Price Action Only

[TraderBG 10]

The day my trading really started to improve was the day I started removing them one by one. The finer improvements have included better and better observation plus gradually honing my key trading tool - me!

This has definitely been the case for me as well. I used to spend thousands of hours studying various indicators trying to devise the perfect trading setup. Unfortunately,I never could translate that hard work into a consistent profit, and I feel like I came away from that knowing very little about the market.

[DbPhoenix 42]

The indicator phase is something that probably everybody probably has to go through, whether it's MAs, stochastics, MACD, %R, VWAP, MP (if you're looking only at the form), Pivot Points, Fibonacci, Bollinger Bands, chart patterns of one sort or another, candles, or even the price bars themselves (range bars, CVBs, tick bars, VSA, etc). And if one can make that endeavor successful by going through the necessary testing and developing the necessary plan, then there's absolutely nothing wrong with settling into that phase for the rest of one's successful trading life.

 

Since all of this depends on its existence on the movement of price, however, it is all "price action", hence the confusion over what is meant by "price action". But trading by price means simply that one is following price flow (not order flow, but the movement of price) and the imbalances between buying pressure and selling pressure that prompt that flow. It has nothing to do with any kind of indicator or any sort of bar or even any kind of chart. Is it superior? Yes, if it makes more money than an indicator-based approach. If it doesn't, then no. Does it get one into moves earlier than an indicator-based approach (including those which focus on bars)? Yes, if one understands the buying-selling dynamics mentioned above. But getting in early is only part of what is required to make a profit. Otherwise, all counter-trend traders would be rich.

 

Though there are undoubtedly price action people who look down their noses at indicator people, the PA people have no reason to feel superior. And contrary to the beliefs of some indicator people, the PA people do not fail to understand indicators; they just don't see the point (other than perhaps scanning a database for price movements). In most cases, the latter have in fact gone through all this, as mentioned earlier, and had insufficient success with it, just as they've been dissatisfied with the chat room phase and the newsletter phase and the advisory service phase and the red-green arrow software phase and the seminar-course-workshop-DVD phase and the trade-the-news phase and the chart pattern phase and have instead found a more comfortable fit with a focus on price flow.

 

It's all about the money and how one chooses to go about getting it. There is no inherently better way, particularly if the trader doesn't care to do the work. A good fundamentalist, after all, will beat a bad technician any day. Therefore, if one is using indicators but has no idea how they're calculated, much less done the testing necessary to make the most of them, he is unlikely to reap the full -- or any -- benefit. If one is trading price flow but embraces irrational views of what constitutes support and resistance, he is similarly unlikely to reap the full benefits of that approach. Either way, it's all about study and testing and screen time. Without that, it makes absolutely no difference how one goes about the process of entering and exiting a position.

 

Those who are interested in how price action is traded would do well to visit the TL chat room as there are several people there who do just that. And it's free.

[Guest MRC & Co]

But trading by price means simply that one is following price flow (not order flow, but the movement of price) and the imbalances between buying pressure and selling pressure that prompt that flow. It has nothing to do with any kind of chart.

 

What do you mean, a chart alone shows pure price action........

 

Order flow shows the imbalance between buyers and sellers that moves that price.

 

BTW, I would say 99% of successful intraday traders, simply use these two. The order book and price.

 

[OAC 10]

This famous quote by Bruce Lee summarize my attitude toward indicators perfectly:

 

"Before I studied the art, a punch to me was just like a punch, a kick just like a kick. After I learned the art, a punch was no longer a punch, a kick no longer a kick. Now that I've understood the art, a punch is just like a punch, a kick just like a kick. The height of cultivation is really nothing special. It is merely simplicity; the ability to express the utmost with the minimum "

[DbPhoenix 42]

What do you mean, a chart alone shows pure price action........

 

Price flow is independent of the means chosen to illustrate it. Unless one is following a one-tick chart, everything he's looking at is to some degree a summary of the flow, not the flow itself.

 

Order flow shows the imbalance between buyers and sellers that moves that price.

