Price Action Trading – Around the News

As traders, one of the most exciting and dangerous periods of trading is when news events (i.e. economic data releases) occur.

Unexpected events like those due to geo-political events or natural disasters are the type of event-risk one just has to suck-up and deal with if and when it happens. Event risk though that is expected like those associated with economic data releases can be managed by preparedness. Even though you have no idea how the market will react to news regardless if the news comes out as expected or not, you will be prepared with the knowledge that the market could get very weird just before and after the news is released. How should one approach these types of days?

The Best Trading Time Frame

What is the best chart time frame for trading and tape reading? Great news, there isn’t any one time frame that’s necessarily “the best”.

Like Einstein said, it’s all relative (though I don’t think he has ever once touched a trade).

The best chart time frame you should be studying depends on the style of your approach and how long you typically want to hold a trade open. In my case, I study multiple time frames but my core time frame is the 4-hour. This means that I look for trade setups developing on the 4-hour chart and use other time frames (larger and smaller) to make sure I’m trading with the macro-trend and fine-tuning the timing of my entry relative the 4-hour respectively.

For example, when trading FX I typically expect for my positions to work out one way or another within a few hours up to as much as a couple of days or so. This is all relative to how long moves take to develop on my 4-hour time frame. So, if it takes 6 four-hour bars on the chart for my trade to develop that’s 24-hours worth of time passing of me holding onto a trade. Six bars on a chart regardless of time frame is not very much data…again, it’s all relative…

5 Essentials of Price Action Trading

A fellow trader, TraderCisco (his Twitter handle), suggested I write a post on price action trading – also known as “tape reading”.

The term “tape reading” comes from the old ticker tape containing real-time stock prices that used to stream endlessly onto the floor of physical stock exchanges in the early days. This was before the electronic ticker that you now see everywhere from the one hanging above the Big Board’s floor, to television and the mighty NASDAQ market site in Times Square. Traders back in the day used to read this strip of paper streaming out of a ticker tape machine (as pictured in this post’s feature image on my blog’s homepage). Ticker tape now is used to throw around during big VIP parades in New York City along the Canyon of Heroes…dealing with the mess afterwards is a different story.

Obviously, the days of reading stock prices on a narrow piece of paper being spit out by a machine is over. But reading prices, tape reading, lives on in its modern form via Level II screens and/or charts. For the purpose of my post, I will focus on chart reading since true Level II doesn’t exist in the FX markets (FX is a decentralized market with no single order book) and FX is what I trade. Here are what I would consider the five essentials of tape reading with charts:…

Psychoanalyze This, Now Show Me the Money

I was emailing a friend on the topic of trading approaches and eventually described how I use charts. I’m a pure technical trader studying just price action – basically no technical indicators. This is something I touched on in an earlier post you can read here.

More importantly though, the basis for how I approach interpreting price action is rooted in psychology – the human psychology of the traders who collectively cause the price action.

When traders of a more fundamental school of thought scoff at the idea of being able to make trading decisions on charts alone, I’m put off by just how close-minded they are. For years we have seen traders successfully create wealth by just using charts or by relying heavily on charts as part of their overall trading plan. Clearly, there must be something to it. And just because these nay-sayers or doubters can’t get charts to work for them it doesn’t mean it doesn’t work.

Charts are nothing more, in my opinion, than psychology in-action and playing out in a graphical form on your screen. It shows the motives of the “players” – are they net buying or selling. At which price levels have they shown no interest in bidding up or offering out anymore. Or conversely, which price levels have they shown tremendous interest…

Trading – The Best Technical Indicator

wasn’t entirely sure that I was going to be blogging about trading again in some way with my new blog. But since some of you have continued to email questions on FX trading (you’re all clearly obsessed) I guess I’ll go ahead and start a small segment on trading. Keeping in mind that I’m a pure technical (chartist) trader and that my views on trading will always be relative to how I trade the FX market.

Probably one of the most common questions that I get a lot is, “What indicators do you use?”. Let’s put this one to bed…for the most part I use no indicators. You’re probably in shock and utter disbelief. Don’t get me wrong, I’ve probably used and tinkered with almost all of the mainstream technical indicators and most of the lesser known ones as well in the past 8+ years that I’ve been trading. In the end, I’ve come back to the one indicator to rule them all…price action. Ironically, this also happens to be the least understood aspect of trading by a vast majority of wannabe traders.

Most people I’ve talked to who have been trading unsuccessfully…