I have read it many times that price action is the best way to trade but unfortunately non of these articles explain what price action really is. I would like to know what it is and how to trade with it. Thanks in advance for your reply.
Price action or PA is what it says, the action of the price. The way the bars or candlesticks are printing. Are they in an uptrend? shown by higher highs & higher lows.
Or in a down trend? shown by the bars printing lower highs & lower lows.
Is it going sideways. consolidating etc?
price action is the study of how price acts. Acts to what? Well its how it acts when it reaches a support or resistance, trend line ect, ect. the most common setup is the pin bar or hammer bar. this is a long tailed candle. when these appear at supp or res, and the tail points towards that level, this indicates a rejection of this level as price reversed during that time period. generally it works best on the 1 hr time frame or higher.
here is a pin bar trade i took on the aus/jpy 4hr recently, you can see the chart was breaking down and old support became new resistance. price clearly rejected this level forming a pin bar. i was short this at the close of the bar and made 2.6:1 RR.
PA is a picture of what price is doing right now and in the past that gives you an idea of market sentiment. It differs from indicator based systems which depend on a complex series of mathematical calculations that use past data to predict future price movement.
In a practical example the chart posted above shows a pin/shooting star candle which is a typical reversal candle. The reason it is so popular is because it shows exhaustion on the side of the bulls and a takeover from the bears. The candle itself shows that price attampted to move up to a certain level but was forced down and closed very near the bottom.
You can see that the bears overcame the bulls here and a change of direction in proce could be on the cards. The fact that it occurred at a support/resistance/pivot point adds weight to the notion that some kind of price reversal is on the cards. Price was pushed up to the S/R level - sell orders and profit taking were obviously triggered at this level which pushed the price right down, the bears joined in and a reversal happened.
This is price action which we are seeing unfold on the charts. It’s totally different to waiting for 2 MAs to cross each other and other indicators lining up.
Longer term moves such as double tops/bottoms, head & shoulder formations are also price action. The formations on the chart tell you what the market is doing.
PA is a huge subject, there are a few threads on here about it - a good book is “Martin Pring on Price Patterns” by Martin Pring. Also google “James16 chart thread”
Be prepared for a long (at least 1 year) learning curve - very worth it though.
Thanks ddinnov, That was a strange question for me as i have been trading PA for 7 months now and i could bearly find the right words to describe it!
Your explanation is spot on though and its dead true that its not a mechanical system, what it is is a method to read the market, and by using a bit of savy, you can learn to get into some great trades.
And like you say, its not someting that you will learn over night but what you do learn will last a life time.
Yuall make everythin so complikated.
Hello Gabriel.
Is simple
Price action is all you can say about the market, without using any indicators.
Thanks for all the replies. Talking about support and resistance does it work on lower timeframe like 30 15 and even 5 mins charts.
I have only used PA on 1 hr and above, I think lower timeframes will cause alot of signals, like pinbars just with “Noise”, however i cant comment on that. obviously things like head n shoulders will show fine on fast charts.
Now i dont want to start any wars, but i learned about PA at “learn to trade the market” from nial fuller. there is a lot of free vids on his site take a look if you want.
Usually when his name and others that i wont mention are talked about on forums a massive row breaks out, i really could not care less who stole whos ideas from who. i found his site by chance and i liked it. these are the techniques i use to trade, they work and i enjoy it. thats all that matters.
good weekend to all.