Price Action Trading- Listen What Mr. Market Wants to Tell You
In order to get a sense of the market, you must know what to look for. These clues are left behind by the price action. They tell you what happened and this knowledge will tell you what might happen next.
A big part of trading is knowing what to pay attention to. You should focus on price action that shows what’s going on in the market. For example, if the price moves a certain way, it’s probably because the market wants.
Every single candle, by itself, doesn’t mean much. It’s the candle combined with the context of the whole chart that paints the picture of that market for you.
The longer you follow a certain market structure, the more you will start to know. The market’s general trend is more important.
Even if you’ve never, ever traded before, or experimented with any kind of trading before, if you follow a market long enough and look at it in the proper context, you will develop a feel for it and be able to sense when to trade. Though the headline is Price Action Trading, it goes beyond that as the core message is applicable to system trading or any type of trading.
How to Listen to Market and Interpret the Moves
The charts are the market’s way of “speaking.” If you don’t know what to listen for, the message will go right over your head.
Let’s take a look at some of the main pieces. Once you can discern whether or not the market is trending, you’ll be able to trade it much more successfully.
Overall trends are extremely important because they’re the easiest way to make money.
Looking at the below chart, we can see that the Nifty Index moved in channels, remained in consolidation before giving a breakout. A financial asset may remain in consolidation for weeks, months and years.
For example, see the image below. The price was trending higher even before going in consolidating in a zone. It was a long period of sideways price action.
Trading in such time is very difficult. It’s your duty as a trader to identify and trade only during the trending days and avoid the sideways days if you’re a price action trader.
Yet they continue to trade during the sideways zone and keep losing money as they don’t know to interpret the language of market. They fail to listen to what it wants to say.
Source: Learn to Trade.com
Now see this image given below. When the price is respecting a key level or area of support/resistance, you can wait for high-probability price action signals to form there. But if it isn’t respecting a key level or area of support/resistance, you should avoid this.
The moral of this is NEVER jump to make a trade just near the key Support/ Resistance levels or a key moving average. Wait to see how the price action behaves during these levels and take appropriate action.
If you see the image above, you can see easily that the price is respecting at each key resistance and support level.
Here is another chart, you can easily see that once you identify a trend correctly based on DOW theory. In a trending market, it is a high probability that Price respects the support level.
As analysed by Bharat Jhunjhunwal a few days ago and shared on his Twitter timeline. it’s clear how S & P respects the key levels.
Let’s take another chart: Godrej Properties started moving in a trending channel and each respected Support and Resistance areas almost perfectly before giving a solid breakout. This trade chart has been taken from Equity4Life by Rishikesh Singh.
The key lesson is to be focused on understanding what the market wants to tell you at key levels.
Take the third example of ITC. Just see how well the price is respecting the 199-support line.
It touched many times and then it took a long time to break the resistance of the 217 level. That’s the key level as it gave multiple false breakouts at these levels.
Source: Brahamchary Twitter Timeline
Support and Resistances are not for jumping into trade instantly, it is only to tell you that now you have to start listening to Mr. Market more carefully and act accordingly.
Why Understanding the Event Area is Important
So, what are event areas? The price action traders are watching for these spots. Common examples are tops, bottoms, reversals at fib levels, trendline breaks, etc. Why are event areas so powerful?
Because if you have a target on one of these areas, the big money has to take action there. If they don’t, they will just stand by. You can easily notice the pin bars at this level, when the last one on the right was formed, it is easy to miss out on a huge profit if you fail to interpret the market message clearly.
Make It a Habit to Listen to Market
Every stock wants to tell something. Often, they say it in clear words. It is You who needs to map it and then interpret it. Once you start spending some time with the chart daily, it will actually start talking to you.
Similarly, you have to listen to an indicator you prefer to use. It’s not the indicator that makes the money. There is no indication exists that will make you a millionaire.
When you spend time in the company of your favourite patterns, favourite charts, favourite system and favourite stocks, they will start talking to you.
It’s like a friendship you develop over time, and gradually it starts to yield favourable results. How can you expect moving averages, indicators, chart patterns to give you vital clues if you are not loyal to them?
Good system traders, price action traders, options traders—all of them are loyal to the systems and rules they have designed. They know their systems and the system interacts with them.
Why it is that 50 days moving average makes money for a few, and a majority of traders feel FOMO after seeing the trades of accomplished traders.
A well-known algo trader Vivek Gadolia throws a pearl of million-dollar wisdom: “And, this is the beauty of systems. What do we do if the trade goes against us, we get out. What do we do if it goes in our favour, we ride it.
Simple 🙂 No prediction, only reaction.”
It’s that simple Bro! Why to unnecessarily make it complicated.
The Message You Need to Understand.
Successful traders like Vivek Gadoia listen to their SYSTEMS. They are not in the game of bullshits like predicting Tops, Bottoms, and Market Me Kya chal reha hai. Ye to bahut upar chala gaya. Aab lagata hai neeche aayega. They love their system, they are disciplined. So, they make money. Therefore, they can talk to the market and they can listen to what the market wants to say. You are not required to have a sophisticated system to make money. The only thing that you need is to stick it to it. That’s all