Indices Price Action 1-2-3 method in the Stock Indices Market

Indices Price action is the use of only charts to trade Stock Indices, without the use of technical chart indicators. When trading with this method, candlestick stock indices charts are used. This strategy uses lines and pre-determined patterns such as the 1-2-3 pattern that either develops or series of bars.

Traders use this strategy because this analysis is very objective and allows the one to analyze the stock indices market moves based on what they see on the stock index charts and market movement analysis alone.

This strategy is used by many traders; even those that use technical indicators also integrate some form of stock index price action in their strategy.

The best use of this method is achieved when the signals generated are combined with line studies so as to provide extra confirmation. These line studies include stock indices trend lines, Fibonacci retracement, support and resistance levels.

Indices Price Action 1-2-3 Breakout

This strategy uses three chart points to determine the break out direction of a stock indices. The 1-2-3 method uses a peak and a trough, these points forms point 1 and point 2, if market moves above the peak the signal is long, if it moves below the trough the signal is to short. The break out of point 1 or point 2 forms the third point.

Series of breakouts

Investors use stock index price action to try and predict where a stock indices trend direction might go. The stock indices market is either trending or ranging.

A trending market moves in a specific direction while a ranging market moves sideways, normally after hitting a support or resistance level.

Observing the behavior of stock index price action provides this information of whether the stock indices market is trending or ranging or reversing its direction.

As with any other Stock Indices Trading strategy this method should also be combined with other confirming indicators to avoid whipsaws. The 1-2-3 pattern can give good signals in a trending market but will give whipsaws when the stock indices market is ranging, it is best to determine if the stock indices market is trending or not before you start using this strategy.

RSI and Moving Averages

Good indicators to combine with are:

• RSI

• Moving Average

Investors should use these two indicators to confirm if the direction of breakout is in line with the stock indices trend direction shown by these two indicators. If the direction is also the same as those of these indicators then investors can open a trade in the direction of the signal. If not investors should not open a trade as there is more likely a chance that this stock indices signal may be a stock indices whipsaw.

Just like any other indicator in Stock Indices, stock index price action also has whipsaws and there a requirement to use this as a combination with other signal as opposed to just using this strategy alone.

Combining with other Indicators - RSI and Moving Averages