[Tams]

what is NOT price action ?


Many people claim to be trading Price Action.

A vendor said he teaches Price Action.

He describes his chart set up as:

"...nothing on the chart except 5 min price bars and a 20 period moving average".


Do you consider him a Price Action Trader?

[JBWTrader]

Lets see Tams,

Good Abstract question. i thought I'd give it a go....

Well I guess one could say a moving average is just a function with its input as price/time and its output has the same dimension ie price/time but the result only slightly related to the actual last price/time data transaction. One can even drop time from this sentence...

The other ie the 5 min candle and is an accumualtion of price point displacements and hence the total displacement is captured over 5 mins.....Displacement I dont believe shows context very well....ie where price has been within that candle (this is important IMHO)

I would say he is teaching a variant of true Price action....

Well price action for me is just data points over time of where the "market" came together at offer and acceptance of Price. How this data is then manipulated and then used is open to a lot of interpretation..

There are many ways to slice data and of course accumulate it...Candles are just one method to aggregate(smooth) data as are moving averages ....

So conclusion is he is not teaching true price action but I guess he is teaching a method of smoothing/agregating the data and then applying some principle to this aggregated/smoothing data of price...to come to a conclusion about the future...

I guess one of the purposes to your question was to define what is price action....thinking out loud this is not very easy for me...

Price action is the last space/time Market transaction and it is also all the previous ones leaving a print ...can the previous ones help determine where the next one will be ? I will leave this for the smarter ones out there...

So in my conclusion I would say That techinically he will not be able to show where the next transaction will be in the future using those "tools" unless he has found a method that shows where in the future price has its true highest probability of being next with them...maybe there is something he is not telling us....

Best
John

sorry I rambled a bit here..

[DbPhoenix]

For those who'd like to pursue the subject, it's been addressed at length in a number of threads, primarily Price Action Only and Real Time Price Action.

[Tams]

One guy also claims to be a "successful" Price Action Trader.

One day he posted his chart... but forgotten to remove the pivot point.
...and disqualified himself as a Price Action Trader.

[JBWTrader]

It wasnt me was it mate ? !! lol....

Best
John

[thalestrader]

I consider myself to be someone whose trading decisions are based primarily upon price action. The majority of my trading is composed of day trading individual stock issues. Most of my trades are based on simple support and resistance breaks. As such, it is undeniable that I trade price action.

However, when I day trade stocks, I use a 5 minute chart, and I do keep a 20ema on that chart. Whether I like it or not, it is an undeniable fact, and one that I can prove empirically each and every day, that when a stock is trending strongly from the open on a 5 minute chart, price tends to find buyers in an uptrend and sellers in a downtrend when price pulls back to that 20 ema. Is that the same as "trading price action?" If it is to be considered trading price action, then it is so only derivitively. Does that mean that someone who uses such an indicator is not a price action trader? It means nothing of the sort. After all, if the majority of his or her trading decisions are based primarily on support and resistance, what else would that trader be?

You mentioned pivots (and I assume you mean floor trader pivots and not pivots in, say, the Livergood sense). I have a good friend who trades foreign exchange exclusively. No stocks, no options, no e-minis, no bonds - just spot currencies and currency futures (he may use options on currency futures, come to think of it,but not as a primary trading vehicle). He trades one basic price action "set-up." I consider him to be a consummate price action trader. But you should see his chart!

He has ema's, fibonacci's, pivots, mid-pivots, trend channels, cci, volume, some other thing I do not even know what it is. But, he trades one "set up" only, and it is entirely a price action, support and resistance based set-up.

Now, does the fact that he also uses 27 or so of his favorite indicators disqualify him as price action trader? I would say no. I think he is absolutley a price action trader (I also happen to think he could do away with every last one of his indicators and still trade his set up well, but who am I to argue with a guy whom I know to pull in five figures from his trading per week, week after week from the comfort of his sofa).

I think one can distinguish between someone who uses indicators to help support a price action based trading approach, and one who uses indicators as a trading approach. In other words, using indicators is not itself an indicator of whether or not someone is trading price action. What makes the difference is whether someone is using the indicators to support his or her reading of price action, or is the trader using the indicators to make trading decisions independently from any attempt to determine the immediate trend from price action itself.

Best Wishes,

Thales

[aquarian1]

Originally Posted by thalestrader »

However, when I day trade stocks, I use a 5 minute chart, and I do keep a 20ema on that chart. Whether I like it or not, it is an undeniable fact, and one that I can prove empirically each and every day, that when a stock is trending strongly from the open on a 5 minute chart, price tends to find buyers in an uptrend and sellers in a downtrend when price pulls back to that 20 ema. ....

He has ema's, fibonacci's, pivots, mid-pivots, trend channels, cci, volume, some other thing I do not even know what it is. But, he trades one "set up" only, and it is entirely a price action, support and resistance based set-up.

Now, does the fact that he also uses 27 or so of his favorite indicators disqualify him as price action trader? I would say no. I think he is absolutely a price action trader (I also happen to think he could do away with every last one of his indicators and still trade his set up well, but who am I to argue with a guy whom I know to pull in five figures from his trading per week, week after week from the comfort of his sofa).
...
Best Wishes,

Thales

Hi Thales,

Thank-you for this well thought out post.

You highlight a very strong point.

Your forex friend makes 5 figures a week consistently. I feel this is very important - he has results. If indicators help support and or clarify his thoughts on price action, then they are helpful aids to his decision-making process.

Indicators are derived from price and and sometimes volume information by investors who wanted to see it there was additional insights provided by the indicators to improve their results. (Or in some cases had no results and wanted to write a book or sell their system, though this can apply equally to price action only traders.)

I have noticed that some individuals use indicators in ways that may not have been intended by theorists or even the indicators originators and sometimes in junction. That is they may really be using 3 indicators as one composite indicator. However, from their actual trading experience, this was helpful in making profits.

Though "price action" purists may say any chart that has any indicator on it invalidates the trader from being a price action trader - they do speak strongly of support and resistance levels and "the action the market takes at those points".

If floor traders and market makers use a 20 bar EMA on a 5 minute chart (for example), and if their actions are a major part of "the action the market takes at those points", then their trading using this indicator is an important, and perhaps key part of the "price action".

So the feedback loop closes.

So I do not believe: Any chart that has any indicator on it invalidates the trader from being a price action trader.

For myself, the essential thing is to develop a reliable system that consistently makes profits and hopefully one I can back-test to know when I can apply or not apply that system.

Ian

(PS I have not read enough of the thread on "price action only" to know what the terms means - in the context of this board.)

[bathrobe]

In my own trading I frequently use what I consider to be price action (have not read the threads that define it).

The speed of a move, the speed of the pullback, how quickly it moves for or against me all help me decide whether or not I will stick with the trade for a larger gain or a minute one.

I use many timeframes and non-timeframe specific charts along with a ma, used to use a macd but I am moving away from it. (thanks Thales)

To me what I described above is trading price action as I am trading based on the action of price.

P.S. I have read many threads where traders extol the virtues of PA thinking when they master this they will be successful, on other boards it has taken on a somewhat mystical nature. Those who claim to be PA traders are regarded highly on this argumentative board.