The Best Trading and Investing Method I Know – Analyzing Price Action

 

The financial services industry is full of individuals and companies that specialize in creating and recreating trading methods that are marketed as ways to help traders and investors make money in the financial markets. It seems like there are an unlimited amount of indicators and oscillators designed to help traders determine whether they should enter trades, exit trades, or wait for more confirmation before entering a trade.

As a professional trader, I have made and lost money trading all of the primary markets, including stocks, futures, options and foreign exchange currencies. After using almost every indicator available, I have found that analyzing pure price action has been the most reliable and consistent way to earn a living from financial trading.

WHAT IS PRICE ACTION?

There appear to be varying although similar opinions about the true definition of price action. But based on my interpretation, it is basically the general direction of prices. Range bound or choppy markets can make it more difficult to analyze price action, because there is no definite direction in which prices are moving. Price action can also vary, depending on the time frame that you are looking at. An uptrend on a daily chart could appear as a correction or a retracement on a 5 minute or 1 hour chart. That is why it is important to understand the time frame you are trading in relation to the larger or long term trend.

ARE INDICATORS USELESS?

From my personal experience, using a few indicators can help confirm price action, or cause a trader to re-evaluate previous opinions about the price action of the market that is being traded. Moving averages can help, and there are software programs that use algorithms and various other inputs to try to reasonably confirm and predict price direction. During my evolution as trader, I have gone from having a screen full of colorful lines, dots and blinking lights, to a simple screen with just a chart and 1 to 3 indicators as a maximum. I have found that I have been more profitable just using a few indicators. Most brokers provide platforms with free indicators, but as of this writing there is usually a charge for trend analysis services or services that generate buy and sell recommendations or signals. If you use any services to help with trend or price analysis, make sure that the provider gives you a FREE trial or at least provides a time frame to allow you to try the service at a reduced price, or get a refund if you are not satisfied.
As a trader, I have considered and tried everything from fundamental analysis, to using a screens filled with too many indicators, which just caused more confusion.

It sounds too simple, but analyzing pure price action with just a few indicators has brought me the most success and consistency as a trader.

Good luck and good Trading.

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