Price action trading is the best way to trade in my opinion and there really is no arguing with its relevance and importance. I hope you all enjoy this lesson and that it clears up any confusion or concerns you may have about what price action trading is all about.
What is price action?
To put it succinctly, price action is the “footprint” of money. Financial markets are where money is exchanged between market participants, and this exchange of money leaves a trail, this trail is a market’s price movement or price action and it can be observed on a price chart. As Forex traders, we can learn to identify and trade off of the “clues” left behind from price action as it makes its trail across the charts. These clues are called price action trading strategies or price action setups, and when you learn to trade them and harness their power you are a “price action trader”.
These price action trading strategies form as a result of the fact that price movement in markets tends to be somewhat repetitive. Human beings are ultimately behind the price movement of the Forex market as well as other markets, and because human emotions are relatively predictable when it comes to matters of money, their actions in the market often result in price action formations that repeat periodically and that can be very accurate predictive tools of future price direction.
Price action trading involves trading price action strategies from key levels in the market. I am a firm believer that all anyone needs to develop a solid Forex trading strategy is a plain vanilla price chart and some common sense. By combining price action setups with “hot points” in the market, such as core support and resistance levels and dynamic support and resistance levels, we can learn to pick extremely accurate entries that give us the best chance of getting into a profitable trade.
Price action strategies can be traded in any financial market and on any time frame. However, I advise traders to focus their efforts on trading higher time frames first, with the main time frame being the daily chart. I also primarily teach and trade the Forex market because it is the easiest market for retail traders to access, seems to have more periods of trending than other markets, and generally just lends itself well to price action trading.
Why price action?
Answering the question “why trade with price action?” is really pretty simple; because price is the heart of any financial market. It’s like learning to read a book; if you don’t know how to read you will not be able to understand the words in the book or the story they convey. If you don’t know how to read the price action of a market you will not know how to make sense of a price chart or the “story” it is telling you.
Any trader or other source who tries to tell you that you it’s easier to trade off indicators or trading software than price action, is simply in denial of or unaware of the reality of the markets. The reality of the markets is that price movement is the end result of all variables connected to the markets, so why would you want to concern yourself with analyzing anything but this price movement? Traders tend to fall into the traps of forex indicators and forex robots mainly because the people selling these things make bold claims and make them sound like the key to instant riches.
The truth of the matter is that there is no easy way to make money in this world, at least legally. Any short cuts that you think you have found in the markets are only temporary, I can promise you that. You have to learn to read price action if you want to be a trader, there is just no arguing with that, and the longer you put off or deny this fact, the longer you delay your own forex trading success.
The best way to learn price action…
The best way to learn price action can basically be boiled down into three main points:
1) Learn to master one price action strategy at a time. By mastering one price action setup at a time you learn it inside and out, you make it your own, so to speak. Many traders jump from one strategy to the next without really giving each its due time. Specialists in any field are typically the people making the most money; not people who know a little bit about a lot of things. Think of yourself as a “price action specialist” and try to truly master one setup before moving on to the next.
2) Learn to trade higher time frames first. The main reason I teach traders to focus on higher time frames first is because it is the best “natural” defense we have against over-trading. Over-trading is what kills most traders’ accounts, and it will kill yours a lot faster than you think. By focusing on the higher time frames we can benefit from their natural ability to filter price movement “noise” on the lower time frames and thus improve our overall winning percentage, all while trading in a relaxed and stress-free manner.
3) Learn from a successful price action trader. In point one I discussed that becoming a specialist in something is the best way to master it and make money at it. Well, the most effective and efficient way to become a specialist in the field of forex price action trading is to learn from a successful price action trader. You can greatly reduce your learning curve and avoid a lot of trial and error by learning from a skilled and proven trader.
The best way to trade price action…
In my opinion, the best way to trade price action is by trading like a sniper, not a machine gunner. What I mean by this is waiting for the best price action setups rather than trading anything that you think “might” be a setup. After you master all my price action trading strategies and concepts you should have no doubt of what you are looking for in the market. At that point trading is simply a game of patience; a game of waiting for the perfect price action setup to come into view, and then “shooting it” or trading it flawlessly. There is definitely a positive correlation between the amount of patience one has and their trading account value.
Why price action trading is critical…
No matter what strategy or system you end up using, knowing how to read and trade off of price action will make it better, even if you don’t solely trade price action strategies like I do.
Knowing how to trade price action is a requirement if you want to trade successfully; you have to understand price dynamics in the markets, there is just no way around it. Believing you will somehow succeed in Forex without proper and thorough knowledge of price action trading concepts is like believing you can fly an airplane with no formal pilot training; yes, it is possible, but the odds of you crashing and burning (pun intended) are very high.