Beginner Question

nkhoi · Jul 20, 2007

Quote from johnstac:

Can we talk more about this? What does it mean to read price action?..Thanks again.
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http://www.elitetrader.com/vb/showthread.php?s=&threadid=15110

Stealth Trader · Jul 20, 2007

Quote from johnstac:

Can we talk more about this? What does it mean to read price action? Are you talking about looking at charts and watching trends? Will learning charts like the MACD and others help me in creating my own system? I have heard many say I am not ready to trade. I believe you. I tried it for 6 months a couple of years ago and it was the worst experience of my life. Stress, anxiety, insomnia, ulcers, lol. How I broke even, I will never know. I really want to do it different this time but where do I start? Several people have said to open a paper trade account. Then what? I have heard of technicals and fundamentals but don't know much about them. Are these what you look at to "read price action"? I'm just trying to figure out what reading price action is and where do I begin my education. Thanks to all of you. I really appreciate it and while some have said that ET forum folks can be mean, I have experienced nothing but graciousness. Thanks again.
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Price action is merely the relation of current price in relation to previous price, or modern day tape reading so to speak. You are using a chart to plot price in lieu of a tape. You are comparing the open and/or close of the current bar to where it is in relation to prior bars open and it's close. Simply put, price action is the footprint of money. Reverse the words, price action is the action of price. Is that action up, down, or the same?

To expand, you can use a group or a series of previous price bars to establish price action. Swing highs and lows are price action. Higher highs, higher lows, lower highs, lower lows are all price action, as they show the relation of current price with that of previous price. You can compare the current bar with the previous bar, or the bars either side of a bar. Learn to read price action and you can readily tell whether the market is trending up or trending down, while others will steadfastly tell you trend doesn't exist. This is your edge. The reason others say trend doesn't exist is because they simply are unable to see it. Knowing whether you are entering a trade with the flow of price or against it increases your odds of being correct exponentially and allows you to plan your trade accordingly. Your entires, exits, and stops are all based upon the action of price. Nothing else matters, not time, the moon, voodoo numbers, barking dogs, whether the CEO of a company parts his/her hair on the left or right, or aunt ethel's corns are flared up. Price is king, and price is what puts money into your account. The rest is just noise.

Indicators are a derivative of price, typically the close, and therefore, are lagging in nature. They are a crutch for those either too lazy to learn follow price or lack the understanding of what price is. That's not to say an indicator or two cannot be used to compliment or confirm what you are seeing in price, but using indicators as the main setup for trade entries/exits, in my opinion, is not conducive to long term survival in this business. As you will soon learn, many will disagree vehemently with me. Fortunately for me, this is what makes a market. Only you can decide what to believe and what will ultimately work for you.

Moving on, paper trading is nothing more than trading live without actually using money. It's a simulated environment that you will use to create your own strategy and hone it to perfection. It allows you to learn without monetary loss. Once you are successful trading on a simulator, and only then, should you begin trading live, where the learning curve begins all over again. Real life slippage, entry mistake, and the emotional psyche of using real money can make what seemed like winning method a losing one. In summary, if you are unable to produce consistant profitable results on a simulator, you can rest assure you will not being able to do so trading live. Paper trading is a test and measurement of where you at in your learning curve.

If you do not understand the difference between technical and fundamental analysis, you should really stop right now or be prepared to lose your money. There is no sense even paper trading until you fully understand what each is and how they will or will not apply to your strategies. Note that each has there place, and that trading is not the same as investing; know the difference.

Once you are ready to begin your journey, I can save you a lot of time by stating cross over trading strategies do not work. It seems this is where everyone wants to begin, because it is simple, and it is visual. Cross over methods are trend based and will kill you in periods of consolidation. Other methods that work in consolidation will kill you in strong trending periods. There is no magical indicator that will tell you which market phase you are in. So how do you know which phase you are in you ask? Price action, pure and simple. Now, allow me to contradict what I just said. Price is always trending, this I know for fact, and don't let anyone ever tell you any different. Being I already said consolidation will kill any trend based method, how does consolidation exist if price is always trending? There lies the so-called secret to your success.

I don't advise searching for methods that predict market moves. No one knows the future, yet the majority of traders are always making claims how their work shows the market is going to do this or do that out in time. Trade what is in front of your face, not what you believe will happen or you want to happen. Leave the beliefs to religion, as it has no place or purpose within statistical probabilities of a trading environment. You will read a lot of posts from others stating that the market didn't do what it was supposed to, how it is being manipulated, how they were unfairly duped in getting their stops taken out, etc. The truth is, they simply cannot read a chart, and as such, they are clueless to the move that just went against them, but you will never convince them of this. Don't fall into that trap.

