You wouldn’t jet off to another country without learning at least some basic vocabulary. So don’t start trading without learning about some basic price action.
Price action (P.A) is the language of the markets, irrelevant if you trade stocks, forex, crypto’s or futures, you need to be able to read it or at least have a basic understanding.
Well, that’s my opinion anyway.
What is price action (P.A)?
Very simply, P.A describes the characteristics of a movement in price. Using an understanding of the language of the market will give you an idea of what buyers and sellers are doing & the strength or weaknesses of that particular market.
P.A literally is the action of price. From studying the movements of the price we can then ask ourselves the most important question. What is price action telling me? For me, this question is absolutely essential before taking any trades.
Naked Charts vs Indicator Combinations
For me, naked price action and naked price action alone is the only way to trade. Again, this is purely my opinion for my own trading. There are many, many ways to make ( and lose) money in the market, but for me, learning & understanding price action was a game-changer in my trading.
Many traders blend in indicators with their price action, but for me after a lot of backtesting and trading in the live market, I follow the KISS principle. I Keep It Simple Stupid.
Reading price is the major thing I consider before placing a trade (combined with proper risk management of course). Blending in indicators creates the problem of having too many variables and takes my focus away from reading price correctly.
Corrective vs Impulsive Price Action
Price can move up, down or sideways. The important question is, HOW is price moving.
If price is breaking highs with big impulsive full candles & minimal retracements, this is known as impulsive price action. (Same applies for lows). If price breaks a high with little conviction, retraces, then breaks the old high and retraces, this is known as corrective price action.
As P.A traders we only get involved after we see movement, convincing movement, and only after we ask the question: What is P.A telling me?
The chart below shows an example impulsive, corrective & sideways P.A in the AUDUSD.
Highs & Lows
How does price break the most recent high or low? This question is hugely important to answer before placing a trade. How price breaks the most recent highs or lows determines where the price could go. Well, nothing is guaranteed, but it at least gives you a high probability indication of what might happen.
Is price breaking a previous high or low impulsively, is there momentum in the direction the market is moving? Is the market breaking a previous high or low correctively, is there a lack of momentum?
The main thing here is really diving deep into how the price is breaking. Candlesticks charts will help you here & make the market easier to interpret.
The Importance Of Candlesticks.
Candlesticks clearly show the story of price. You don’t even need to know about fancy combinations. Keeping it simple with candlesticks and reading very simple but important signs such as inside bars & wicks, is enough to add to your toolkit to take you on the way to being a consistently successful trader.
Trading price is not for everyone, nothing is, 10 traders can look at the same chart and give you 10 different views. But, for me, reading the price, eliminating the indicators and asking myself 2 simple questions has greatly increased my profitability.
Before you next place trade, learn about price action & ask yourself the below 2 questions:
- What is P.A telling me?
- How is price breaking the most recent high or low.
Want To Learn How To Profit Using Price Action?
There are many online resources, but the free info will only get you so far. There guys are by far the most successful price action traders and educators i’ve ever seen.
You can find them trading profitably here !
Also, before you place a trade, be sure to manage your mind before you manage your money, you MUST read THIS.