Let me tell you a story first before we go to the body language of price in price action trading, and then I shall show you how this story corelate with the concept of body language of stocks, currency or commodity etc. Once upon a time there was a man in a jungle who use to catch sparrows. The man was not an ordinary hunter because he knows the language of the sparrows. It means what sparrows talk with each other; he knows it well. By using this art, he catches them and sell them in the market for profit. One day he learned from the discussion of sparrows that their queen is sitting on one of the trees. He then catches that queen sparrow and keep it in an iron cage. The queen sparrow requested a lot to free her that her whole kingdom is worried about her and could not survive and the man did not have any effect of those requests. He intended to sell it against a lot of money.
The next day he went again to that jungle where there was the kingdom of sparrows. The other sparrows over there were so much worried about their missing queen. The man announced there that he had catch the queen and now he is going to sell it in the market. After hearing this a lot of sparrows fell from the tree and got unconscious. The man did not understand what happens, why they got unconscious. He got scared and ran to his home. By looking at the man, the queen sparrow asked why he is so much worried. The man told the whole story. By hearing at this the queen fell down and got unconscious too.
Now the hunter got so much worried and could not understand what to do. He opened the cage and remove the body of the queen from the cage. As he dropped the body of the queen, the queen got conscious and flew. The man got surprised at the reaction and the asked the sparrow queen about it who was now sitting at the branch of the nearby tree. The queen replied, you know the language of the sparrows but you do not know our body language and that helped in my freedom. My fellow sparrows sent me the message through body language that if you want freedom then you have to act like you are dead.
Now we shall see how this story will help us to understand the body language of the trading stocks or currencies.
Similar to this story, in our world where we live there is a language that help us in communication and there is a body language that enhance our communication. To understand the body language is as import and understanding the language is. Whenever we interact with someone, we use our language to convey message but meanwhile our body language is also conveying message that may enhance the message or negate the message. For example, someone praised us but his body language may show that he is a kind of jealous and this praise is not from his heart. That’s why we should also have a command on body language to got the exact meaning of the language.
In the stock market, the movement of the stock is their language. Their movement, their price is showing us where they want to go. The technical analysis that we study is actually the language of the stocks or their price movements. And those who use technical analysis charts are dependent on that language for their decision making of whether the stock is going up or going down. If the stock is breaking up, the language is showing that it will go up. And if the stock goes below its current low the technical analysis language tells us that it may go down. But behind this there is a body language that is hidden. To know that is also important in fact to know about body language is more important than knowing the language.
Anyone can see the language on the chart as anyone can see the price and it is same for everyone but the trader who can learn to read the body language can see the hidden message in that price. Without that your price movement knowledge is incomplete. To learn the body language, take time and experience as no one can teach you directly the body language of the price. It has no set formula. As you interact with the market and start reading the technical charts then with the passage of time you start learning the body language as well.
Now let me tell you the meaning of body language which hidden behind language with the help of a stock movement. For example, a stock is moving in a range for sometimes and then break in the upward direction as shown in the picture.
As the price beak above the range, everyone can read the language that it is breaking up and is expected to go upward. But for example, in spit of going up ward it starts moving sideways as below.
Now, here come the body language of the stock. An ordinary trader who can only read the language may think that the price will go up as it breaks up the range market. But a trader who is expert in body language may see the hidden message in it. If it wants to go up then why not its moving. Obviously, it will not give time to all the trader to ride up before it moves. If it wants to go up it should be up till now, not waiting here for all investor. So, its language is showing that it will go up but its body language is showing that there is something missing in that breakout and the price will not go up instead it will go down and the breakout will prove to be a failed breakout as shown in the below picture.
Let’s take another example. A stock is moving downward and is making lower low and lower high. At some level after making a lower low, it stopped moving downward and started moving sideways. At this level the language of the stock is telling us that the stock will move downward as it has made the lower low but the body language is telling us that its downward movement is almost over. This is how double bottom or double top are being made. The stock is now may enter into consolidation or start moving upward as shown in the picture below.
This is way that you know how to learn the body language that is hidden behind the language of the stock. The large investor or institutions trap the lower traders with the help of price language but an expert trader can understand the body language can understand their trick and not only get rid of it but use it in his favor to generate profits.
Let see it another way. For example, the market is going down and all the stocks of a sector are going down and one of the stocks of that sector is going down but not in that pace. It is going down slightly to follow the market direction. Here the language of the stock is showing that the stock is going down but the body language is showing that the stock has potential and is not wanted to go down. As the market reverse or stops going downward, the stock that was hesitant to go down will go up speedily and will prove itself as winner. It will cover a larger price area in the upward direction as compared to other stocks of that market.
Next time whenever you read technical chart, you have to pay attention not only on the language of the stock but we also have to see what its body language is saying. Reading the body language is the biggest art of the trading market that is possible only with the passage of time.