[tape reading] Price Action Traders, What Actually is It?

[Jumper 10]

Hi,

 

For those of you out there, what ACTUALLY is tape reading, in our day and age? What do you think trading off "price action" means? 1min chart with DOM? Tick charts? T&S?

 

I have a dilemma, all indicators I have ever used are completely useless, when it comes down to it, they might look fancy in hindsight, but thats about it. So I tend to try to stick to clean charts, 2m with volume and DOM, trading mainly index futs. What exactly is tape reading? Is using a time-based chart wrong for this because of time itself pushing the chart through, so you get a distorted perception? True price action would be something that is PURE price moving by itself, when it wants not being forced to draw empty bars/candles on a time based chart etc? Wouldn't it?

 

I'm just interested to hear from those who ACTUALLY know what they are talking about, that have the experience, that can share with us what trading is actually all about, most successful traders I have seen, and this is personally, from my own experience, have been traders who scalp or trade with just price action, reading the order flow, watching for the bigger players etc It seems to me that its the 90% that get it wrong that are the ones that use MACDs, RSIs, MAs etc. Does it even matter what method/indicator one uses? It seems as though it doesn't, indicators seem to be of not much use if you ask me, so there has to be something else at play?

 

Would be glad to hear some refreshing honest insights/knowledge about what it actually takes to read price action, what it takes to trade properly, the things that one should be looking out for etc.

 

Please dont turn this thread into a fight fest, or a puff your chest up contest.

 

Jumper.

[DugDug 10]

One recurring theme that will constantly pop up from many traders is that price action is all you need and indicators are a waste of time. Personally, they are just tools derived from the price action so if they help - like any tools then great - otherwise spending countless hours looking for the holy grail is a waste of time.

 

Trading off price action is a combination of watching the market as its trading and then putting the current flow of the market into context - uptrend, downtrend, resistance, support - in which certain repeatable patterns can be followed. these patterns may only offer a 50-50 chance of ideal success (that is they will be profitable) but with proper trade management of cutting losses and running profits on a good risk reward ratio, then, taken over a series of trades you should be profitable.

No indicators, no hope, no second guessing - just simple planning based on setups which will will be profitable if the pattern fits the ideal result.

[Head2k 10]

If you want to learn how to trade price action, then study Wyckoff Forum. Start with stickies there.

[atto 20]

Price is created by transactions. Price action involves study of price's movement. Technically, if you want to just watch pure price action, you'll either be watching T&S or a 1 tick (trade) chart.

 

Anything else is simply a summary of price. Time bars (10s, 1m, 5m, etc) simply group all the trades into time windows. Range bars do so by movement around predetermined price intervals. And the list goes on.

 

Few traders I know actually trade off a 1t chart or T&S, but some do. Most people prefer to look at summaries to more easily picture a larger time frame. I trade intraday based on price off a 1k volume and 5 second chart (on the NQ). Always keep in mind, though, that as you "zoom out", you're getting further and further away from pure price. Otherwise, eventually, you end up trading bars (or candles, if that's your thing), and not price. I think of price as a "flow". How you choose to summarize it, if you do so at all, is up to you.

 

As for how to trade price action, I second the recommendation to the Wyckoff forum. Richard Wyckoff had a very firm grasp on price action, supply and demand, support and resistance, value, and how to trade all of it.

[jonbig04 10]

Listen to atto, you should.

[Kiwi 16]

Listen to atto, you should.

 

and note that an indicator, like a price bar, is also a summary but with more complex relationships.

[wrbtrader 10]

There are different types of price action traders...the one commonality they have is they don't use indicators. However, although I don't use indicators, I'm not going to announce they are "completely useless" if I don't want this thread to turn into fight fest. :doh:

 

As to the percentage of losing traders...I see the same on both sides of town and both sides have simple and complex trade methods.

 

Regardless, there is no one type of price action only trader. I can name 10 different types of price action only traders. Thus, there's no one definition as in one size fits all because we really have sub-groups. However, if you want to classify us as price action only traders...just say we don't use indicators.

 

...Would be glad to hear some refreshing honest insights/knowledge about what it actually takes to read price action, what it takes to trade properly, the things that one should be looking out for etc.

 

Learn to understand market dynamics such as supply/demand analysis, key market events et cetera. As to what it takes to trade properly...that should be obvious (e.g. money management, discipline, proper capitalization, proper trading platform, adequate trading equipement et cetera). I'm sure you've heard all of that before...no magic lightbulb.

