How to Learn Price Action

Discussion in 'Strategy Development' started by SoCalTrader619, Feb 12, 2008.

  1. Ok... I know that most "successful" traders will agree that Price Action is the basic key to trading. I have been doing a lot of research into price action recently, staring at charts forming, watching the L2, T&S, etc. But sometimes I feel like I don't really know what I'm looking for. I'm hoping that some Price Action traders can chime in and give a bit of advice. What exactly do you look for in Price Action that gives you the information you need to place a trade? What can I do to enhance my Price reading skills? Most say it's hundreds of hours of screentime, but looking for what? I'd appreciate any advice. Thanks!!!
  2. Hang out at the ES Thread, there's always a ton of good traders over there.

    Or hang out at anekedoten's thread, there are plenty of good traders over there too.


    Basically just lurk, pull-up charts and try to see what people are talking about.

    It's a lot of time and work, but worth it.
  3. ganesh6


    I guess some of them are

    Chart patterns like H&S , Triangles etc
    Type of Candles like Doji, Hammer etc if candlestick charts
    Volume patterns corresponding to prive movement

    Experts can add more.
  4. Looking for what? Patterns! Patterns in all their forms and cousins. When the same thing happens again and again. When they disguise the same thing as something different but are doing the same thing. When they're doing one thing for a while and it seems to hold a causial relation to price direction and then that one thing stops. What these things are is up to you and your creativity to figure out. Everyone sees different sets of patterns. Sometimes many traders see the same thing, yet much of what I see many traders I know would not see, and I don't see what a lot of other traders see. Sometimes another trader sees the same thing as me but has a totally different interpretation on the risk levels involved and how the trade should be managed post entry. No one can what you will see, but you have to look for patterns. It's tricky. It's all algos. No one will help you, least of all because what an experienced trader sees he can't teach you to see by telling you about it, most all of all because there is no benefit in doing so. But if you sit there and watch, and trade small size with right risk, you will see patterns eventually.
    Then you have completed the beginning of step 1 in the book of how to trade.
  5. Good advice. Actually, I frequently visit both threads and have found them to be very helpful. I'm willing to put in the screentime, but I wish I knew exactly what I was looking for. It's frustrating to stare at a chart forming all day and not be able to associate any movements in the end. I know others who used to trade off the NYSE Specialist, but since that went hybrid, I'm assuming it's not practical anymore.

  6. Very well put! Gives me a little better understanding on what I'm actually looking for. When reading Price action, do most traders use minute bars (1min), vol bars, range bars, etc?

  7. Don't stare at the charts all day, watch the time and sales and the order book and just know the general chart levels - i.e. glance at it and look at it, but as the price is moving watch T&S and the books. when price approaches support/resistance, see what happens. Learn to recognize what it looks like when they buy a shitload before resistance and then run through that resistance hard, and differenciate it from when the sellers allow trades to go off past the previous high because the previous high wasn't a solid level, even though they intend to sell the stock and it will bounce off the resistance level.

    Watch a few stocks all day long. When you sem moving, look for causial relationships. they're there. when your stock has a 50 cent run, see exactly what it looked like in the prints and book, and on the chart. Keep your thoughts simple.
  8. Minimum of a year, most likely more, to get good enough where you can make consistent coin from price action trading. And thats assuming you bust your ass everyday and learn from everything.
  9. Price is most pure and visable as a bar chart where the increment is based in volume not time or range.

    You have time charts; daily, weekly, monthly, hourly, minutes and seconds. These are noisey do to the variable nature of an inconsistent number of exact contracts or shares traded per bar.

    You have tick charts where each bar is based on a user defined number of transactions per bar but again these are noisey do to the variable nature of an inconsistent number of exact contracts or shares traded per bar.

    You have range charts where each bar is based on a user defined price range that a chart moves regardless of time or volume. These are noisey again do to the variable nature of an inconsistent number of exact contracts or shares traded per bar.

    Then you have Constant Volume Bar charts where each bar is based on a user defined number of contracts or shares traded per bar. This gives a trader the ability to attach an exact and consistent volume to the price bars. Then the number of contract per bar then can be adjusted to the a trader the view of the markets either on an Intraday, Swing, Position or Long Term basis simply by increasing the volume per bar. This gives a trader or investor the purest and most incorruptable view of price action available.

    Candlestick charts are useful as well, when applied to Constant Volume Bar (CVB) Charts but only if the trader or investor already has a strong grasp of the specific meaning attributed to each bar. Because of the varying nature of time, tick or range charts, candlesticks aren't as consistently accurate when applied there as they are on CVB Charts.

    Price, once printed is not able to be readdressed. There are no "Do-Overs" once a trade is executed. The same goes for volume so these two pieces of the analysis puzzle need to be viewed on a chart in a non-wavering non-variable environment and that is what CVB Charts accomplish.
  10. Dustin


    First and best advice I would give to any struggling trader:

    For one year you are only allowed to buy strong stocks, and only allowed to sell weak stocks.

    If every trader on this site followed this, half of you would be profitable overnight. It's just against human nature so most can't follow the rule.
    #10     Feb 12, 2008