Price Action trading is a trading technique that relies solely on the actual price movements on a chart and disregards any other market indicators. Many online traders have grown accustomed to relying on indicators instead of focusing on price alone.
Often indicators need constant optimization to ensure relevancy for the market being traded. Additionally, indicators lag behind price. Price action trading is the truest connection that a trader can have to the market, and therefore, should be the sole factor in determining how to day trade.
Price Action Trading is Timeless
Once a trader is equipped with the knowledge to take on the markets, he or she can instantly recognize setups that will lead to consistent profits. Adversely, indicators may have a shelf life – a time when the indicator was most effective may have passed.
Price trading is always relevant, as it trades on the overall behavior of price, not a single strategy used by oscillators, Bollinger Bands, or other highly mechanical approaches.
Additionally, price action works for a broad spectrum of market types. The method has been known to be an effective day trading strategy for nearly all markets including futures, currencies, indices and even stocks.
Price Action Trading is Adaptable
Black box strategies, indicators and detailed technical analysis all have one fatal flaw — these approaches are far too specific to work on a day to day basis. Markets are inherently unpredictable. A greater reliance on a mathematical formula equates to a restricted approach. Strict approaches may produce very few trades on a daily basis. Some days may have zero trades.
When a trader cannot make a profit on a day to day basis, he or she is likely to switch markets. Such overly acute approaches require the reconfiguration of indicators or the entire method.
For example, if a trader’s indicator cannot identify any profitable setups, the trader is likely to move to another market — for example, the Euro. This trader may not be aware that the indicator is not meant to work for the Euro, or if he or she is if the indicator requires optimization to work for this new market. Black box strategies are a hassle and may have catastrophic results if the trader decides to experiment.
Unlike indicators, price action trading is pure market observation and interaction. Using objective, black and white rules, a trader may place trades by understanding the market. Since such strategies are based on an underlying understanding of how markets work, price traders are better suited for anticipating future market activity.
Price Action Trading Simplifies Trades
Traders who rely on software to dictate the direction of price often share a “more is better” mentality. Traders who use indicators sometimes share this misconception by filling charts with indicators, thus cluttering up price display. Most indicators do not work harmoniously with one another. More than likely, they will produce conflicting signals, thereby confusing the trader.
Time of Day Concepts
When trading, recognizing the time of day and how the price is moving is highly important. The open outcry session often defines the overall trend for the day, as major financial institutions push and pull the market during these hours. Taking this behavior into account allows price traders to get a better idea of how price will plot during the rest of the day.
Price Action Trading Builds Confidence
Learning to trade the market with price action trading strategies allows traders to place trades based on their own knowledge and understanding instead of relying on a third-party to call the shots. Confidence is an important part of a trader’s psychology, as too much can create overspending and too little can cause traders to miss out on profits.
Price action trading demystifies the markets, proving gut instincts do not work. Trading on what is seen rather than what a source is advising is refreshing… and often, very profitable.