 

It can, but price does not move until there's been a transaction. If a buyer and seller cannot come to an agreement, then there's no transaction, regardless of how much of an imbalance there may be.

[Hlm 10]

It's strange how I have yet to meet a professional chart trader in person (and I have met many) that trades with absolutely no laggers. Of course a few of them only have a couple moving averages here and there. However, that doesn't mean they aren't out there. I have never been to Australia in person but I hear they are nice people . While the pure Price/Volume guru may claim "you don't need it"...one who uses them would respond "yeah, I know...but why not". In other words, they know how the market moves and know exactly what information they can extract from indicators to simplify and expedite the discovery process. Yes, the majority of indicator junkies put the cart before the horse, but that doesn't mean you need to get rid of one of them. Once one goes through the indicator stage and finally learns how to read the market, many (that I know of) go back and get the tools needed to show the specific information they want. Also, the fractal nature of the market actually helps remove much of this so called "lag" if used correctly and if the limitations are known (like everything else). As for trading via comparing large and small volume...imo it lags as much as your standard indicators. If big volume comes in, the longer time frames have already taken their positions. If you get a restest on smaller volume is that not just the smaller time frame playing since the larger one already has their position. Of course you have to wait to be sure that larger volume doesn't step in (ie lag). However, I am probably in the minority that don't believe reading volume is necessary in a 'efficient' liquid market. But of course me saying it's not needed doesn't mean someone can't find it useful. Just like with indicators, you have to know it's limitations.

 

To summarize...indicators (including volume) are not needed to trade successfully. The important thing is that one spends the time watching the market and learning the all important ebb and flow. After enough time and understanding is gained, if one wants to simplify the gathering of information via indicators then whos to stop them.

[ZOSO 10]

It's because the guys who trade off price action are the ones who are LOADED!

 

Yet to meet anybody close to them yet!

The facts don't change and I believe most of these PA traders do no better than others--that is, 95% of them also lose money.

 

If you believe that the elite 5% who extract the money out of the markets are predominatly PA traders, I have a bridge in Brooklyn I want to sell you.:rofl:

[BlowFish 10]

Or one can play hammers,pin bars,key reversals, double tops or a variety of other 'patterns' at levels of potential support or resistance. For a price level to be rejected price has to move away from that level when all is said and done. How long you decide to wait for confirmation determines 'lag'. (whether watching price itself or a derivative).

 

There a couple of interesting threads in other corners of the interweb where people have demonstrated (in real time) trading S/R with simple easily recognisable 'PA patterns' ('pinocchio' bars seem to be a favourite).

 

I think that something along these lines is probablly the simplest, least ambiguous way to get a pretty decent edge in the markets.

[BlowFish 10]

The facts don't change and I believe most of these PA traders do no better than others--that is, 95% of them also lose money.

 

If you believe that the elite 5% who extract the money out of the markets are predominatly PA traders, I have a bridge in Brooklyn I want to sell you.:rofl:

 

How much do you want for it:question:

[Kiwi 16]

The facts don't change and I believe most of these PA traders do no better than others--that is, 95% of them also lose money.

 

If you believe that the elite 5% who extract the money out of the markets are predominatly PA traders, I have a bridge in Brooklyn I want to sell you.:rofl:

 

I can't prove it but I think you'd be wrong about that.

 

Most people start trading with a variety of indicators. Only after time do they abandon them and move towards price action. This move seems to take a number of years in most cases that I am personally across. If we say that 95% of people who start trading will fail then under any reasonable statistical distributions a large proportion will take place before indicators are abandoned. I seem to recall a 90% in six months figure once but lets say thats too dramatic - 90% in 2 years. And if its even and most PA traders took a year to wake up then well over 45% of traders will have dropped out by then. Of those left the survival rate will thus be much higher than 5%.

 

The other group of PA traders that would skew the distribution are those who were trained in PA trading either at a prop shop or by a mentor. I don't know what the failure rate at the shops is but I suspect that personal training reduces the failure rate.