 

Mark

 

------------------------------

 

Hi,

 

For those of you out there, what ACTUALLY is tape reading, in our day and age? What do you think trading off "price action" means? 1min chart with DOM? Tick charts? T&S?

 

I have a dilemma, all indicators I have ever used are completely useless, when it comes down to it, they might look fancy in hindsight, but thats about it. So I tend to try to stick to clean charts, 2m with volume and DOM, trading mainly index futs. What exactly is tape reading? Is using a time-based chart wrong for this because of time itself pushing the chart through, so you get a distorted perception? True price action would be something that is PURE price moving by itself, when it wants not being forced to draw empty bars/candles on a time based chart etc? Wouldn't it?

 

I'm just interested to hear from those who ACTUALLY know what they are talking about, that have the experience, that can share with us what trading is actually all about, most successful traders I have seen, and this is personally, from my own experience, have been traders who scalp or trade with just price action, reading the order flow, watching for the bigger players etc It seems to me that its the 90% that get it wrong that are the ones that use MACDs, RSIs, MAs etc. Does it even matter what method/indicator one uses? It seems as though it doesn't, indicators seem to be of not much use if you ask me, so there has to be something else at play?

 

Would be glad to hear some refreshing honest insights/knowledge about what it actually takes to read price action, what it takes to trade properly, the things that one should be looking out for etc.

 

Please dont turn this thread into a fight fest, or a puff your chest up contest.

 

Jumper.

[Kiwi 16]

Actually most PA traders do use indicators.

 

Typically the either use the indicator called an OHLC bar or the indicator called the candlestick. But some of them use TPOs!

 

Ahh you say ... but they don't hide information behind complex formulae that the trader doesn't understand. But they do. I was listening to a video today by a hedge fund manager/trader who has a serious history of financial success and he described support and resistance and was discussing why in situation X he drew it at the candle bodies .. but in Y at the extremes.

 

And damned if he didn't say that it was because the body represented most of the price action during the candle. Now you guys are truly horrified by this because you've used market profile and volume profiles (more summaries or processing of info = another damned indicator) so you know ... all the candle body represents is the difference between the opening price and the closing price. It doesn't say that most of the activity took place in that space simply where it started and ended.

 

So, candlesticks, ohlc bars, market profile tpos, etc etc ... they all summarize/process the raw price info to make it simpler. And like every other indicator they confuse people - even extremely competent and successful hedge fund managers!

 

Unless the people take the trouble to truly understand the tools that they use. And then use them well.

[DugDug 10]

agree Kiwi - but I guess not to get too philosophical - its all a tool.

 

Imagine talking to two carpenters - one who will tell you about the leverage and physics involved in driving an object of metallic zinc alloy into a natural organic substance that has been processed, refined and cut, using another metallic object of forged steel and human natural movement of extra leverage between the radius and humerus, the other says I use a hammer to nail things together.

I guess your example is more along the lines of one of the carpenter telling you that a hammer is the best tool to cut an obect and then using it to pound a piece of wood to make it fit.

You do have to laugh when an expert describes his tool in a manner that is not really correct. I cant talk - I am terrible at describing some things - its a matter of assuming knowledge and personal interpretation I guess.

was it a video course or something on the internet?

[Kiwi 16]

It was a paid course. The amazing thing is that the guy really is good but repeated the assertion a number of times.

 

The funny thing is that he and I would do a very similar thing but I do it for a real reason and he appears to do it for a reason that has no basis in reality - and reflects a faulty understanding of his indicator (ohlc candlesticks).

 

My issue isn't the tools ... its the prissy holier than thou stuff that seems to go with purity.

[DugDug 10]

I think that your insight is far more widespread than you might imagine.

We all see shonky vendors selling systems that you can tell are shonky, however there are plenty of good traders around who are invariably good for other reasons than the ones they use to explain to other people. Sometimes, you might find someone who has incredible intuition, great money management, an ability to be able say i am wrong, go from long to short and vice versa and just be in the zone of the market. However when asked to give a replicable rationale reasons for how they do it they are "forced" to come up with a reason as opposed to saying - "I dont really know how I do it, I just trade".

If trading other peoples money and you say that - goodbye credibility.

There is so much misunderstanding in many of these things that sometimes even a spurious explanation is better than the real thing. We humans are a strange lot.

[Jumper 10]

Price is created by transactions. Price action involves study of price's movement. Technically, if you want to just watch pure price action, you'll either be watching T&S or a 1 tick (trade) chart.

 

Anything else is simply a summary of price. Time bars (10s, 1m, 5m, etc) simply group all the trades into time windows. Range bars do so by movement around predetermined price intervals. And the list goes on.

