How to Learn Price Action

Quote from SoCalTrader619:

Ok... I know that most "successful" traders will agree that Price Action is the basic key to trading. I have been doing a lot of research into price action recently, staring at charts forming, watching the L2, T&S, etc. But sometimes I feel like I don't really know what I'm looking for.
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Start annotating your price charts with channels (3-point channels) and learn the correlation of price movement in the channels with volume. Do this for 50 days straight. You will learn how price moves and what to anticipate next. What are you looking for? The overlap of channels.
 
Quote from Dustin:

Most new guys make trading so complicated, because they don't know any better. The problem is they need a strong base, or starting point. I just provided them that in an incredibly simple statement.

"ONLY buy strong stocks, ONLY sell weak stocks."

Do I ever do countertrend trading? Yeah every day, but I can tell you it's 2-3X harder then trend trading and about half as profitable. As a new trader they should forget the idea completely. In fact they should ban themselves from it.

Forget the proof. Take the idea and trade it small for a week. If you (anyone reading this) aren't profitable yet then what's the harm? Don't try to backtest, just trade it small. I can't stand backtesters. You don't learn to trade that way.

Take all the indicators off of your charts except volume. Forget T&S, LII, Open Book, ticks, candles etc. Forget anything else you think you know, and just try it. And use charts, lots of them.

I know from reading this board for ten years that nobody will actually do this, but I was compelled to write it anyway.
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I completely AGREE with you :D

Best advise give in this thread so far.

Please share how you filter for Strong Stocks or Weak Stocks and do you downtime / uptime and how you do it.
 
Quote from BoneFishGA:

How do you decide what is a strong stock or weak stock?
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That's the easiest part. You can use a scanner, or just a gainers/losers list. For example anything +1%, >500k volume with >2 times relative volume would satisfy the strength criteria. After trading this stuff for a while you will begin to learn what is comfortable for you. Maybe you prefer thicker traded lower priced stocks that trade >1M/day, or maybe you like the thinner more wild high priced stuff. These are the things you learn to narrow down your style and become a pro at that one thing. That's all you need to make a living in this business.

EDIT: I want to add...if you are trading something that doesn't show higher than normal volatility on that day you are wasting your time. Find the volatility and trade that instead. There are great trends out there every day that anyone can easily be a part of with basic entry and trade management rules.
 
Quote from OddTrader:

In simple words: Some traders call it Price Action, many others call it Gut Feeling. :p
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That's due to the fact that your brain will subconsciously pick out patterns, etc from the chart.....
 
Quote from Dustin:

That's the easiest part. You can use a scanner, or just a gainers/losers list. For example anything +1%, >500k volume with >2 times relative volume would satisfy the strength criteria. After trading this stuff for a while you will begin to learn what is comfortable for you. Maybe you prefer thicker traded lower priced stocks that trade >1M/day, or maybe you like the thinner more wild high priced stuff. These are the things you learn to narrow down your style and become a pro at that one thing. That's all you need to make a living in this business.
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Hi dustin, just want to clarify. Your definition of a strong stock in your quote is based on CURRENT day only right? Not if it's moving up in the past 6 months etc..?

But then my question is also how do you define a strong stock? Becuase when the market opens, noone knows if a stock will be strong or weak for the day. It only becomes clear after the market is running for a while.

Do you scan based on yesterday's action to determine what is a strong or weak stock today?

thanks
 
Dustin, I really appreciate your advice. I've been trading since '05 at a prop firm. It is so easy to get into the trap of shorting the strongest stock on your screen ("it can't go any higher, can it?), or buying the weakest.

I've read many of your posts after noticing your results in the Trader P&L thread last year. I am currently working to tweak my trading to incorporate some of your scanning ideas (I usually scalp a small group of big-cap high volume stocks).

Anyway, just wanted to give you some props for your sound advice and common-sense approach!
 
will someone go one step further and explain some details in Holy Grail's point and figure chart. Are the blue Xs all certain number of contracts trading at a certain price and the red Os the price levels at which a certain number of contracts traded at ????
 
Quote from bigpig41:

will someone go one step further and explain some details in Holy Grail's point and figure chart. Are the blue Xs all certain number of contracts trading at a certain price and the red Os the price levels at which a certain number of contracts traded at ????
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I guess you didn't even have enough curiosity to find out what a p&f chart reflects. Good luck with trading if that is the amount of effort you are willing to put into it.
 
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