~price action

 

 

One of the most frustratingly difficult concepts to get across to beginning traders is that you truly do not need to make the process of technical analysis messy or confusing, at all.

Honestly, this piece of the trading “puzzle” should be the simplest and easiest, but for many traders, it’s the complete opposite…

They start off with dozens of indicators on their charts, 20 different websites open on their computer, literally trying to analyze hundreds of different variables at the same time. They do all of this to try and find a trading edge; something that will provide them with a “clue” of what might happen next in the market.

Guess what? This trading edge is sitting there right in front of them, hidden beneath the mountain of unnecessary distractions on their charts. That edge is, of course, price action analysis.

So don’t waste your time thinking there is some “Holy Grail” trading system based on indicators or software that will turn your computer into an ATM, because (sadly) there isn’t. I can tell you from 18+ years of live trading experience, the only thing you need to effectively analyze a price chart is your eyes, a computer, and the raw price action data the market supplies you for FREE, oh and maybe a lot of caffeine.

However, if you’re still not convinced that price action is truly the only thing you need to analyze the markets, then maybe one of these points will help to “knock” some sense into you:

1. Clean vs. Messy

As I clearly illustrated in my price action tutorial, one of the main reasons to learn how to read price action is so that you can declutter your charts and trade in a simple, “naked” manner, devoid of confusing and messy indicators.

The trading world is already filled with a myriad of conflicting and confusing advice, methods and approaches, so one of the biggest steps you can very easily take that will put you will ahead of other traders, is simply to remove all the “garbage” from your charts. Put simply, you do not need to trade with indicators, at all.

I recommend EVERY beginning trader start by learning to clearly map the charts and learn to listen to the market by simply learning to interpret and trade the price action. When it comes to technical analysis, simplifying the analysis portion is key, yet most traders do the complete opposite; they over-complicate it.

Take a look at the example chart below, look at all the things we can see just from analyzing a BARE indicator-free price chart:

We can use the price action data described above to formulate an anticipatory trading plan, that effectively gives us a “window into the future” so that we can plan our next move. Which, as you can see in far right of the above chart, might involve waiting for a pullback to the support zone to look for a price action buy signal.

2. No News is Good News

One thing that I feel very strongly about and that is also a huge benefit of learning to read price action, is that by doing so you can ignore the news and all other unnecessary trading variables. You see, the price action reflects all the news as well as all other variables influencing it.

Less variables to analyze means you can avoid the “analysis paralysis” that hurts so many traders by causing them to try and take in too much and “make sense of it”. When trading with price action we really only need to worry about the 3 main components: Trend, Levels and Price Action Signals.

As I wrote in other lessons in which I discussed why I don’t trade the news, most of the time when trading news is released, the actual move from it has already happened. This has to do with the “buy the rumor sell the fact” effect that happens in the markets as traders and especially the bigger players anticipate what will happen when XYZ event is released or takes place. The point is, often, what would seem like the logical price direction as a result of a certain news event, is not the direction it moves in, but sometimes it is. So, to try and gain some “edge” by “predicting” a market move based on the news, is truly futile, especially when the price action already likely tipped you off to the next market move, before the news or ahead of it.

3. Price Action is The Language of Money

Price action gives us the best insight into the psychology of those trading the market. In fact, the price movement we see on a chart is really all just human psychology playing out via the markets. What one trader thinks is a good place to buy is what another thinks is a good place to sell, etc. and when more people think buying is the right move, price goes up, or down if more think selling is the right move. Despite whatever variables went into those decisions, the end result is the same: price movement reflected via price bars on a chart. So, cut out the “middle man”, so to speak” (the variables other than price action) and learn to read the “language” of money that is right there staring you in the face on the charts.

So, if price encompasses all beliefs and views of all market participants and any particular moment of time, then reading the price bars on the charts allows us to read what the market participants are saying or trying to say. Let’s look at an example:

In the chart below, we can see with a bullish pin bar, bears initially pushed price lower but buyers saw that as an opportunity and bought into that down move more aggressively, resulting in a long lower tail or wick, and a bullish pin bar that indicates price may move higher soon. The bearish pin bar shows us the opposite; that sellers won out and price is now looking “heavier” or bearish…

4. Price Action Lets Us Identify Clear Trading Signals and Repeating Patterns

If you know how to read the raw price action on the charts you also have a complete trading strategy that provides us with a defined set of entry and risk management rules whilst providing us with a high-probability edge.

For example, when you get a clear pin bar signal at a key chart level and ideally within a trend, you have the “Big 3” factors of confluence lined up for you: Trend, Level, Signal or T.L.S. This provides you with not just an entry but also a risk management strategy “built in”; you will base your stop loss placement at least partially on the signal bar as well as surrounding levels and your position size and profit target is set from that.

To get a better idea of how the T.L.S strategy works so easily and effectively, take a look at the chart below:

A simple set of parameters: Trend, Level, and Signal can provide us with some very high-probability repeating price action setups:

Through self-study of charts, it becomes apparent that price action signals and other price action patterns tend to repeat themselves over and over, across time. Once we learn to identify these signals in real-time and start to develop trader’s gut feel and intuition, and start trusting ourselves, these signals and patterns will begin to “pop out” at you more and more. It will be almost as if the market is “talking” directly to you…

5. A Minimalist Approach is Often Best

Minimalism is a way of life for some people, and it’s something I am very attracted to and try to model in my own life in many ways. Having less, means you have less to worry about, less problems, less to think about. Most people end up buying stuff they don’t need and that they end up realizing they don’t even want. The results are in: “Stuff” doesn’t make you happy. Time, freedom, spending time with loved ones, not having to worry about money constantly; these things make you happy.

What does this have to do with trading? Everything.

I wrote an article on a minimalist guide to trading which you should definitely read. The basic idea of it is that doing less; thinking less, analyzing less and TRADING LESS is what ends up as the catalyst for trading success. You truly need to minimize your interactions with the market, from how many trades you enter to how often you check on them once they’re live, to how many times you open your charts. Less is More and it’s the way you make money faster, trust me.

Conclusion

In my early days of learning how to trade, I honestly felt like I was lost, perhaps some of you feel the same way right now. There is just so much information out there and much of it I would call “misinformation”, that a beginning trader really has to be able to filter the “good from the bad” quite well to know what is worth spending their time on and what isn’t.

After studying just about every indicator and trading system under the sun, and realizing they didn’t work as advertised, I finally came back to plain and simple price action trading. I quickly realized that this is what made the most sense and that I didn’t need all that other “crap” on my charts, which was just obstructing the REAL view of the market; the price action.

I have been trading with price action for well over 15 years now and it has proven itself time and time again. It’s simple yet highly effective and it eliminates the need to look at other variables, because everything truly is reflected via the price movement, you just have to know how to read it.

The trading tutorials I have produced for my students since 2008 are the exact type of real world education resources I wish I had access to when I started my trading journey all those years ago. If you apply yourself and stick with the core philosophies of reading price action, bar by bar, and keeping your overall trading methodology simple, then your chances of making it in the world of professional trading are increased substantially.

This blog and the hundreds upon hundreds of trading lessons I have authored, as well as my Professional Price Action Trading Course are here to help you dramatically fast-track your knowledge and help you achieve trading success sooner.

Cheers to your future trading success, Nial.