Typically, I don't involve myself in these type of threads, as they usually turn into pi$$ing contests and/or a deluge of PM's from newbies too lazy to do the research on their own, and then want to argue with you how you are wrong. With that said, take what I have given here with a grain of salt, as well as an open mind and choose for yourself. Only, and you alone, are in charge of your destiny.

As for ET members being mean, stick around. I have a feeling the party is about to begin.

st

Stealth Trader · Jul 20, 2007

Quote from fframe38:

You sound a lot as if you are overwhelmed by the information overload. Employ the KISS principle at once - study RAW price action - no indicators, no complications, do papertrading for a good long time until you are seeing consistently positive results with the papertrading. Decide to learn about one small area - take 1 market such as ES - study the history of it, pick a timeframe to concentrate on, watch the charts of price action during the day, how it acts around major news events, before the close, right at the 9:30 timeframe when stock markets begin trading, when Bernanke makes some kind of statements, etc. Determine the position sizing, stop and risk that makes sense for each trade - DO NOT EVER TRADE MORE THAN 1 CONTRACT until you have proven yourself for several months at least.

Ulcers, stress, anxiety, insomnia is a sign that you are way overleveraged, or way ahead of yourself to the point that you don't even understand the implications of the trades you are contemplating. If you are trading correctly, it should be as BORING as watching paint dry. This is because your risk should be so small that several losing trades in a row would not even phase you. Likewise, you will not be swinging for the fences and trying to hit home runs on each profitable trade - they will just be small up and down events. The graph over time of your results should show an equity curve that is gradually rising with some bumps along the way - it should not look like a roller coaster, or an EKG monitor. If it does, you are doing it wrong.

Back when I was 25, I got this great idea to cash advance $20K off credit cards, put it all in a trading account and trade options. I was trading positions of $5K or more on 1 month options. By some strange luck, I actually made about $10K initially on a $5K position because I bought some ES puts about 30 minutes before Greenspan announced a rate hike due to inflation concerns. However, the swings were ridiculous, and I did not learn my lesson until when I took a $10K hit over lunch one day. Let me tell you - it was exciting as hell - but it was very very stupid and it took me years and 2 blown-up accounts to settle down afterwards. Trust me, there are far better and cheaper ways to find entertainment than to create your own in the market.
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Another excellent response. And much pithier than mine!

st

HolyGrail · Jul 20, 2007

Quote from Stealth Trader:

Price action is merely the relation of current price in relation to previous price, or modern day tape reading so to speak. You are using a chart to plot price in lieu of a tape. You are comparing the open and/or close of the current bar to where it is in relation to prior bars open and it's close. Simply put, price action is the footprint of money. Reverse the words, price action is the action of price. Is that action up, down, or the same?

To expand, you can use a group or a series of previous price bars to establish price action. Swing highs and lows are price action. Higher highs, higher lows, lower highs, lower lows are all price action, as they show the relation of current price with that of previous price. You can compare the current bar with the previous bar, or the bars either side of a bar. Learn to read price action and you can readily tell whether the market is trending up or trending down, while others will steadfastly tell you trend doesn't exist. This is your edge. The reason others say trend doesn't exist is because they simply are unable to see it. Knowing whether you are entering a trade with the flow of price or against it increases your odds of being correct exponentially and allows you to plan your trade accordingly. Your entires, exits, and stops are all based upon the action of price. Nothing else matters, not time, the moon, voodoo numbers, barking dogs, whether the CEO of a company parts his/her hair on the left or right, or aunt ethel's corns are flared up. Price is king, and price is what puts money into your account. The rest is just noise.

Indicators are a derivative of price, typically the close, and therefore, are lagging in nature. They are a crutch for those either too lazy to learn follow price or lack the understanding of what price is. That's not to say an indicator or two cannot be used to compliment or confirm what you are seeing in price, but using indicators as the main setup for trade entries/exits, in my opinion, is not conducive to long term survival in this business. As you will soon learn, many will disagree vehemently with me. Fortunately for me, this is what makes a market. Only you can decide what to believe and what will ultimately work for you.

Moving on, paper trading is nothing more than trading live without actually using money. It's a simulated environment that you will use to create your own strategy and hone it to perfection. It allows you to learn without monetary loss. Once you are successful trading on a simulator, and only then, should you begin trading live, where the learning curve begins all over again. Real life slippage, entry mistake, and the emotional psyche of using real money can make what seemed like winning method a losing one. In summary, if you are unable to produce consistant profitable results on a simulator, you can rest assure you will not being able to do so trading live. Paper trading is a test and measurement of where you at in your learning curve.

