Price Action Is All That Counts – Part 1

I’ve always been an advocate of price action being my leading indicator.

Those charts you see with the fancy lines and indicators can look impressive.

And they do make you feel as though the person who constructed them knows what they are doing.

We have a tendency to be impressed when something looks complicated.

Yet does complexity make you a better, more profitable trader?

Over the next few weeks are going to form a 3-part series centered around price action.

I urge you to spend more time understanding price action so you can become a more confident trader.

There is no Holy Grail.

If price action is ignored due to chart clutter, then the analysis needs dumbing down.

Bring it back to basics. See if this starts making a difference to your win/loss ratio.

Clutter is a distraction you don’t need.

One of the basic concepts of price action, and I add it to all my charts, is support and resistance.

Use charts across all time frames for added accuracy.

Support means a zone of buying. Resistance means a zone of selling.

They are important to the supply and demand equation, and where you will often see inflection points.

They are also important when trading breakouts.

These tend to be fast moving and often flip the supply / demand equation around; where previous resistance becomes support and old support reverts to resistance.

Use a 10-day moving average to define the daily trend; a 70-day moving average to define the weekly trend and the 200-day to define the monthly trend.

Some refer to these as dynamic support and resistance.

Many traders and investors keep their eye on the 200-day moving average which is the reason price action often reacts here so strongly.

Stay tuned for more on the dynamics of price action in part-2.