 

 

Thus, if one believes that PA trading is usually an evolution from indicator trading or a result of training the failure rate will be substantially under 95%. One doesn't have to believe that PA is better than IA to accept this - belief that PA is superior would further improve ratios.

[VolumeJedi 10]

The facts don't change and I believe most of these PA traders do no better than others--that is, 95% of them also lose money.

 

If you believe that the elite 5% who extract the money out of the markets are predominatly PA traders, I have a bridge in Brooklyn I want to sell you.:rofl:

 

I think there is a bit of semantics involved here.

 

* The vast majority of the elite are going to be price action only type traders.

 

* A smaller amount of this group, do in fact use indicators to trade.

 

* And a group that is larger than the second but smaller than the first do have MACD or RSI or a moving average on their screens. However, they do not base their trading decisions on the indicators. The indicators are only there to show the traders where/when/why the uninformed (read vast majority of indicator traders) are entering the market. The fact that they have an indicator on the chart does not mean they are not price action only traders.

 

Therefore the largest majority of the elite are price action only traders. Despite the fact that some in this group would actually still have an indicator or two on their charts.

 

The next issue with semantics is what you are calling an indicator.

 

Is volume an indicator?

Are market profile lines indicators?

Are floor pivots indicators?

What about trend lines and channels?

Is Pyrapoint an indicator?

What about horizontal fib lines?

 

certainly all the above are used to indicate various elements of price movement in time , space, or in price itself. But isn't that what Williams blau's Ergodic does? Or woodies CCI? I consider myself a price action only trader, but I use volume and do not believe it is an indicator. At the same time, I believe volume is the indicator.

[jonbig04 10]

Indicators aren't evil, they just engender laziness IMHO. To me trading price only makes complete sense, but Im sure there are other ways to skin this trading cat. For whatever reason, all the successful traders I know understand PA first and foremost. About the 95% thing, I think that has more to do with discipline than anything else...and to me, not bothering to learning how the markets move and instead hoping you can just rely on what an indicators says is a form of non-discipline.

 

BTW Im just a noob, and I never went through the indicator phase...at least in the traditional sense. I looked at ADX for a day or so, that quickly became pointless. The only indicators I have now are volume and a script that plots the opening range high and low. Those are indicators sure, but I could trade the same way I do now without them.

[Guest MRC & Co]

Price flow is independent of the means chosen to illustrate it. Unless one is following a one-tick chart, everything he's looking at is to some degree a summary of the flow, not the flow itself.

 

 

 

It can, but price does not move until there's been a transaction. If a buyer and seller cannot come to an agreement, then there's no transaction, regardless of how much of an imbalance there may be.

 

Yes, but you can still see tick by tick movement on a chart. As you can see it in the order book. Hence, you can trade pure price action through either.

 

If no trades take place, then there is no imbalance between supply and demand regardless of what is 'shown' in the order book. That's why only what hits market and when is the crucial part of the price ladder/order book. The rest is just noise, mainly created by algo bots or traders stacking and pulling orders.

 

Hlm, I don't know which 'professionals' you have met, but I've met many, including some of the most recognised ones in the world, and they don't even have a moving average on their screen, let alone MACD or RSI. HH and HLs are enough to tell trend, multiple timeframes will give a better indication of important levels.

[Hlm 10]

Hlm, I don't know which 'professionals' you have met, but I've met many, including some of the most recognised ones in the world, and they don't even have a moving average on their screen, let alone MACD or RSI. HH and HLs are enough to tell trend, multiple timeframes will give a better indication of important levels.

Yes, I am sure that there are a large amount that do. My comment was mainly based on the idea that I know professionals that use them. Not so much as there are non out there that don't. Also, many times one finds themselves surrounded by what they themselves preach. I would agree that the majority of professional traders are able to trade successfully to a certain extent via the simplest definition of a trend. But the benefits between leaving it at that and automating certain aspects are very muddy and can be argued til the cows come home.

