Big Mike's Trading Blog

Day trading futures, discussing money management and trade management techniques, and more

Price Action: What is it, how to trade it

In a recent survey about webinars, a lot of members expressed interest in learning more about the elusive "price action" that many traders talk about and refer to.

It is my intent with this thread to try and document price action from my point of view. I think price action is subjective, but that is OK because I think trading is subjective too. Or more accurately, I think that in order to make money trading you must act in a subjective way.

Subjective vs. Objective:
The primary difference can be explained as trading from the gut (subjective) vs. trading from fundamentals or technical analysis (objective). 

But even that description leaves much to be desired. One person may interpret fundamentals in a very different way than the next. One person may view a technical indicator or combination of technical indicators in one light where another has a very different opinion.

There is an entire book on Evidence Based Technical Analysis which I recommend to anyone who wants to further explore the objective vs. subjective rules and concepts of trading, but for the purpose of this thread it is my intention to show you how to "read price action" instead of reading an indicator.

What is Price Action?
To me, price action is trend/direction and a series of higher highs, lower lows, or higher lows and lower highs. You might then ask, what is trend? What is a higher high or lower low? That is why price action is subjective. Trend to me will be different than trend to you. A higher high on a 1 minute chart may not be a higher high on a 5 minute chart.

Price Action is subjective. Trading profitability requires subjective trading decisions.

Unless you are Goldman Sachs with a million supercomputers and zillions of dollars, you can't boil trading down to a science and expect a predictable or quantifiable result (an objective A+B = C). Naturally, there are exceptions to every rule and quant traders will be quick to point out that there are routine and documented examples of market behavior that produce predictable results.

But lets not digress too far. Before I start posting some images and videos of what I believe defines price action and show examples of price action, I'd like to hear from you guys. 

a) Reply below and let me know how you define price action. 
b) Do you think it is a myth? Do you think trend is a myth? 
c) Do you think it is possible to objectively define price action, or do you believe it is all subjective? 
d) Do you feel it is even important to know or understand price action in order to be successful?

Let me know.  The entire discussion will take place on the forum in the Elite section.

Mike

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