VIDEO PLAYLIST: Price Action Trading Tutorials
I firmly believe that one of the big reasons price action is the best way to analyze and trade a market is because it is a type of leading indicator that leads the news many times. Allow me to explain…
Why Price Action is a Leading ‘Indicator’…
Traders operate on their expectations of the outcomes of upcoming events, in other words, they anticipate the future value of a particular market based on any number of different analysis tools and decision-making models. The exact specifics of these models and tools is not important to us, as price action traders. The reason they are not important is because (lucky for us) the price action on the charts shows us all of the decisions made by all of the players in any market. Think of it almost as a different language that provides a ‘short-cut’ for all your analysis and decision-making about a market.
Have you ever noticed that very often a market will move the complete opposite direction of what you expected after a particular economic news release comes out? Often, if you look at a chart in hindsight, after that news event comes out, you will see a pin bar signal or a fakey or inside bar pattern that was essentially clueing you into the direction price was about to move. The reason these price action patterns sometimes form before these big moves in the market is because big players in the market (like banks and hedge funds with more and better info than you or I) were already getting ready for the upcoming move based on their interpretation of how the news might affect the market, and placing their trades accordingly. Lucky for us, we don’t have to analyze all the potential implications of news, we just have to read what the price action on the chart is telling us about what the bigger players are thinking….
You simply do not need to pour over countless economic news reports and waste half your day or night trying to ‘anticipate’ how XYZ news event will affect a market. You do not need to do this because the price action is already showing you how the ‘big boys’ or bigger market players (banks, hedge funds, etc.) are pricing their beliefs about the results of upcoming market events. Thus, all you need to do is learn to read and trade based on simple price action trading strategies that are already accounting for all of these beliefs and decisions. Effectively, price action gives us a ‘window’ into the future of any chart we are looking at, all we need to know is how to interpret what we see through that ‘window’…
Once you know how to read, analyze, interpret and trade from the raw price action in the market, you will have all the analysis tools and ‘models’ that you need to make high probability trades. I like to think of price action as the end result of all the variables that can and are affecting a market at any given time because that’s exactly what it is. It simply makes zero sense to try and figure out where a market might go next based on variables other than price action, because such variables are simply further removed from what really matters; price. Using any other data other than price action as your main market analysis tool is really like trying to play a game of poker blindfolded; if you can’t see your cards or your opponents faces and bets, you obviously aren’t going to do very well. Similarly, you need to see the price action to analyze, predict and trade the market properly.
You don’t have to take my word for it…
You can prove everything I’ve said in the above paragraphs by simply opening up a price chart of any major market like Gold, Oil, EURUSD etc., and follow what the ‘talking heads’ on CNBC or similar financial media outlets are saying about those markets. You will see that markets don’t care what these people are saying or what they think, they will trend despite opinions that price may reverse course, etc. Follow these opinions for a week or two and write down the opinions you hear in the news about some of these major markets and then look at the price chart (daily chart ideally) and see if it agrees with what they said. You will notice a pattern over time if you continue to do this. That pattern is that markets do what they want, regardless of what anyone thinks they ‘should or might’ do.
The takeaway here is that all that truly matters in any market is what it has done, what it’s doing right now and what it might do next. The way that you see this past, present and future of any market, is by reading its price action. Price action is literally the language of the markets, and if you don’t understand that language and you don’t know how to read it, you will never be able to trade successfully. So, I suggest you put in the effort now and get a solid price action trading education as soon as possible.
One of the biggest reasons you should make price action your one and only trading strategy, is that it will simplify every aspect of your trading, and that’s a good thing. Trading, perhaps more so than any other profession, bombards people with excessive amounts of information, in the form of economic news releases, trading systems and strategies, ‘gurus’, talking heads on financial news networks, etc. It’s important you have some type of filter for all this information, otherwise you’ll experience information overload, which can fry both your mental state and your trading account.
You do not need multiple lagging indicators messing up your charts, despite what many Forex and trading websites would have you believe. All indicators do, is cover up the real story of the market below; the price action.
Trading from the raw price data of the market will work to simplify how you view and think about the market, and of course how you trade it. There’s simply no reason to over-complicate the trading process by adding outside variables like indicators or economic news, these variables only cloud up your thinking and analysis process.
