Why Price Action Leads The News

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.


About Nial Fuller

Nial Fuller is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught over 25,000+ students since 2008. Checkout Nial’s Price Action Trading Course here.

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