Trading is hard. The act of trading is simple. But putting it all together in a consistent manner will take effort, drive, and success will only come to those who put in the work. Methods to analyse your charts are also simple but humans enjoy complexity yet that does not guarantee success. Common theories such as moving averages act as support and resistance is flawed. When you start to look at the usual teachings with a critical eye and ask “why”, the theory starts to unravel and leaves the trader confused. Simple works. I’m not asking you to trust me. I’d rather you not. What I am asking is that you approach the information with an open mind and be critical – prove it to yourself.
INTRODUCTION TO PRICE ACTION Open up any chart and look at what price is doing. Is it going up? Going down? Going sideways? Whatever direction it is going, what is causing price to move? The demand and quantity for whatever you are tracking is based on how valuable it is. If an item is deemed valuable, if there are plenty of them, and if it’s a fair price, we can expect subtle fluctuations in price but nothing to be concerned about. Once the supply of the item is running out, the value of that item will increase as long as there is sufficient demand for it. The more demand for it, the faster it sells, and the higher price climbs. What if people start to return the item because it’s poor quality? Supply starts to increase and because word got out that the item is not very good, the demand starts to dwindle. Soon, the supply is so great that price drops to entice buyers. The more the demand falls and supply increases, price will fall. That movement in price, is the action of price and as price action traders, how it moves and how fast it moves is vitally important. When traders make trading decisions based on repeated price patterns that have formed, they indicate to the trader what direction the market is most likely to move
3 Reasons Why You Should Trade Price Action 1. Price action represents collective human behavior. Human behavior in the market creates some specific patterns on the charts. Price action trading is really about understanding the psychology of the market using those patterns. That’s why you see price hits support levels and bounces back up. That’s why you see price hits resistance levels and heads down. Why? Because of collective human reaction! 2. Price action forms structure to the market. You can’t predict with 100% accuracy where the market will go next but structure can help reduce uncertainty and show you the probable next move of the market. 3. Price action helps reduce market “noise” and false signals. If you are trading with stochastic or any indicator, they tend to give false signals. Price action is not immune to false signals (think failed breakouts) but it is a much better option than using indicators as your prime trading tool as indicators because they are derived from the raw price data