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AN INSIGHT
TO DAY TRADING

THE ART OF PRICE ACTION TRADING


Market makers like influential prop firms and big players in general initiate price action patterns in the markets. Building on those patterns, retail traders, smaller prop trading companies and institutional trading desks apply price action trading strategies.


Price action describes the characteristics of a financial instrument’s price movement – popular instruments among day traders are index futures, energy futures and metal futures. Traders applying price action strategies read the markets based on those characteristics and price movements. In price action trading, traders do not rely on technical indicators but solely focus on reading the markets and logic behind the price action patterns. It requires a holistic understanding of the markets and the way they function in order to make reasonable trade decisions built on price action patterns only.


READING PRICE ACTION PATTERNS

Reading price action patterns can be read from larger time frames to perform a big picture analysis as well as smaller time frames to receive a more detailed perspective of the situation. From a day trading perspective, larger and smaller time frames need to be combined in order to receive a complete view of the situation. The candle stick chart helps identifying ranges, breakouts and trends respectively assists in determining the actual market sentiment. Further, it gives indication about the market’s volatility and level of control through candle shadows.


USING PRICE ACTION PATTERNS

Price action traders follow the market’s price patterns and make their decisions based on the logic behind and since the market can only move up or down, trading options are limited. Charts consists of ranges, breakouts, rejections and trends – there are no other price movements no matter which time frame a trader is looking at. It all comes down to those four elements as well as their psychological and behavioural interpretations.


The below screenshot illustrates a sample situation where the market created a range (1) which got broken on the bottom side, followed by a breakout (2) and short trend (3) to, subsequently, entering a range (4) phase again.



A more detailed insight in how to read the markets is provided in the price action course by UC Trading which is fully built on prop trading knowledge. Price action trading strategies are developed based on those reoccurring market characteristics, logic behind the given price patterns and trade reviews. It does not rely on indicators and only considers basic chart patterns that are traded in an objective manner. Supplementary price action setups respectively entry triggers follow a similar logic and are also based on a market logic rather than indicators.


ADVANTAGES OF PRICE ACTION TRADING

The price action approach follows an easily understandable logic that can be applied in various situations. Once a trader is familiar with the principles, market behaviour can be read universally across the markets.


Flexible trading strategies can be developed that on the one side it fits the individual personality and on the other side it can be adjusted with regards to the current market characteristics. Markets are changing over time and a trader must adapt the trading strategy accordingly. Strategies based on price action follow a logic which can dynamically applied compared to a static approach that makes it difficult cope with changing market conditions.


CONCLUSION

The art of price action trading lies in reading the market objectively while having a comprehensive understanding of the logic behind the patterns and impact of market markers in the financial markets.


The charts consists of ranges, breakouts, rejections and trends only that are mainly impacted by market makers. Consequently, price action trading does require a comprehensive understanding of how to read the chart patterns and logic behind but also a profound understanding of how market makers act in the markets. It makes the approach dynamic and universal that can be adjusted to changing markets and the trader's individual preferences. Further, trading with price action does not rely on any indicators compared to technical analysis. Instead, the respective strategies and setups are solely built on price action patterns initiated by market makers.


Price action approaches can be applied in a variety of markets. Popular among day traders are stocks, futures and forex. It can be used in larger and smaller time frames depending on the speculation horizon. In day trading, a combination of both illustrates the ideal procedure. In addition, a price action approach can be supplemented by order flow charts as illustrated in this sample trade to develop an edge in the markets. The futures day trading course by UC Trading provides holistic support covering both approaches helping you to become a consistently profitable day trader.