Price Action — Trading the “Clean chart”
Price action has become one of the most popular trading techniques in recent times. Many new traders find this trading technique easy to understand, practice and master. It is also a technique used these days by programmers for trading algos, which either trade automatically (robots) or provide trading alerts (scanners).
In this article I will explain what is Price Action and demonstrate some of the basic elements of this simple, yet powerful trading technique.
What is the Price Action technique and why does it appeal to so many traders?
Finding the right trading strategy
One of the first challenges that a new trader meets once he entered the trading world is to decide which trading system/technique to use. I previously posted several articles about the trader’s road to success, and in these articles, I mentioned that there are several things that a trader looks for in a trading system:
- P/L – Probably the first thing someone looks for in a trading system
- Accuracy
3. Fitting one’s character – Usually the last thing a new trader understand its importance.
After some searching time, some traders (unfortunately) reach to a situation that their charts just explode with way too much information in an attempt to find a good trade signal:
The smart ones (or the lucky ones) quickly realize that with overdose of information they will not be able to accomplish anything.
The Price Action technique uses clean chart that allows the trader monitor the Price and not all the noise surrounding it.
Trading the clean chart
The Price Action technique suggests that all decisions will be based on price movement in a “clean chart” environment. No indicators involved!
By considering several technical analysis assumptions like “all information is priced and reflected in the chart”, Price Action suggests that you don’t need anything more than a candlesticks chart (or Bars) and basic technical elements like Support, Resistance and Trendlines.
The example above demonstrate a chart that is used by a Price Action trader:
1. No indicators!
2. Marking important Support & Resistance line (I’m using Zones).
3. Marking trend lines in order to understand the asset’s direction (trending or consolidating).
4. Some traders add basic moving averages that have a role of Support & Resistance zones.
Since all the trading information (trades, reaction to economic data etc..) in a certain time period is packed into a candle form, the Price Action uses the combination of the candles formations and the potential importance levels (support/resistance/trendline) to make trading decisions. I’ll show some examples below.
The result is a pretty accurate trading system which is simple to understand and has strict trading rules to follow.
Price Action can be used to trade Forex, Equities and Futures. Every trading vehicle with a chart is tradable without understanding any fundamentals at all.
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