After going through many articles on how to use the indicator and how to find trends effectively, in this article we will focus on the skills of a Price Action trader. I believe this part will also be useful to other investors, even though they don’t follow the Price Action school. Because it has more to do with people (emotions, discipline) than with the market. Here are 5 rules to always keep in mind for a Price Action trader.
- 1 Price Action trading rule 1 – Analyze the price first
- 2 Price Action trading rule 2 – Don’t try to remove all indicators
- 3 Price Action trading rule 3 – Keep candlestick charts clean and simple
- 4 Price Action trading rule 4 – Don’t care about the name of the pattern, try to understand its meaning
- 5 Price Action trading rule 5 – Don’t trade in low liquidity markets
- 6 Conclusion
Price Action trading rule 1 – Analyze the price first
When observing the chart, you must look at the price first and answer the following question. What is the price doing?
Prioritize to observe and analyze the price first then you can do whatever you want. So when you glance at your favorite moving average or the Bollinger Bands for example, you need to find the original information base based on price. From there, you have your own overview, and then you should analyze technical indicators.
Because I don’t want the information from the indicator to affect my overall perspective, now I have removed all indicators on the chart, only keeping the price. This makes my ability to identify and read price action more accurate and less subjective. If you have a favorite indicator, don’t throw it away. Just make sure to look at the price first.
Price Action trading rule 2 – Don’t try to remove all indicators
Price Action traders don’t deny the usefulness of indicators and do not consider the whole indicator useless. They will feel free to keep a few indicators that help in their judgment and entry while still ensuring the ability to analyze the market’s price action accurately.
Before removing an indicator, ask a few following questions:
- Why do I use this indicator?
- Is it more beneficial to use it than just price analysis?
- What is its value to market assessment?
If it’s still useful, use it. Don’t let the Price Action label affect your comfort in analyzing with a particular indicator.
Price Action trading rule 3 – Keep candlestick charts clean and simple
Our goal is to keep the price action simple but as noticeable as possible. So don’t mess it up with tons of indicators like these pictures below.
Or trendlines cover the observation of candlesticks.
No matter how many lines you draw or how many indicators you add to the candlestick chart, it won’t make your analysis any better. It’s just more confusing. Instead, keep the chart clean and easily visible. And spend energy on planning to enter orders and controlling your mind.
Price Action trading rule 4 – Don’t care about the name of the pattern, try to understand its meaning
“Is it a Trend Bar? No, it’s the Mother Bar.”
“This must be the inside bar, but I don’t know if it’s true.”
Are you trying to memorize the names of price action patterns? They sound beautiful and it seems like memorizing them will be profitable for you, right? But no, the name has no value, and even the pattern has no value if it appears against the trend and at random positions on the chart.
Don’t care what the candle’s name is, focus on what it means. Buying force, selling force, price movement, which side is winning, what will be the next move.
Don’t try to find Pin Bar candles. Instead look for buying, selling, bullish rejection, and bearish rejection.
We are traders and profits speak for themselves. If you memorize all the patterns but don’t make a dime of profit, then throw them away.
Price Action trading rule 5 – Don’t trade in low liquidity markets
The more liquid the market is, the more effective Price Action will be. Crosses or illiquid stocks have extremely random price actions that no one can analyze. Therefore, everyone should apply Price Action in pairs that are tied to USD such as AUD/USD, EUR/USD, GBP/USD… Then study the movement habits in sessions to find the right trading strategy.
In addition, Price Action also works on higher timeframes. So the higher the time frame, the better it is, ideally D1.
To survive and develop in the financial market that fluctuates continuously over time, you need to build yourself a set of trading rules. All orders opened must be in accordance with the set rules. That is the way to avoid crowd psychology and emotions to make rational decisions to make profits.
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