If you do not understand the difference between technical and fundamental analysis, you should really stop right now or be prepared to lose your money. There is no sense even paper trading until you fully understand what each is and how they will or will not apply to your strategies. Note that each has there place, and that trading is not the same as investing; know the difference.

Once you are ready to begin your journey, I can save you a lot of time by stating cross over trading strategies do not work. It seems this is where everyone wants to begin, because it is simple, and it is visual. Cross over methods are trend based and will kill you in periods of consolidation. Other methods that work in consolidation will kill you in strong trending periods. There is no magical indicator that will tell you which market phase you are in. So how do you know which phase you are in you ask? Price action, pure and simple. Now, allow me to contradict what I just said. Price is always trending, this I know for fact, and don't let anyone ever tell you any different. Being I already said consolidation will kill any trend based method, how does consolidation exist if price is always trending? There lies the so-called secret to your success.

I don't advise searching for methods that predict market moves. No one knows the future, yet the majority of traders are always making claims how their work shows the market is going to do this or do that out in time. Trade what is in front of your face, not what you believe will happen or you want to happen. Leave the beliefs to religion, as it has no place or purpose within statistical probabilities of a trading environment. You will read a lot of posts from others stating that the market didn't do what it was supposed to, how it is being manipulated, how they were unfairly duped in getting their stops taken out, etc. The truth is, they simply cannot read a chart, and as such, they are clueless to the move that just went against them, but you will never convince them of this. Don't fall into that trap.

Typically, I don't involve myself in these type of threads, as they usually turn into pi$$ing contests and/or a deluge of PM's from newbies too lazy to do the research on their own, and then want to argue with you how you are wrong. With that said, take what I have given here with a grain of salt, as well as an open mind and choose for yourself. Only, and you alone, are in charge of your destiny.

As for ET members being mean, stick around. I have a feeling the party is about to begin.

st
More...

Wow. That was expressed so well. Great Job. I strongly suggest you use the above as your trading bible. You won't regret it.

The only thing I would add to that is to keep a journal. Every time I make a trade on ES I place the entry information on the chart along with all of the positive and negative thoughts in my mind as the trade develops until its conclusion. I then copy and paste it to the journal when the day is through and go over it.

When you read price action you know how many points you can reasonably expect from the trade. Your subconcious will screw with you, and tell you to do something that you shouldn't do. Writing down these thoughts helps make them appear less often in the future because success breeds success.

Stealth Trader · Jul 20, 2007

Quote from HolyGrail:

Wow. That was expressed so well. Great Job. I strongly suggest you use the above as your trading bible. You won't regret it.

The only thing I would add to that is to keep a journal. Every time I make a trade on ES I place the entry information on the chart along with all of the positive and negative thoughts in my mind as the trade develops until its conclusion. I then copy and paste it to the journal when the day is through and go over it.

When you read price action you know how many points you can reasonably expect from the trade. Your subconcious will screw with you, and tell you to do something that you shouldn't do. Writing down these thoughts helps make them appear less often in the future because success breeds success.
More...

Thanks for the nod, but it is nothing more than sharing a tale of my having learned the hard way. Yes, a running journal is crucial for the reasons you described. Thanks for adding that.

st

johnstac · Jul 24, 2007

Quote from Stealth Trader:

Price action is merely the relation of current price in relation to previous price, or modern day tape reading so to speak. You are using a chart to plot price in lieu of a tape. You are comparing the open and/or close of the current bar to where it is in relation to prior bars open and it's close. Simply put, price action is the footprint of money. Reverse the words, price action is the action of price. Is that action up, down, or the same?

To expand, you can use a group or a series of previous price bars to establish price action. Swing highs and lows are price action. Higher highs, higher lows, lower highs, lower lows are all price action, as they show the relation of current price with that of previous price. You can compare the current bar with the previous bar, or the bars either side of a bar. Learn to read price action and you can readily tell whether the market is trending up or trending down, while others will steadfastly tell you trend doesn't exist. This is your edge. The reason others say trend doesn't exist is because they simply are unable to see it. Knowing whether you are entering a trade with the flow of price or against it increases your odds of being correct exponentially and allows you to plan your trade accordingly. Your entires, exits, and stops are all based upon the action of price. Nothing else matters, not time, the moon, voodoo numbers, barking dogs, whether the CEO of a company parts his/her hair on the left or right, or aunt ethel's corns are flared up. Price is king, and price is what puts money into your account. The rest is just noise.

