Reasons why Price Action works

One of the most misunderstood concepts in trading has to be the use of indicators when deciding whether to initiate a trade or not. Mistakenly believed to hold the key to trading successfully, many new traders often fall into the trap of "more is better" by overcrowding their charts with unnecessary tools that only serve to distract your attention from the more important details of the trend. 

Price action is the study of the relationship between buyers and sellers in the way they interact in response to new developments evolving as time goes on as well as the acceptance or rejection of a certain price level. In its most basic form it shows us quite simply if a price is moving upwards or downwards. 

So why is price action a simple yet effective way of identifying highly probable trades? 

Most trading indicators derive their values from price

Price is a key input in popular trading indicators that many use so instead of distorting the entries and exits by manipulating them through deviant equations, seek out increasing the probability of a trade by finding widely followed price patterns and use the indicators as the confirmation. 

Before there were any indicators there was price which has been used for decades as a primary method of spotting the direction of the trend and because this has been a familiar feature with traders it's a widely followed indicator.

It's elementary compared to other indicators

The ease of understanding and identifying a price pattern is basic whereas using indicators tend trigger false signals too often making it harder to find the high probable trades needed to set the edge in your favour. Indicators clog up the screen by hogging the attention with some giving both buy and sell triggers at the same time putting more anxiety on the trader to pull the trigger. 

Price has four components; High, Low, Open and Close and the right combination hit's off an immediate signal with no second thoughts in the way to prevent you from entering or exiting the trade. Simple is easier. 

Support & Resistance

When prices climbs higher or plunges lower it forms levels which are often marked by buyers and sellers as points where if the price were to pullback or throwback they'd likely load up again. Because these points show where the buyers and sellers lie we know in advance the areas of interest price could get. 

This is crucial in determining the strength of the trend by ascertaining whether buyers or sellers are willing to take up or drop the price asserting their dominance in the trend, if not the trend has broken and a new interpretation of the price can begin. 

Indicators however can stay overbought and oversold for long periods of time without resulting in a significant move in the opposite direction of the trend which can lead to being frustrated. 

Price action is universal

Regardless of the market, price action methods holds the same for all markets with little in the way of transitioning from one to the other.