What is Price Action ? Basic Definition: Price Action Trading (P.A.T.) is the discipline of making all of your trading decisions from a stripped down or “naked” price chart.
This means no lagging indicators outside of maybe a couple moving averages to help identify dynamic support and resistance areas and trend. All financial markets generate data about the movement of the price of a market over varying periods of time; this data is displayed on price charts.
Price charts reflect the beliefs and actions of all participants (human or computer) trading a market during a specified period of time and these beliefs are portrayed on a market’s price chart in the form of “price action” (P.A.).
Whilst economic data and other global news events are the catalysts for price movement in a market, we don’t need to analyze them to trade the market successfully.
The reason is pretty simple; all economic data and world news that causes price movement within a market is ultimately reflected via P.A. on a market’s price chart.
Since a market’s P.A. reflects all variables affecting that market for any given period of time, using lagging price indictors like stochastics, MACD, RSI, and others is just a flat waste of time.
Price movement provides all the signals you will ever need to develop a profitable and high-probability trading system.
These signals collectively are called price action trading strategies and they provide a way to make sense of a market’s price movement and help predict its future movement with a high enough degree of accuracy to give you a high-probability trading strategy.