4 Facts About Price Action Trading You Need to Know

Market conditions change over time, prices are dynamic and constantly changing, and no trading day is ever exactly the same as the previous one. Volatility fluctuates and sometimes the market can seem quiet for a long time, only to erupt in a flurry of activity soon after.

When the market becomes quiet for a while, I get a lot of people writing in, quite emotional, asking if there’s something “wrong with price action”. The fact is, there’s never anything ‘wrong’ with price action, it’s all in their minds because they took losing trades, are over-trading or they just haven’t adjusted to the changing market dynamics and volatility.

When you hit a series of losing trades, it’s only natural to start questioning not only what you’re doing, but the method that you’re trading and to start pointing fingers. Whilst it is a ‘normal reaction’, it’s really not healthy and is not conducive to successful trading. If you do not have the ability to remain optimistic in the face of the adversity the market will throw at you each week, you will not make it as a trader.

If you keep the following four truths in mind about price action and trading, you will have a much easier time remaining optimistic each day as you trade, no matter what the market throws at you…

1. Price Action is not a ‘System’

One thing that I think many beginning price action traders get confused about is that price action is not a trading ‘system’. When traders finally come over to the ‘price action camp’, they have most likely just come from a trading system that was far more rigid and rule-based than price action. Indicator-based systems and computer software trading systems are much less flexible and discretionary than price action. So, it can be difficult for a newbie price action trader to get used to the new found ‘freedom’ that price action entails.

We are not teaching a system here, so you can’t blindly take every price action signal you see on the charts. You need to apply discretion and ‘hand pick’ only a few good signals per week or per month, depending on market conditions. Learn To Trade The Market is not a signal service, as such, we don’t recommend trading every signal we mention in the commentary necessarily. You have to treat it as analysis and commentary, because that’s what it is, then you take our views into consideration and formulate your own plan of ‘attack’ in the market.

Discretion and ‘gut trading’ feel are things that you won’t find many other trading websites talking about, because they aren’t exactly easy to teach or define. But, any professional trader will tell you that successful trading depends heavily on gut feel and discretion, and these are things that really only come through proper training, screen time and experience.

2. Price Action is Universal. It Has Always Worked, Always Will.

Another question I often get from traders is about whether or not price action will “stop working” or if “something is wrong with it lately”. Well, as I discuss in my article on the ‘The Most Successful Price Action Trader in History’, price action trading has literally been used since the 1700’s and was the first real form of market speculation. It has worked since then and still works today, and it always will.

However, just because I say ‘price action works’, does not mean that every trade will be winner. Indeed, even some very successful traders may still lose half their trades or even more, but due to proper risk reward scenarios and a refined sense of when to trade and when not to trade, they can still make a lot of money.

The important point to remember is that price action has always worked and always will work because it is the most natural way to trade. We are just learning to read what price is telling us and looking for high-probability ‘clues’ (price action trade signals) as to what it might do next. Price volatility does fluctuate over time, but we do tend to see the same patterns and movements repeating themselves over time in the market. This means, we can learn to identify and interpret these patterns and movements by learning price action trading, and profit from them if we keep our losses in check and don’t over-trade.

3. Price Action is Not Just ‘Bars’

Many beginning price action traders get caught up in reading individual candlesticks and candlestick patterns and don’t pay enough attention to simply reading the chart from left to right. Price action trading is much more than ‘just the bars’, you have to learn to ‘feel’ the collective emotions of market participants.

In other words, you have to learn to interpret what the overall market condition is and learn to trade price action signals in the context of the underlying market structure. Taking in the ‘bigger picture’ of what the market is doing will help you formulate a plan of attack for how you will trade. This is why I stress to my members to focus on higher time frame charts, especially the daily chart time frame. If you are sitting there focused on a 5 minute or 15 minute chart, you’re going to miss out on the bigger market picture and lose perspective on what the underlying / dominant market trend is. This is why these low time frames tend to chop traders up and take all their money…

You want to get aboard BIG market moves, because that’s how the SERIOUS MONEY is made in the markets, it’s not made from catching 10 pips here or there on the 5 minute charts every day, not to mention trying to do so will drive you insane.

4. Trading Will Test Your Fortitude Like Nothing Else.

I can promise you one thing about trading. If you make it to the point of being a consistently profitable trader, not only will you have financial freedom and be in a position to control your time and basically do as you please, you will be an extremely disciplined and mentally tough individual. One could even say that becoming a successful trader will turn you into a better version of yourself. The fortitude that trading requires, is intense.

Are you ready to remain optimistic and positive in the face of multiple losing trades? You will have strings of losing trades, even if you’re profitable overall, so don’t think you can ‘escape’ them. The best traders in the world also have losing trades, but do you think they let it affect their emotions and trading mindset too much? NO, of course not, and that is the defining characteristic that separates them from the masses of losing traders. It is the ability to remain disciplined, patient and optimistic in the face of adversity that really propels traders into that upper-echelon that is the 10% of successful traders we all hear about it.

You’re always going to have strings of winners and losers as you trade, so if you overly-focus on the losers, you’re going to get trapped into a cycle of negativity and poor trading habits. Trading success is a direct result of sticking to the plan and remaining positive / optimistic in the face of losing trades. It’s also the result of not getting over-confident and risking too much money after winning trades. For this reason, we could also consider winning trades another type of ‘adversity’ you have to have the fortitude to overcome.

Thus, as you can see, trading is the ultimate test of your mental strength and fortitude. You can’t get too down about any given loser or too excited about any given winner. Also, it’s critical to remember that hitting a few losing trades in a row does not mean that ‘something is wrong with price action’. If anything, it just means you hit upon some losing trades that are a part of the natural random distribution of your trading edge, that or you over-traded and deviated from your trading method.

If you can’t handle the emotion of the swings of losses and wins that will inevitably occur, you’ll start to question yourself and what you’re doing, as well as the method you’re trading with. This is something we have to make a conscious effort to override and understand it’s an evolutionary ‘flaw’. As humans and traders, we are inclined to focus on doubtful pessimistic thoughts…in the face of these feelings we need to try to be optimistic even if it’s hard. Meditate or repeat daily trading affirmations to yourself, do whatever it takes to remain optimistic and stick to your trading method and trading plan, because once you start giving in to the pessimism and doubt, you’ve begun digging a grave for your trading career.

If you want to learn more about price action trading and the concepts discussed in today’s lesson, checkout my price action trading course here.