Price Action is my preferred market approach and is the foundation upon which my trading systems are built.
I aim to teach you all I know through the articles I write here. Let’s start our learning journey by considering what price action trading is.
What is Price Action Trading?
Price Action (PA) trading is a form of trading where the trader learns to read everything they need to know to trade successfully from only the price movement of their trading instrument or security.
They say that simplicity is the ultimate sophistication.
PA trading is the simplest form of trading, where you look at clean candlestick charts, read the market cycle and price action signals, and trade appropriately for the current stage of the market cycle.
Over time, you will learn how to see all the important price action signals by looking only at the price chart and the price movement.
Then it becomes easier to make the right trading decisions.
I go into greater detail on the ‘What is Price Action Trading?’ article and my free day trading course (coming soon).
Key Concepts in Price Action Trading
As a PA student and trader, you must understand certain key concepts.
I don’t cover every topic, as I simply don’t find things like pin bars, inside bars, outside bars, moving averages, double tops, double bottoms, engulfing candles or wedge patterns all that useful.
I am not a big fan of candle patterns.
But I cover most of the rest here.
Support and Resistance
If you have ever meddled in technical analysis, you will know that key chart levels serve as support and resistance.
A long trade can experience resistance at a chart level where previously there was a swing high. This might lead to a reversal trade entry.
Similarly, a short trade can find support at the level of a previous swing low.
Other levels that might give support or resistance to price movements include:
- Trend lines
- Trend channel lines
- Day highs or lows
- Week highs or lows
- Month highs or lows
It’s helpful to consider all or some of these levels in your trading to read and trade the market accurately.
You’ll also learn to see certain candlestick patterns unfolding at these levels, giving you an indication of what market participants want to do.
Trends
Trends are an essential part of PA analysis. They also constitute a large part of any successful PA strategy.
Every trader wants to see the market trend in his trade direction.
Even reversal-to-mean traders are hoping the market will move in their direction — yet this direction is still a trend move on a smaller timeframe against the initial trend.
So yes — trends matter.
But not all trends are created equal.
Some strong directional market moves are called breakouts. These are fast and powerful moves in one direction.
Legendary PA teacher Al Brooks says that when a breakout occurs in the long direction, it’s an “all in long” and you can “buy for any reason.” The same applies to the inverse.
Then you have tight trend channels — strong impulse waves with minor pullbacks (corrective waves). In these conditions, you still want to trade mostly with the prevailing direction.
Finally, you have wide trend channels.
In these moves, you can trade the price waves of both directions successfully during the market stage.
Chart Patterns
Clean chart patterns on naked charts indicate much for a trader to take note of.
The main chart pattern to identify and identify early is a trading range.
We just spoke about trends, and the absence of any notable trend is a trading range.
In my early trading days, before I discovered ranges, I called these periods “trend freeze” periods.
And that’s exactly what happens.
If you try and trade trading ranges in the same way as breakouts, you’ll get badly hurt.
You’ll continually enter trades in areas of potential reversal — especially if you don’t see reversal patterns forming.
Trading Strategies in Price Action
Once you know how to read PA, it becomes necessary to know how to trade what you read.
For every stage of the market cycle, it is important to have a strategy ready to trade that stage.
Breakout Strategies and Reversal Strategies
During stronger trend moves, a simple strategy that accounts for breakout entries and decisions on where to exit or reverse works very well.
Stop orders are the name of the game.
Range or Channel Trading Strategy
In a price channel or trading range, you want to sell near the top and buy near the bottom.
You also don’t want to aim for overly large moves.
Scalping and limit orders are the name of the game.
The Importance of a Clean Chart
An essential element of PA is having a clean chart.
You’ll only learn how to read the finest nuances of price movement if you study price on a clean chart over time.
This is how you learn both the art and science of anticipating future price movements.
Technical indicators will only serve to distract you.
Rather, focus on drawing lines to help you see important PA patterns and support and resistance levels as they form.
Before we continue, let’s consider something I’ve learned to be essential to successful trading.
Understanding Market Structure
The market moves in strong and often long-lasting impulse moves, interspersed with pullbacks — giving price action a zigzag appearance.
On a higher timeframe (for example, the 4h chart), you may see a long zigzag up, followed later by a long zigzag down.
The tops and bottoms of these zigzags — as they form higher highs and higher lows, or lower lows and lower highs — become important support and resistance levels.
This is market structure.
And it’s remarkably simple.
If all you did was identify the longer impulses in the zigzag pattern, you would already be a successful trader.
But PA goes a step further.
It allows you to trade and benefit from every section of the market structure by teaching you to read live market action and trading accordingly.
Price Action Trading Strategy
As already alluded to, a healthy PA trading strategy involves identifying the current stage of the market cycle, and then having a plan to trade that stage.
When I share my Free Day Trading Course (which is essentially a PA trading course), I will show you how I read PA and how I trade PA.
In theory, it’s all very simple.
In practice, it can be more challenging.
You need to make tough decisions in real time while price is moving and patterns are forming.
If, like me, you trade on very fast timeframes, it becomes even harder.
But with time and practice, anyone can become a great PA trader.
Advantages of Price Action Trading
PA trading has some clear advantages over other trading approaches. Let’s consider a couple.
Flexibility and Adaptability
PA works on all financial markets, including the forex markets, stock markets, and futures markets.
It also works on all timeframes.
You can use it for swing trading or day trading.
Reduced Dependency on Indicators
PA trading helps you trade without an unhealthy dependency on indicators.
In the years leading me to this moment, I have often, out of frustration, tried to find a technical indicator or trading strategy that would give me a proven trading edge.
Little did I realise that I needed to become the edge to really step into my full destiny as a trader.
Common Mistakes to Avoid in Price Action Trading
While it is hard to fail with PA trading, you should not expect this to be a get-rich-quick approach to trading.
You need to invest time and effort to learn all you can about PA.
You’ll need to become an experienced PA trader to succeed.
Thankfully the Price Aligned website is here to help you! You’re welcome 🙂
Also, expect to be wrong sometimes.
Even great PA traders take losing trades up to 40% of the time.
Yet, it is all part of the process.
You can only experience the winners if you learn to live with the losers.
Tips for Successful Price Action Trading
If you are convinced and want to become a successful PA trader, then I have some tips for you.
Continuous Learning and Adaptation
In your quest to become a powerful and free PA trader, continuous learning is encouraged.
But it’s about more than theory.
You also need to get onto charts and do your own PA analysis.
As you spend time looking at what happens on the charts, you’ll start forming your own PA strategy.
You’re also welcome to use my strategies — I will teach and share them here.
In the meantime, focus on learning candlestick behaviour and recognising support and resistance levels.
Do your technical analysis on the charts as you learn.
And keep coming back to this site to read, study, and refine.
Keep Your Emotions in Check
As also mentioned, intuition and subjectivity are important for successful trading.
It’s hard to feel into what is happening and read PA signals if all you can feel is fear, worry, anxiety, and discouragement.
You need to learn how to master your emotions.
I needed to do this myself and discovered some powerful ways to do it.
I will share more about these in the Trading Psychology section.
Conclusion: The Role of Price Action in Trading Success
By now — assuming you’re still here and still reading — I hope you’ve realised the importance of PA in trading success.
Combined with a healthy dose of trading psychology and the courage to make subjective, live trading decisions, I believe this is the one-two punch a trader needs to break through to consistency.
We all know the wonderful potential of trading.
That is why we’re here, right?
If you develop a solid understanding of PA, learn to trade it well, and trust yourself through mindfulness and intuition, you’ll see a serious improvement in your results.
I’m convinced of that.