The term “price action” has recently become a buzzword in the trading world, and at least once a week, I get asked what exactly the term means. To be honest, trading price action really is all of that and more! After all, how many hedge fund managers or other big money-managing traders do you really think make trading decisions based on MACD, RSI, Stochastic, CCI, or any other indicator that is based on nothing more than lagging prices? I can assure you that the answer is closer to zero than one, as most of these market traders are the smartest in the business and know how to trade price action without a doubt.
In its simplest form, price action trading is nothing more than making trading decisions based solely on prices as they are printed on a chart. It is often called “naked trading” because all the mess and confusion of adding indicators is no longer necessary and your charts are clean and easy to see. After all, most indicators are actually derived from past or lagged prices, so those indicators are actually giving you data that is based on past or dated prices. Why would anyone think that this was actually a smart way to trade the markets? When you learn to read a chart based only on what is printed on it, then you begin to understand that there are certain rules or properties that prices actually follow. No, they’re not set in stone like the laws of physics, but these rules and properties hold often enough to give you an advantage when entering and exiting your trades, and that’s what it takes to make money trading. : An advantage!
Trading price action isn’t easy, but it’s not that hard to learn either. It will feel strange at first, especially if you have spent a lot of time entering trades using indicators. Understand that if you put in the time and really learn to read a chart, you will have an advantage over 90% of all retail traders, and that will probably put you in the top 10% of traders who actually survive and profit as market traders. Understand that price action trading works in any market that can be contracted, including stocks, futures, bonds, currencies, precious metals, etc. Trading price action is not something that works in the short term and then slowly loses its effectiveness as the markets evolve. As long as there are markets and charting software, this strategy will give traders a clear trading advantage.
There is a lot of information available on many websites that offer a price action strategy, so make sure you find an instructor who teaches pure price action and not some variation that isn’t a true price action course. Just know and understand that price action trading can and will change your trading for the better!