 

Also, a quick note that's a little off topic...I find it interesting that you use the phrase "some of the most recognized ones in the world". From my experience, it seems like a big portion of the extremely successful traders out there try their very best to stay out of any spot light. Now I am not putting down any of the so called "most recognized", but one should not get confused and assume that they are the norm in the professional field.

[OAC 10]

 

Hlm, I don't know which 'professionals' you have met, but I've met many, including some of the most recognised ones in the world, and they don't even have a moving average on their screen, let alone MACD or RSI. HH and HLs are enough to tell trend, multiple timeframes will give a better indication of important levels.

 

If I meet one of the world-renown professional traders that you are talking about, I would not be surprised if they say we are just trading "market noise", as most of us are intraday Index Futures traders looking at 1-min, 5-min, or tick charts charts. :o

[erierambler 10]

Hello to those just starting out . If I was to start all over I would just use price , as volume on the ES does nothing for me intraday. I would study price movement in such a way to identify what is happening on days that price moves and what is happening on days that price does not move. Then try to identify what has happened when price begins to retrace. Also what constitutes a reversal. Study price at these junctures and find out what occurs over and over again to give you an edge. Print out the charts for each day and mark them up. Higher high, lower high, lower low, higher low, last swing low, last swing high, retracements, reversals, and trendlines. Write down what you are seeing as price is moving throughout the day and match that up to your marked up charts afterward. Find out what works for you as everyone seems to see things differently, therefore make your own definitions and structure. As one gets these basics down , other opportunities will fall into place on their own. First learn , then trade, the market will be there when you are ready. Anyway hope that helps some.

erie ( always learnin' )

[DbPhoenix 42]

Yes, but you can still see tick by tick movement on a chart. As you can see it in the order book. Hence, you can trade pure price action through either.

 

Yes, that's what I said. Price flows regardless of how -- or whether -- one chooses to detect or illustrate that flow.

 

If no trades take place, then there is no imbalance between supply and demand regardless of what is 'shown' in the order book. That's why only what hits market and when is the crucial part of the price ladder/order book. The rest is just noise, mainly created by algo bots or traders stacking and pulling orders.

 

There can be an imbalance between supply and demand leading to a failure to complete a transaction regardless of what's posted where. And I'm sure there's lots of noise in your book. But there is no such thing as noise amongst completed transactions. Every transaction means something to somebody and contributes to price flow.

[ZOSO 10]

Since someone here mentioned what "professionals" are watching, I want to add a comment that applies to that group who daytrade futures directionally. The vast majority are scalpers who trade size. They make their money asap and then stop trading for the day. This is how they make their living. Trade 50+ ES cars for 2-4 ticks and see ya.

 

All the talk of HH/LL/ABC/123, and indicators mean nothing to these traders as they are rarely around to watch these formations and patterns and nor do they care to. They watch the DOM and then pounce when the probabilities are in their favor.

 

I dare say none of those types are posters on TL.

[OAC 10]

All the talk of HH/LL/ABC/123, and indicators mean nothing to these traders as they are rarely around to watch these formations and patterns and nor do they care to. They watch the DOM and then pounce when the probabilities are in their favor.

 

.

 

If they do have one minute chart or something on their desk, they probably wouldn't have anything on it except candlestick, same is true with floor brokers. But to suggest that a blank chart is the key to success for a screen trader is absurd.

It is like saying the two richest men in the world Bill Gates and Warren Buffet both wear glasses, and if you wear glasses, then you will have a better chance of becoming filthy rich. :rofl:

[ZOSO 10]

If they do have one minute chart or something on their desk, they probably wouldn't have anything on it except candlestick, same is true with floor brokers. But to suggest that a blank chart is the key to success for a screen trader is absurd.

It is like saying the two richest men in the world Bill Gates and Warren Buffet both wear glasses, and if you wear glasses, then you will have a better chance of becoming filthy rich. :rofl:

I didn't say they have blank charts. Of course they have charts, but whats on those charts is not what drives their decision to take a trade.