The technical aspect
Let’s take a look at an example of a clean / raw price action chart versus a chart plagued with messy indicators…
Here’s a clean chart with nothing but price action and a horizontal resistance level drawn in at some bar highs. Note, price was in a downtrend as we can obviously see by the overall decline in prices from left to right, then when price retraced higher temporarily and formed a pin bar signal from resistance, we had a price action signal with confluence. This is an example of how very simple price action analysis can be, nothing messy or confusing about it because we are trading on a clean price action only chart…
Below, we have the same chart as above. Hard to believe, I know. It’s the same exact chart but with some popular indicators added on top of the price action. Not only do these indicators divert your attention away from the price action, which is the only thing that really matters, they also add extra variables that are unnecessary and confusing…
By comparing the two charts above, it should be apparent that you don’t need to use all of those indicators. Note, the pin bar sell signal on the first price action only chart was clearly visible simply by looking at the price action and a resistance level. Had you been analyzing the bottom chart, you may not have taken that pin bar trade because your eyes would have been diverted to the numerous indicators on the charts and you probably would have drawn other conclusions / second-guessed yourself. Indicators are simply a case of ‘too many cooks in the kitchen’, i.e., too many variables making something that is simple by default, significantly more difficult.
The mental aspect
Perhaps an even more important advantage to trading with price action strategies, is that doing so will keep your mental state much ‘cleaner’ and simpler than trading with messy indicator methods or other trading systems. There’s nothing more key to trading success than attaining and maintaining the proper trading mindset. If you don’t do this, you will never make money trading, no matter how good of a market analyst you are.
Trading with price action reduces the market down to its most ‘core’ components and allows you to trade from them. Essentially, you’re cutting out the ‘middle-man’ when you eliminate indicators and start trading ‘in the nude’, i.e. on a price action only chart. This eliminates many unnecessary variables that can cause you to second guess your trading decisions, not be sure if there’s a trade or not, and a whole host of other trading mistakes. Once you’ve learned several effective price action trading patterns, trading really just becomes a game of mental discipline, i.e. waiting for your price action signal to form. Once it forms, you simply set the trade up / pull the trigger, and let the market do the work.
When you’ve simplified your trading with price action strategies, you are much more calm and at ease when you analyze the charts. Having many messy looking indicators strewn about your charts can cause stress and increased blood pressure, and this is a very dangerous mental and physical state to put yourself in when analyzing the markets. Emotion and stress are the enemies of trading success, so the more you can do to reduce / eliminate them the better, and trading with price action is a huge step in the right direction. Remember, price action trading will not only simplify your trading method and your charts, but also your mind and the mental aspect of trading, which is a crucial part of becoming a successful trader.
I hope you’ve enjoyed this short article on why price action strategies will simplify your trading. To learn more visit the Price Action Trading University.
One of the simplest and most effective trading strategies in the world, is simply trading price action signals from horizontal levels on a price chart. If you learn only one thing from this site it should be this; look for obvious price action patterns from key horizontal levels in the market. If you just stick to that ‘formula’ you will have plenty of high-probability trading opportunities over the course of one year. Don’t over-complicate the process of analysing the markets / charts and finding trades. The market will generate signals for you when it’s ready, all you need to do is learn what the signals look like and where to look for them at. This is what you will learn in this lesson…
Price action signals + Horizontal levels = Success
It doesn’t really matter which component you find first, the price action signal or the level. What matters is if the two have come together to form a confluent price action trade. When you have an obvious price action signal, like a pin bar or a fakey signal, and that signal has formed at a key horizontal level of support or resistance in a market, you have a potentially very high-probability trade on your hands.
Key horizontal levels of support or resistance are areas or levels on the chart that price made a strong move either up or down from. They can be used in any market condition; trending, counter-trend or trading ranges. The important thing we are focusing on in this lesson is finding a clear price action signal at a key chart level. These levels tend to act like ‘magnets’, attracting price to them before price pushes away again. They can also be thought of as ‘value areas’, or areas on the chart where price found ‘fair value’ which typically happens before a strong move occurs again.
Let’s take a look at some examples of trading price action signals from key chart levels:
The chart below is a daily Gold chart and it shows us a nice clear example of a well-formed pin bar pattern that formed at a key horizontal level in the market. Clearly, the 1170.00 was already an important horizontal level that you should have had marked on your chart before this pin bar formed. Then, all you needed to do was sit and wait for a signal to form at or near that level. We can see a very nice pin bar buy signal did form at that level, showing a rejection of it that indicated price might push higher in the coming days..