Indicators are a derivative of price, typically the close, and therefore, are lagging in nature. They are a crutch for those either too lazy to learn follow price or lack the understanding of what price is. That's not to say an indicator or two cannot be used to compliment or confirm what you are seeing in price, but using indicators as the main setup for trade entries/exits, in my opinion, is not conducive to long term survival in this business. As you will soon learn, many will disagree vehemently with me. Fortunately for me, this is what makes a market. Only you can decide what to believe and what will ultimately work for you.

Moving on, paper trading is nothing more than trading live without actually using money. It's a simulated environment that you will use to create your own strategy and hone it to perfection. It allows you to learn without monetary loss. Once you are successful trading on a simulator, and only then, should you begin trading live, where the learning curve begins all over again. Real life slippage, entry mistake, and the emotional psyche of using real money can make what seemed like winning method a losing one. In summary, if you are unable to produce consistant profitable results on a simulator, you can rest assure you will not being able to do so trading live. Paper trading is a test and measurement of where you at in your learning curve.

If you do not understand the difference between technical and fundamental analysis, you should really stop right now or be prepared to lose your money. There is no sense even paper trading until you fully understand what each is and how they will or will not apply to your strategies. Note that each has there place, and that trading is not the same as investing; know the difference.

Once you are ready to begin your journey, I can save you a lot of time by stating cross over trading strategies do not work. It seems this is where everyone wants to begin, because it is simple, and it is visual. Cross over methods are trend based and will kill you in periods of consolidation. Other methods that work in consolidation will kill you in strong trending periods. There is no magical indicator that will tell you which market phase you are in. So how do you know which phase you are in you ask? Price action, pure and simple. Now, allow me to contradict what I just said. Price is always trending, this I know for fact, and don't let anyone ever tell you any different. Being I already said consolidation will kill any trend based method, how does consolidation exist if price is always trending? There lies the so-called secret to your success.

I don't advise searching for methods that predict market moves. No one knows the future, yet the majority of traders are always making claims how their work shows the market is going to do this or do that out in time. Trade what is in front of your face, not what you believe will happen or you want to happen. Leave the beliefs to religion, as it has no place or purpose within statistical probabilities of a trading environment. You will read a lot of posts from others stating that the market didn't do what it was supposed to, how it is being manipulated, how they were unfairly duped in getting their stops taken out, etc. The truth is, they simply cannot read a chart, and as such, they are clueless to the move that just went against them, but you will never convince them of this. Don't fall into that trap.

Typically, I don't involve myself in these type of threads, as they usually turn into pi$$ing contests and/or a deluge of PM's from newbies too lazy to do the research on their own, and then want to argue with you how you are wrong. With that said, take what I have given here with a grain of salt, as well as an open mind and choose for yourself. Only, and you alone, are in charge of your destiny.

As for ET members being mean, stick around. I have a feeling the party is about to begin.

st
More...

Thank you so much for this information. I have read it over and over a dozen times. I did a google search on "price action on the ym". Not much useful information is available in learning what to look at. For the past couple of days, I have just been staring at the YM chart, tick by tick. Watching volume. Looking for up trends and down trends. Is this what you are referring to? For example today I noticed that a lot of the green bars indicating an uptrend had low volume. I also noticed that the red bars indicating a down trend had large volume. I used this to place 1 contract trades periodically throughout the day. Mostly shorting and an occasional buy. Am I on tract at all or am I not even on the same planet? I didn't add any other charts except for the tick and volume. Is this the only thing I should be studying? I guess there are no books on reading price action? By the way, in doing a search on google for
"reading price action ym" I found a couple of google forum posts by a company called www.acetrades.com. I went to the site and it sounded great until I saw the price. Do you recommend staying away from places like this? Can they help?

Thanks in advance to all respondents, but particularly to stealth trader for taking the time to help out a newbee

johnstac · Jul 24, 2007

I just wanted to thank you guys again for your help. Today I realized that I can't do this. When I am reading the books or studying online, I am in control. When that bell rings though, I become a different person. I have the same problem in Las Vegas. I can read books and practice learning pricing action forever but without the control, it's not going to work.

