February 24, 2019

Price Action Trading With Candlesticks

Inverted HammerThere are many trading systems to confuse the trader these days and almost all of them have one thing in common…indicators! It seems that price action trading, which is what technical analysis is really all about has been all but forgotten. In my opinion, price action is not only the most effective method for analyzing trades but also a simple method to learn for traders at any level.

Price action trading is the study of price movement using nothing more than the stock chart and maybe some moving averages to show dynamic support and resistance levels. The best method of price action is the study of candlesticks which give simple and reliable signals when following the rules of price action theory. Candlesticks as well as the study of price action are actually easy ways to learn trade entry levels for both long and short trades. Candlestick Trading for Maximum Profits has been teaching both since 2007 and is the reason for our great success.

The Chart with Indicators

Let’s examine a chart using many of today’s common indicators and trading systems. Below is a chart of MSFT with many of today’s most common indicators used as trading systems.

Cluttered Chart

This chart is so cluttered there is no way the average trader can effectively analyze the price action much less tell what’s going on with anything other than the indicators. This is extremely confusing and a very poor method for technical analysis. Why would anyone think they could profitably use all these indicators to profitably trade? Do you think professional traders use all these indicators? I think not!

A Nice Clean Canvas to Work From

The same stock below with a nice clean chart is much easier to learn to analyze and trade from. The candlestick patterns are clearly visible and we can tell what the price is doing rather what the indicators are doing.

Clean Chart

Which Chart Would You Rather Analyze?

There are many stocks to be studied to find potential trades. Spending hours a night trying to peer through all the clutter of the first chart further lends itself to poor trading decisions and missing trades altogether. The second chart can be quickly studied. We can quickly determine if there is a trading opportunity or not and move on to the next chart if needed.

Candlesticks in themselves are price action analysis at its finest! Remember to use them as intended and not clutter your charts with indicators that will do nothing more than confuse. Remember that most indicators are nothing more numerical algorithms of price movement. Why not forget about the algorithms and continue to study price action?

Stock Charts Provided by StockCharts.com