This is the answer that I was looking for from price action alone players. I guess I wasn't including tape readers. Actually in my mind I was thinking more along the lines of what t'kay said. So I guess then the question should be, 'when you say you trade by price action alone, do you mean you are a tape reader, or a pattern recognizer?'
Floor traders have been using their "secret" pivots formula since perhaps the beginning of Dow Jones. Now it is rather well known since Internet and is very simple to calculate. For Friday it was Pivot (HLC): 7723.52 S1 : 7654.66 R4 : 7938.59 S2 : 7646.16 R3 : 7861.23 S3 : 7629.16 R2 : 7844.23 S4 : 7508.45 R1 : 7835.73 and if you didn't prepare to buy when market retraced to the pivot well ... floor traders would buy with a tight stop. Others would buy with a confirmation signal like a simple MM. Pivots approach is not so esoteric since probability distribution is based on quantiles which is associated with probabilities. Normally this would mean a rather fuzzy approach what is odd is that market is not as fuzzy as probability theory would expect. As for me I used more precise calculation (based on a complex micro-economical model). For example I have a break zone at 7838.84 (see attachment below) so I won't get excited at 7835.73 like the floor traders until it goes above my BRK (BREAK) zone. There is also another pivots system like the floor traders which is called camarilla discovered by a mathematician who was studying volatility but it is not free and stays secret - It is sold 150$ per month (because they don't show you the formula but just the results) - I've looking at it for a full year now and knowing the formula yes it is rather magic since it approximate sometimes rather well my own calculation based on a much more complex model. Of course my model gives the full path of the market and so can give a much broader palette of strategies and also can avoid days when Camarilla doesn't work.
7838.84 on the 1 minute chart shows that it was a near perfect cutting zone (that is to say your stop can be very very tight):
I've always called this method trading 'trading order flow'. Whatever it's called, it's certainly more immediate and revealing than looking at a 1,2,3 or 5-minute chart.
I have always wondered how they come up with those S/R levels. But frankly I have never been able to see how you could use those numbers profitably anyway.
I've had very good success lately trading simply off price action using only M and W formations along with just data from previous day. The only indicator I use with this is ADX which I have grown to find useful for verification. Basically watch 10 stocks to see what thet do relative to previous day and have found most generally if they don't breakout or breakdown will cover most of their ATR in the direction I expect.
There is a blue paper with these levels distributed to the floor traders on the pit so it seems that officials want to incite them to use these levels . But every floor traders know the formula Pivot= (high + low + close)/3 1st resistance : (2*pivot) - low etc. to use them you have to be very disciplined : you sell when it approaches the resistance with a tight stop and if it failed you then buy agressively expecting a big move. So you must understand that a FAILED signal is also ... a signal, in fact a very strong signal because what makes the market move dramatically are traders having committed ERRORS. Only traders on the wrong side are in a hurry whereas the others stay on the sideline . When I say that failed signal is a signal novices do not understand generally, they think it is just an excuse to be wrong
Larry William said that opening is very important and I really do agree so that although I can have a bias at closing for the next day I always wait for the opening to confirm. But since I want confirmation as soon as possible I use globex opening which is long before RTH opening. For that I have levels also based on my model and obervations:
The most successful trader I know personally trades nothing but price action. He does not use any indicators and his system is completely mechanical. I personally watched him trade his system and couldn't figure it out. But years later he finally revealed to me what he does and he still does it today. All I can say is it not, I said it is not, amazing, magical, nor are there any secrets! Personally I have a induction algorithm that is capable of creating a price behavior forecast for the next 30 minutes, 30 days, or 30 weeks in advance, or any time frame for that matter. But I prefer the long term weekly forecast using cheap options, so I'm not sure I will ever use the profitable short term system. I have been trading for 20 years and still enjoy it. If you want some fresh ideas about creating indicators read Steve Wolfram's A New Kind Of Science.