This will be a series of videos and articles about price action and how to trade using price action, instead of using indicators.
When you browse through the web looking for information on day trading, you will very often come across pages or videos with charts that look something like THIS or THIS…
But, when you see charts like this you can be sure that almost always the trader who uses those types of charts are just trying to overcompensate for his lack of confidence in his analysis, OR simply put… that he does not know what he is doing. He is probably not very successful. I don’t like to badmouth other people, but that is my strong belief.
Because, I speak from personal experience.
I started with trading and chart analysis back in 1995. I still remember how I learned about day trading, and I still remember my very first trade! When I started out, I also thought that I needed to use charts like that with many different indicators that would tell me if there was a trend and if the trend was strong, when that trend was going to end, when it would lose steam. I would also be worried about one indicator not giving me the correct outlook so I would use another indicator that would confirm or reject the first one…and so on…
Pretty stupid. But hey, that’s easy to say in hindsight!
In a discussion I had some years later with an experienced trader who would later be my trading mentor, I asked him how I could become as successful as he was. The answer I got was kind of strange to me at the time, and to be honest I really didn’t understand the implications it would have on my trading back then, but what he said was, “The first thing you need to do is to remove every indicator that you have in your chart.”
I was like, “What?” How would I be able to find any trades without indicators, without the MACDs, RSIs and moving averages?
In wanting to become a day trader, I took his advice because I REALLY wanted to become a successful day trader. I got rid of everything except Open High Low Close bar charts and Volume. Most traders today use candlestick charts, but I use the OHLC bars. They tell you the same thing, but candlestick charts can actually provide a bit more information that you usually don’t have with the bar charts, and that’s the hollow candlestick vs. the solid candlestick. But it doesn’t matter – you can be successful with OHLC bars and you can be successful with candlesticks. If I would begin day trading today, I would probably pick candlesticks, but I’m just used to the
OHLC bars after looking at them for close to 25 years.
Anyway, looking at those “naked” charts without any indicator, at
I also noticed that there was something going on with the price bars themselves. Sometimes they would be very long and sometimes they would be very narrow. Sometimes the price bars would be huge and the volume would be huge at the same time. Sometimes the price bars would be very narrow but the volume would be huge. What was going on? The price bars could form a short trend and the volume would increase for each bar until the volume spiked and there was a certain type of bar that formed the top of that trend, of that wave. Then, after the price had consolidated for a while, the price bars started forming a similar short term trend but it didn’t get far this time. Looking at the volume I could see that it did not increase the way it had done the previous time. Something was definitely up with the relationship between price and volume. I became totally intrigued with this idea of only using price bars and volume, instead of looking at indicators and lines. The more I studied charts the more details I noticed. I could see different types of bars, different behaviour of the volume, I could notice different stages of the market, uptrends, downtrends and sideways moves, all with distinct price action that would repeat every time. I knew I had struck gold!
There will be more on this topic next time, I will continue this series of price action analysis videos, so please subscribe to our Youtube channel now and stay updated when the videos are released.