Price action trading can be defined in many different ways. For the purposes of this article, Price Action Trading is defined as a move in price either up or down on any and all charts in any market. You can use price action trading to scalp or swing trade. Price action trading does not use indicators such as Williams %R, Stochastics, MacD etc… Those types of indicators are lagging. They do not show current price action.
What time frame is best for Price Action Trading?
Price Action Traders can use various time frames. Some use the 5-minute candle, the 10-minute candle, the 15-minute candle, or the 60-minute chart. Others use the daily charts. Some traders will use tick charts or volume charts to help them determine the timing of trade entries and exits. Whatever makes a trader comfortable is the time frame which is best for them.
Which market is best for Price Action Trading?
If you are day trading an underlying such as SPY, you will need a minimum of $25,000 balance in your trading account to bypass the pattern day trading rules. If you choose to day trade, check with your brokerage firm to determine if they allow a cash account to day trade the equities. A cash account may allow you to day trade underlyings such as SPY and not be subject to the day trading regulations. Once again, you must check with your brokerage firm to determine their regulations.
Some traders will use the futures or forex markets to trade price action. Some of the futures and forex are better than others to trade. As a trader, you will want a market which will allow you to enter and exit a trade quickly. You as a trader want a market which has liquidity so you minimize slippage. The reason you want an underlying with minimal slippage relates to getting in and out of your trade at the price you desire. Many traders use E-mini S&P 500 futures, or ES contract, to avoid a lot of slippage. ES is the mini-futures contract for the S&P 500. The ES market is widely traded, and thus offers great fills, usually with small slippage.
When using price action trading, many traders will use candlesticks.
Candlesticks alone are not enough reason to take a trade. A trader must consider areas such as consolidation, support and resistance on the price chart, along with the candlestick pattern. Previous price action can help determine possible price movement in the near future. A key to becoming profitable in trading is to determine your entry point and at the same time have a stop loss in place along with a target profit point. Many traders will use multiple contracts when entering a trade. As price moves in their direction, they will take some of the contracts off to lock in some profit. Then the traders will allow the remainder of the contracts to “run” for the possibility of greater profits.
Risk management is very important in price action trading as in all types of trading. You as a trader must test your method extensively using a simulator. A good place to obtain a free demo account with a simulated platform can be found at:
Once you begin to trade live, your trading results will probably be different than when you were using a simulator. Your emotions and your determination are key to your trading success.
Becoming a price action trader can be a long road. Mack (at Price Action Trading System) says it takes many hours in front of the computer to become a profitable price action trader. At the time of this writing, Mack offers free tutorials on YouTube most days. Learning from Mack is time well spent. It may not be easy. Eventually your eyes will open to a new way of seeing charts and price action.
Track your results…
It is very important to track your trading. When your trade has completed, print out the chart to review your trade or trades. What made your trade profitable? What made your trade unprofitable? Did you enter at a support/resistance area? Did you have a stop loss in place upon entry? Did you have a target profit in place at the time of entry?
Price action trading takes time to learn. It is a craft. As with any type of trading, once the craft is learned you will be rewarded greatly. When you learn and apply some of the basics of reading price action, you will be able to apply the information in all aspects of trading taught here at Capital Discussions.
Stay determined and focus on becoming a consistently profitable trader. Feel free to comment below.