My first trade was yesterday. I made a trade on the YM and also bought 100 shares of Texas Instruments before the close. These two netted me about $250. Today, I began trading the YM just using the TWS trader in IB. No software. Nothing. Just watching the charts and trading the trend. By noon I had made about $250 and was pretty happy with that. Then disaster. I found a good "get in" point and decided to buy 3 contracts of the YM instead of one. Problem was, In TWS, it prefills that box with 1. Instead of removing the one and making it a 3, I made it a 13 by accident. Well, I saw my P&L moving frantically and then saw what I had done. You have to remember that I was new to the TWS just two days ago. I panicked and couldn't figure out how to close the trade. It went against me in a big way and before I was done, I was over $4000 negative. Well, that isn't completely true. I did sell out of a position and then tried getting on the trend the other way; each time the trend would turn and the losses mounted. At this point, you could just call it stupidity or carelessness for adding the 3 and making it 13 contracts. Here was the defining moment though. At about 3PM EST or so I prayed to God to get me out of this mess and I would quit trading. I saw a downtrend and jumped on it. I bought 20 ym contracts. Remember, I'm $4200 down right now and desperate. I shorted the YM and all of the sudden it spiked down. My losses started disappearing $1000 at a time until I was actually $500 up. Ignoring the promise I made to God, I thought, yes! I'm going to not only break even but make some big cash. Needless to say, the day ended badly. $2200 down. This was a clear message to me that I don't belong in trading. I don't have the self control. I don't believe I could learn that control in a book. Instead of being grateful and getting out when I was ahead on the day, I still couldn't resist the desire.
Not even sure why I am sharing this. I guess I wonder if it happens to others as well. Today I spent $2200 to learn a lot about myself. Thank God it wasn't the $40k I had in the account.

Thanks again for the help guys and happy trading. I wish I was you but I'm not..

mookie9920 · Jul 24, 2007

Self control and emotions are the traders biggest enemy.....just about everyone has the problem of trading with emotions. once you learn to put your emotions to the side you will be a profitable trader....you said it yourself you were up on the day....you made an honest mistake with new software...that shouldn't stop you from trading IMO...

nkhoi · Jul 24, 2007

Quote from johnstac:

I just wanted to thank you guys again for your help. Today I realized that I can't do this. ..

Thanks again for the help guys and happy trading. I wish I was you but I'm not..
More...

good luck on your next adventure, think of it a 'saving' 2K and be happy with your decision instead.

Stealth Trader · Jul 24, 2007

Quote from johnstac:

I just wanted to thank you guys again for your help. Today I realized that I can't do this. When I am reading the books or studying online, I am in control. When that bell rings though, I become a different person. I have the same problem in Las Vegas. I can read books and practice learning pricing action forever but without the control, it's not going to work.

My first trade was yesterday. I made a trade on the YM and also bought 100 shares of Texas Instruments before the close. These two netted me about $250. Today, I began trading the YM just using the TWS trader in IB. No software. Nothing. Just watching the charts and trading the trend. By noon I had made about $250 and was pretty happy with that. Then disaster. I found a good "get in" point and decided to buy 3 contracts of the YM instead of one. Problem was, In TWS, it prefills that box with 1. Instead of removing the one and making it a 3, I made it a 13 by accident. Well, I saw my P&L moving frantically and then saw what I had done. You have to remember that I was new to the TWS just two days ago. I panicked and couldn't figure out how to close the trade. It went against me in a big way and before I was done, I was over $4000 negative. Well, that isn't completely true. I did sell out of a position and then tried getting on the trend the other way; each time the trend would turn and the losses mounted. At this point, you could just call it stupidity or carelessness for adding the 3 and making it 13 contracts. Here was the defining moment though. At about 3PM EST or so I prayed to God to get me out of this mess and I would quit trading. I saw a downtrend and jumped on it. I bought 20 ym contracts. Remember, I'm $4200 down right now and desperate. I shorted the YM and all of the sudden it spiked down. My losses started disappearing $1000 at a time until I was actually $500 up. Ignoring the promise I made to God, I thought, yes! I'm going to not only break even but make some big cash. Needless to say, the day ended badly. $2200 down. This was a clear message to me that I don't belong in trading. I don't have the self control. I don't believe I could learn that control in a book. Instead of being grateful and getting out when I was ahead on the day, I still couldn't resist the desire.
Not even sure why I am sharing this. I guess I wonder if it happens to others as well. Today I spent $2200 to learn a lot about myself. Thank God it wasn't the $40k I had in the account.

Thanks again for the help guys and happy trading. I wish I was you but I'm not..
More...

Perhaps now it will sink in why I and several others advised you to paper trade with the demo before using real cash. If you recall, I also said to learn to use the TWS like it was second nature before placing any trades.

Simply put, you listened to nothing anyone here said, and as such, it cost you. Precisely the reason I rarely ever give trading details.

Today was an easy trading day. The charts were an easy read. You broke every rule ever written about trading, and as such, you deserved to lose much more than you did for your actions, but I am sincerely glad that you didn't.

Unfortunately, I have the feeling you haven't really learned anything today, and will be repeating your mistakes in short order. I hope that is not the case.

st