[Guest MRC & Co]

If I meet one of the world-renown professional traders that you are talking about, I would not be surprised if they say we are just trading "market noise", as most of us are intraday Index Futures traders looking at 1-min, 5-min, or tick charts charts. :o

 

To an extent. The ones I am talking about are intraday futures traders, but also run spreads of any duration of time. Most of the big money comes from the recognition of when the paper is hitting market and getting onboard with huge size and then finding a way to get out.

 

You would probably know though, as you are one yourself.

 

Someone said they keep a low profile, absolutely.

 

Zoso, I work with these 'scalpers' and have been one myself for a little while, after finishing up trading off daily charts. They don't just scalp a few ticks, it all depends on price action. If it's flicky and in a range, they will take flicks. But generally, they are looking to run HUGE size for as long as they can. Most scale in and out of positions. Nearly all note trend structure, HH, HL etc. Yes, most use the order book mainly and also look at charts for important levels and simple price patterns (usually not the ones you read in books, but the patterns that relate to your given market(s)). But don't talk of how scalpers trade or what they do when you admit yourself you are not one.

Edited December 14, 2008 by MRC & Co

[tblack 10]

We all have what works for us. This method is my bread and butter. I love learning. The market offers an unlimited supply of methods to learn. But don't confuse learning with what works for you. If you find your style, use it. For me, as Zoso qouted, 2 or 3 trades averaging one minute in/out. Walk away so I will be clear the next day. I know what it takes to live my lifestyle and I am happy with that. And yes, it is a very simple lifestyle.

[BlowFish 10]

Since someone here mentioned what "professionals" are watching, I want to add a comment that applies to that group who daytrade futures directionally. The vast majority are scalpers who trade size. They make their money asap and then stop trading for the day. This is how they make their living. Trade 50+ ES cars for 2-4 ticks and see ya.

 

All the talk of HH/LL/ABC/123, and indicators mean nothing to these traders as they are rarely around to watch these formations and patterns and nor do they care to. They watch the DOM and then pounce when the probabilities are in their favor.

 

I dare say none of those types are posters on TL.

 

Of course 'professionals' would watch different things depending on the nature of their profession. There is an extraordinary level of naivety shown by many retail traders when it comes to recognising the diversity of participants in today's markets. Actually the same could be said about many 'pros'.

 

I wonder what you mean by "daytrade futures directionally"? I guess you are seeking to exclude traders that are not profit motivated like hedgers, or maybe arbitragers both who might be happy to be 'on the wrong side' of directional moves. Kind of confused everyone trades directionally though some participants are not bothered about market direction.

 

Also I wonder your source for "the vast majority are scalpers that trade size"? I guess that is simply your contention as little (beyond the CoT) is known about the volume traded by different types of participant. You would still have to discount the lions share of volume as non "directional" to arrive at that conclusion though. Still as I am not sure who you are excluding this might well be moot.

 

Even scalpers trading momentum are aware of highs and lows in the tick flow, well the good ones are You could argue that scalping is the purest form of trading 'price action'. Put another way 'tape reading' is based on 'price action' and momentum.

 

I guess I may as well go for the clean sweep and question all your points I think you might be surprised by the background of some of the posters here.

[darthtrader3.0beta 10]

Also I wonder your source for "the vast majority are scalpers that trade size"?

 

Its even worse than that..how can anyone at retail even have a clue about the markets and call themselves a "scalper"???..Retail scalpers are morons taking extremely small "positions" profit target wise, probly don't even know they are being front ran numerous times by algo market makers before the quote even hits their eyes..I guess the whole few years I've been into this game makes me old school that to be a scalper you buy the bid, sell the ask, make a market with your capital and collect the difference...

what an original idea that is.

[Guest taskyneem]

Price is our most direct link to supply and demand. Supply and demand are fueled by 2 immutable human behaviors: fear and greed. So in essence, by trading PA you are attempting to read and anticipate the natural reoccurring human behaviors that drive the market every day. Please don't make any mistake, I am no expert...Im just a noob, but when you get into PA the market starts to make sense in so many ways, its nothing short of amazing.