 

Few traders I know actually trade off a 1t chart or T&S, but some do. Most people prefer to look at summaries to more easily picture a larger time frame. I trade intraday based on price off a 1k volume and 5 second chart (on the NQ). Always keep in mind, though, that as you "zoom out", you're getting further and further away from pure price. Otherwise, eventually, you end up trading bars (or candles, if that's your thing), and not price. I think of price as a "flow". How you choose to summarize it, if you do so at all, is up to you.

 

As for how to trade price action, I second the recommendation to the Wyckoff forum. Richard Wyckoff had a very firm grasp on price action, supply and demand, support and resistance, value, and how to trade all of it.

 

Good post, thanks to all who have answered so far.

 

So does anyone here actually trade successfully with a 1 tick chart? This for me is a pure price chart, every single move, no "overview" of a certain time period, just the market, it moves when it moves, not when the time runs out.

 

Keep the discussion going, its something that it rarely properly talked about, I don't think a pure PA trader is one that just doesn't use indicators, theres more to it than that, they have that feel for the market, I suppose getting to know your market is essential for a pure PA trader.

 

Thanks all again

[sevensa 10]

Good post, thanks to all who have answered so far.

 

So does anyone here actually trade successfully with a 1 tick chart? This for me is a pure price chart, every single move, no "overview" of a certain time period, just the market, it moves when it moves, not when the time runs out.

 

Keep the discussion going, its something that it rarely properly talked about, I don't think a pure PA trader is one that just doesn't use indicators, theres more to it than that, they have that feel for the market, I suppose getting to know your market is essential for a pure PA trader.

 

Thanks all again

 

I am curious to know why this is important for you to have a definition of what a Price Action Trader is? Do you think this is going to help you to trade better? Does it really matter? You can have everlasting debates about what a price action trader is and what not, but in the end isn't finding a profitable method more important, regardless if you are using 5 minute charts and moving averages, or one tick charts?

[Jumper 10]

I am curious to know why this is important for you to have a definition of what a Price Action Trader is? Do you think this is going to help you to trade better? Does it really matter? You can have everlasting debates about what a price action trader is and what not, but in the end isn't finding a profitable method more important, regardless if you are using 5 minute charts and moving averages, or one tick charts?

 

Well obviously it won't make anyone a better trader because no one is willing to share anything that will actually make a difference, and yes ofcourse finding a profitable method is more important, heard all that before.

 

I am just interested to hear what people themselves actually think a PA Trader is, it gets thrown around a lot, when its not necessarily true.

[sevensa 10]

Well obviously it won't make anyone a better trader because no one is willing to share anything that will actually make a difference, and yes ofcourse finding a profitable method is more important, heard all that before.

 

How do you expect knowing the definition of a PA trader is going to make a difference and help you being a better trader? What kind of answer are you looking for that you will consider "make a difference"? Let's for argument sake say we all agree trading from a one tick chart without anything else is the definition. How will you use this definition to become a better trader? Or are you really looking for someone to tell you how they trade and not so much what the definition of a PA trader is?

[Jumper 10]

How do you expect knowing the definition of a PA trader is going to make a difference and help you being a better trader? What kind of answer are you looking for that you will consider "make a difference"? Let's for argument sake say we all agree trading from a one tick chart without anything else is the definition. How will you use this definition to become a better trader? Or are you really looking for someone to tell you how they trade and not so much what the definition of a PA trader is?

 

Did I ever say I was looking for answers that make me a better trader? Dunno what your problem is.

 

As far as I know, this is a discussion forum, you know, for discussing things. Not everything has to help you become a better trader, sounds like your the one looking to become a better trader anyway. I am, for the second time, just interested to hear what people perceive a PA Trader to be, and what a PA Trader actually looks at, like if anyone looks at T&S or stares at the DOM, or whether they just look at a tick chart, 1 min, 5 min. Whatever. Not that hard to understand.

 

Nothing to do with anyone trying to be a "better trader". Re-read the last sentence in my original post. :doh:

[statsign 10]

Each tick is seen in RT charts regardless of bar interval - one tick charts are useless 99% of the time for chart watching price action.

PriceActionFundamentals.pdf

[BlowFish 10]

one tick charts are useless 99% of the time for chart watching price action.

