Trading Video Lesson 1 – Price Action vs. Indicators

This is the first in an installment of ongoing trading videos where Day Trade to Win founder John Paul explains the basics of day trading.  Since most traders come to us wanting to scrap their indicator setup and use only price action to trade, this Lesson 1 video focuses on the differences between indicators and price action trading.

Before we get too far ahead, indicators are little programs that run inside of a day trading platform.  Indicators are meant to provide a trader with helpful advice in gauging market behavior, and in some cases, telling the trader exactly when and how to place a trade.  Indicators are very appealing for these reasons.  However, traders should be cautious because most indicators lag behind real-time price activity, meaning the advice they give can often be inaccurate.

At Day Trade to Win, we teach traders how to assess marking conditions using price as it plots in real-time.  Using only price and its relation to time, we can estimate how good for trading the market is, where to enter the market, how much profit we should be taking, and where to put a stop loss in case the trade goes against us.

In the video, John Paul points out a common problem with the popular SMA (Simple Moving Average) indicator.  Like most indicators, the SMA depends on a parameter (a configurable variable) to adjust its operation.  If you do not know the correct value to use for real-time market conditions, the indicator becomes worthless.  You end up looking at history to see what value worked best in the past and then adjusting the indicator for expectations of improved future results.

John Paul does not use the SMA, stochastics, bands, waves, or any other type of regular system.  For a five-minute E-mini S&P chart, he typically uses a BarTimer and an Average True Range.  You’ll have to watch the video to see why these tools are important and how to use them to your advantage.  For TradeStation users, we offer a BarTimer for free as a download.