The next example is of a pin bar buy signal that formed at a key chart level of support in an up-trending market. When you get a price action signal that has confluence with a trend and a level, that is a good-quality trade setup. You won’t find a much better example than the one below that formed on the daily GBPUSD chart. We had an uptrend, a key horizontal support level near 1.6655 and then a very well-defined / ‘perfect’ pin bar trading strategy formed at that level. You can see the trend resumed the very next day after that pin bar as price continued pushing higher.
In the chart below, the NZDUSD was trading in a large range, back and forth between horizontal support and resistance levels. In these situations, where a market is range-bound, we can look to the boundaries of the range (support and resistance levels) for potential price action buying or selling opportunities. We can see a fine example of this in the chart below when an obvious pin bar sell signal formed from the horizontal resistance of this trading range, setting off a huge move lower, to the bottom of the range…
Finally, let’s look at a counter-trend example of trading price action signals at key chart horizontal levels in the market. This is the EURUSD daily chart and we can see a very obvious fakey trading strategy formed at a key resistance level near 1.3950. This fakey signal showed a rejection and false breakout of that level, indicating that the bulls were exhausted and that price may fall lower in the coming days. We can see that price did fall from that fakey signal and it fell significantly lower in the ensuing days. Another clear example of the power of trading price action signals at key horizontal levels in the market.
The main point of this lesson is simply this: You DO NOT NEED a complicated or confusing trading strategy to find high-probability entries in a market. All you need is the ability to recognize price action trading strategies at key chart levels of horizontal support and resistance. If you just focus on this one strategy and really ‘master’ it, you will be able to look at any chart of any market and find high-probability price action trading opportunities.
I hope you’ve enjoyed this lesson on the simplest trading strategy in the world. To learn more, visit the price action trading university.
With so many different websites and ‘gurus’ teaching price action trading and various versions of it, how do you know which price action trading strategy is the best? Furthermore, how do you know which particular price action setup is ‘the best’?
My belief is that simplicity wins out in trading, always. In regards to price action trading, I teach my students to master one setup first. Once that setup is mastered, they can move on, but not until then. It takes discipline and patience on your part, but if you really want to become a master price action trader, this is how it’s done.
Wax on, wax off
Just like the ‘Karate Kid’ had to learn from his teacher Mr. Miyagi, repetition and simplicity are the building blocks of success. Daniel had to master a basic single action first in the Karate Kid, over and over, and he even failed to see its usefulness in Karate, until later on.
In trading, we also need to start simple and small and add on slowly. Build from the ground up, add on, you will form a holistic trading strategy but keep the mantra of mastering one setup first; wax on, wax off. Eventually, you will add pieces and everything will be connected in a ‘web’ of sorts that will allow you to catch high-probability price action trades.
Once piece at a time
As a price action trader, there is some discretion required as we are not trading a rigid rule-based system. This a good thing because it accounts for the natural dynamics and ebb and flow of markets, but it also means you will need to take a methodical approach to learning and mastering each price action setup you trade, so that you gain a clear understanding of when your price action strategy is present and when it is not.
Thus, you will need to start with the basics, and the most basic of price action trading is support and resistance levels.
In the chart below, we have simply drawn in the most relevant recent support and resistance levels on the daily chart time frame. You need to understand how to draw in the key chart support and resistance levels in order to know where to look for price action signals to trade:
After you learn how to identify and draw in the key chart support and resistance levels on your charts, you can then start looking for the first price action signal you’ve chosen to master. In this example, we are starting with the pin bar strategy. After we draw in our levels we will then look for any obvious pin bar setups that have formed at or very close to these levels:
You may then want to add another ‘confirming’ factor for you trade setups, or factor of confluence. In the next example, we are looking at identifying the dominant daily chart trend and adding that into the mix. So, you are now bringing all three pieces of your trading strategy together; key levels, the signal and the trend, to form a high-probability price action entry system:
The ultimate idea is that you learn one piece of your trading strategy at a time, master it, and then add another. In this lesson, we have looked at first learning to draw the key chart levels on your chart, then we looked at looking for pin bar trade signals at or very close to those levels, and then we looked at trading those signals from a key level in-line with the daily chart trend. If you do this and master it, you will have a very potent trading strategy.
Keep in mind, this is but one example. You might choose to learn a different signal first, it’s really up to you. The main point is to really master every aspect of your price action setup at a time. To clarify, I would consider what I’ve discussed in this lesson as ‘one setup’. Meaning, we are looking for daily chart pin bars from key chart levels in-line with the daily chart trend. There are many variations you might master after you master one; 4 hour charts, 1 hour charts, incorporating 50% retracements, different price action setups, etc. Just remember, take it slow and master one price action setup at a time.