Price Action Trading has a rich history. As humans, we are not big fans of probabilities. I think because of this it is natural to want more information before making a decision. From my experience, two types of people exist: those who make decisions on a whim and those who need as much information as possible to make a decision. For the record, neither of these two types of people make good traders.
Price Action Trading Futures Explained
- Price Action Defined
- To Be A Mess Or Not To Be A Mess
- Identify Trending versus Consolidating Markets
- Trade Price Action In The Futures Market
What Is Price Action?
Price Action Trading is the discipline of making all of your trading decisions from price. This means that you are taking your cues from the most leading thing you can, price. No lagging indicators are used in price action trading. This may seem difficult in the beginning for the new trader, but this is the best way to trade. We use dynamic support and resistance with market movement to identify the highest probability areas to enter.
Since price charts reflect the beliefs and actions of all participants (human and computer) trading a market during a specific period. These beliefs are portrayed in the price chart in the form of price action. Using lagging indicators like MACD, stochastic, RSI, or the latest coded oscillator/indicator is a complete waste of time. Let us take a look at two scenarios:
To Be a Mess or Not to Be a Mess
The image below shows a clean price chart, with no mess, no indicators, and just pure price action.
A simple chart like this is much easier to read, but it takes skill to develop the ability.
This next chart shows a convoluted mess with lots of clutter, indicators, and just mess.
You can clearly see which chart is easier to read. Lagging indicators take attention away from what matters the most. All indicators are derived from price action, so by adding more and more indicators you are just adding more variables for yourself.
We already know that the brain does not like probabilities, therefore, the more variables exist the more obstacles for the brain. It comes down to would you rather make trading easier or more difficult?
Trending VS. Consolidating Markets
As we discussed above, price action trading analysis is the analysis of the price movement of a market over time. From our analysis of price movement we can determine a market’s directional bias or or lack thereof. By using pure price action we can easily see where a market is likely to go. Looking at price at its most basic level we look for higher highs, higher lows, lower highs, and/or lower lows. In the chart below note how price action consolidates before moving.
Price Action Trading in the Futures Market
If you can trade one market you can trade any market. I do not care what anyone says, that is the way it is. The above chart shows direction, but also important inflection points that a trader can take advantage of. It is important to know where price is compared to where it has been, and these inflection points. Where is it likely to go next, and will it continue or reverse? These are questions you should be asking about the market to keep you aware of what it is doing. A solid understanding of price action will make you a better trader.