structure
Price action analysis studies the movement of price itself rather than relying mainly on indicators. The idea is that the chart already reflects what buyers and sellers are doing.
Market structure
Price rarely moves in a straight line. It moves in swings, creating a series of highs and lows:
- Uptrend: higher highs and higher lows.
- Downtrend: lower highs and lower lows.
- Range: price moves sideways between a roughly flat ceiling and floor.
A trend is often considered intact until that structure breaks, for example when an uptrend makes a lower low.
Impulses and pullbacks
Within a trend, strong moves in the trend direction (impulses) alternate with weaker counter-moves (pullbacks). Many traders prefer to look for opportunities during pullbacks rather than chase an impulse that has already travelled far.
Breakouts and false breakouts
When price leaves a range, it is called a breakout. Breakouts with strong closes and follow-through are more convincing. A false breakout happens when price pokes outside a range and quickly returns; these can lead to sharp moves in the opposite direction.
Volume and volatility
Where volume data is available, rising volume on breakouts adds confidence. Volatility also matters: commodities such as natural gas or cocoa can move several percent in a day, so levels need more room than in quieter markets.
Keep it simple
Start with a clean chart, mark the main swing highs and lows on the daily timeframe, identify the trend and the nearest key levels, and only then think about entries. Simple, consistent analysis is easier to follow and to review afterwards.
Educational content only, not financial advice. See our disclaimer.
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