 

They might be useless for 99% of people or even 99% of applications but not necessarily 99% of the time. Mind you the types of trader that are analysing tick by tick are less likely to use charts at all so perhaps your are right

 

I think its probably up to the individual trader to define their terms. For example sampling the data into bars and taking trades based on levels that those bars reveal is the essense of price action trading to me. Bars (to me) are indicative of price but not indicators per se. Filtering or using other derivatives of price are not 'price action' (again only to me). Frequently traders who use derivative methods will still use price action as a component of there trading. e.g. when there awesomo oscillator is saying sell they might still use a bar break out to trigger.

[Head2k 10]

Sevensa is often rough, but perhaps it can be helpful (though I am not sure if that's his intention). If you honestly answer to yourself the questions he asks, you might get a better insight at what it is that you are looking for and why. And maybe make some conclusions. Or not.

_________________

 

AFAIK, DbPhoenix started trading off 1 tick chart some time ago. But it is not the only chart he uses. He does his prep on CVB charts (finds S/R), then he watches 30 s or 1 min chart for overview of intraday moves and then he uses 1 tick to watch action in the areas of his interest. AFAIK he used 5 s chart before he started to use 1 tick.

Unfortunatelly, DbPhoenix hasn't been active on TL for the last 3 months. But you can find his insights in his blog and in Wyckoff Forum.

 

Regarding definition of PA trading, I think the core meaning is to base your trading decisions on watching demand / supply changes at key areas. You determine S/R and you watch traders' behavior when price gets there. How they push to get through, how hard sellers and buyers try and what they achieve. And your task is to determine the point of victory of one side, that is the moment when the other side is done, exhausted, and gives up. And to determine the key zones of S/R, a PA trader usually uses AMT (auction market theory). Or at least that's how I see it.

[statsign 10]

If a tradable has enough liquidity to be worthwhile for trading then there are often 1000 ticks at the same price and more often hundreds of ticks moving around 2 to 3 minimum movements making one tick charts nothing but horizontal lines most of the time.

 

Price movement confirmation of some indicated state is a good point.

 

These are tough topics. Trading futures or options is the way to go.

Equities are illusive to many of the tactics posted here. Because:

How much volume is just shaking for rebates? (most?)

How much of the price move is directed from flash reading and front running?

etc. These things have ended trading careers.

[ochie 10]

If a tradable has enough liquidity to be worthwhile for trading then there are often 1000 ticks at the same price and more often hundreds of ticks moving around 2 to 3 minimum movements making one tick charts nothing but horizontal lines most of the time.

 

Wonder if that small tick chart used in conjunction with a significant move on a CVD plot at a key predetermined S/R level might bring that flat line more to life?

 

Also, I've seen interesting uses of tick divergence (for Equity Futures) in these situations. As mentioned previously, see Wyckoff forum.

[wrbtrader 10]

It's important that Jumper understands (I'm sure he does) that there is no "one size that fits all" for the definition of a price action only trader. Also, I myself don't think a definition is important unless we need to label ourselves for discussion purposes.

 

I myself use second charts (20s and 30s), 1min, 2min, 3min, 5min, 15min, 60min and daily charts as a price action only trader. I tend to go with the lower chart intervals (second charts and 1min charts) during extremely volatile price action and when I don't want to hang around too long. However, if there's one chart interval I've used more often than the others it's the 2min chart and not because it has some sort'uv advantage (it doesn't)...I use it more often than the others out of habit and that could be due to space limitations of my monitors (how much information I want to see).

 

Important stuff to me are volatility analysis, supply/demand analysis, support/resistance zones, intermarket analysis, japanese candlestick analysis and global economics to prevent tunnel vision. Each one of the things I've mentioned can be broken down into sub-categories and I've used the same thing +25 years except for japanese candlesticks (early 90's). I studied price action for about 5 years prior to my very first trade. I'm not into DOM, tick charts, indicators, moving averages nor volume in my own trading. I'm not saying the stuff doesn't work...I just don't use them and you may see me post charts about such (rarely) in reply to someone that does use it.

 

Jumper made the comment that "no one is willing to share anything that will actually make a difference".

 

That's a matter of perspective because I've seen lots of sharing here at Traderslaboratory.com and other discussion forums that some find the information very useful while others don't. For example, I mention I don't use volume. If someone shares methods or trading tips involving volume...it's not going to make a difference for me because I don't use it nor will I be interested in such conversations. However, someone else that does use volume may find the information being shared very useful. Simply, it's really just a matter of perspective based upon our interests, beliefs, experiences about what's useful.

 

Once again, there's no one definition and every price action only trader I've met uses something different or something with the same label but in a different way in comparison to another price action only trader.

Edited March 13, 2010 by wrbtrader