What is price action?

Price action is the definition of “less is more”. Price says a lot about what is about to happen and price always tells the truth. Price action is the language of the market. The only thing you need to trade price action is a simple, clear chart. You won’t ever need anything else on or off the chart.

When you trade the market, you don’t tell the market what to do, the market tells you. And in order to be a good little trader you have to learn the language of the market.

Price action is what price does, how price acts. Think of price action as the body language of the market. How price moves says a lot about what the market and more specifically those who move the market plan to do. For people, body language is the same for all. No matter how old you are, what your religion is, what your gender is, what race you are, if you’re happy, you will smile. In the same way, all markets “speak” price action.

Price is driven only by the interaction between buyers and sellers, it is the end result of buying and selling. This is where it all starts. The financial markets are a place where you can only buy and sell. There are many ways, but you are either going up or down, there is no third option. And If you buy something, one way or the other you will have to sell it later to get out of this position. This can be a take profit order or a protective stop order or you can sell your position yourself. And if you sell something you will have to buy it back when you close that position.

Trading is a constant game between buyers and sellers, where they try to trick and outsmart each other. The better the trick, the more they stand to profit. And this constant interaction between buyers and sellers is how price changes, how it behaves and how price acts. This is called price action and everthing that price does is price action. And there is nothing mystical about trading price action or why it works. Combine market knowledge with cold, hard logic and you will see how deep the rabbit hole can go.

Take a look at the chart below.

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As price moves it naturally forms patterns and it forms them all the time. Every single candle on the chart is a pattern that is the result of buying and selling for a certain time period. Every candle has a different meaning and a different effect on the market. Candles in groups of 2 or 3 or more form bigger patterns. All the candles in a chart form an even bigger pattern. Different combinations or strings of patterns, big and small, also have a different meaning and a different effect on the market. This is true for every chart that you see and all of it is the result of people or programs created by people that are simply buying and selling. So actually price action or how price moves is the result of human behaviour in the context of market mechanics.

Fundamentally all patterns have an underlying mathemaitcal structure, but that kind of mathematics is too complex and difficult to understand. The beauty of price action trading is that it uses elementary knowledge and understanding of the underlying market rules and mechanics and simple logic. Price action trading is a science and it makes sense. Price action can be explained with simple everyday words and can be easily understood. You can understand what you are doing and why you are doing it. That is the key to profitable trading.