vicknov
New Member
This post is not meant to serve as a tutorial for beginners but it is meant to shed more light on these two sides to trading and help you understand what you are going into as a beginner and also as an old trader who is wasnts to try out something new.
In this post, we will outlining what these strategies connote (mean) while keeping it as simple as possible to and brief for you not to get tired while reading.
Before we begin, we will shed light on what these means for the beginners.
Price Action Trading is typically the art of basing all your trading choices on the movement of prices on the price chart. You do not need any indicators to help you identify your go-ahead in the form of support and resistance areas and trends in order to trade this way. The reason for this is because your resistance and support areas will already be on the chart. This discipline to making trading decisions is based on the fact that over a certain period of time, financial markets generate data about the changes in the price of a market. This comprehensive data is then displayed on price charts. In the end, price charts are used to display the actions and beliefs of trading participants, which are eventually represented on a market price chart in the form of a price action. Every price chart has something different to tell about the struggles that the buyers and the sellers have gone through in the past, and the current traders make decisions based on these results to determine the price.
Next is Custom Indicator Trading Systems; is a charting tool that allows the user to modify parameters freely within charts that generate trading signals and alerts. Generally, custom indicators can be created using electronic trading platforms offered through online brokerages and dealers. They're typically created using simple algorithms with existing variables. Some systems for custom indicators require knowledge of coding, while others provide a user interface that eliminates the need for coding.
Advantages
On the basis of the definition, there are some clear advantages to using these methods to trade. Here are additional advantages you get to enjoy:
PRICE ACTION
CONS OF PRICE ACTION TRADING AND CUSTOM INDICATORS
having spoken about the benefits of these trading systems it will only be in turn to speak about their cons too.
Price Action Disadvanages
Custom Indicators Advantages
Having spoken extensively while trying to make this post as brief as possible, you can be able to get some ideas about these trading systems and draw your own decisions on which you are to use.
However, you must know that in trading, what worked for another may not necesarily work for you. And this is because of the difference which we share as human beings.
PS: if you have any questrions, do feel free to leave messages behind. I will be open to answering your questions.
Goodluck!
In this post, we will outlining what these strategies connote (mean) while keeping it as simple as possible to and brief for you not to get tired while reading.
Before we begin, we will shed light on what these means for the beginners.
Price Action Trading is typically the art of basing all your trading choices on the movement of prices on the price chart. You do not need any indicators to help you identify your go-ahead in the form of support and resistance areas and trends in order to trade this way. The reason for this is because your resistance and support areas will already be on the chart. This discipline to making trading decisions is based on the fact that over a certain period of time, financial markets generate data about the changes in the price of a market. This comprehensive data is then displayed on price charts. In the end, price charts are used to display the actions and beliefs of trading participants, which are eventually represented on a market price chart in the form of a price action. Every price chart has something different to tell about the struggles that the buyers and the sellers have gone through in the past, and the current traders make decisions based on these results to determine the price.
Next is Custom Indicator Trading Systems; is a charting tool that allows the user to modify parameters freely within charts that generate trading signals and alerts. Generally, custom indicators can be created using electronic trading platforms offered through online brokerages and dealers. They're typically created using simple algorithms with existing variables. Some systems for custom indicators require knowledge of coding, while others provide a user interface that eliminates the need for coding.
Advantages
On the basis of the definition, there are some clear advantages to using these methods to trade. Here are additional advantages you get to enjoy:
PRICE ACTION
- It's a simple way to trade: the stand out advantage is that price action is also very simple. The benefit of this is that trading becomes very clear as there are no indicators creating clutter. You do not need to include so many technical indicators to make a buying or a selling decision. If you were to consider all the available indicators, then you will be so stressed in the end as you shall suffer from an 'information overload'. A lot of people end up trading emotionally because they have wasted so much time thinking of other possibilities and get to a point where they just make any decision to move along. With price action, all you focus on are the candlestick charts and you wi5rfll be able to see what is happening in the market.
- Easy to understand signals: Price action signals are also very easy to understand. You do not need to be a professional trader with a lot of experience to understand the signals to make a good trading decision in the end. With price action, you are able to identify the trends in the market, which make it possible for you to trade with the market, rather than against it.
- Faster signals: Basing your trading decisions on price action, allows you to trade in real time, in consonance with markets movement. When relying on the help of candles (bars) alone, you are able to understand what exactly is happening in the market.
- More understanding of why trade decisions are taken: Price action leads to clarity, while clarity boosts your confidence when entering into a position.
- It is very simple: you do not take trades until certain conditions are met on the charts.
- Do not require any analysis: indicators take away the stress of having to do chart analysis which is the major constraints of Price Action trading.
- A newbie can use it without any prior training: you do not need any real training outside the instructions on how to use the indicator.
CONS OF PRICE ACTION TRADING AND CUSTOM INDICATORS
having spoken about the benefits of these trading systems it will only be in turn to speak about their cons too.
Price Action Disadvanages
- Low number of trades: Price action trading requires patience. This is because it requires the trader to wait for confirmation at support & resistance.
The confirmation could be in a form of a Pinbar or Engulfing pattern. But by waiting for confirmation, traders tend to miss trading opportunities when price simply ‘touch and go’. It is heart-wrenching to watch price bounce off your levels, without being in the trade. - Waiting for levels: Price action traders would always wait for the price to come to their levels. Some of these levels could be support & resistance, or previous resistance turned support etc. But in a trending market, often price does not come back to retest these levels due to the strong underlying momentum. This cause price action traders to be on the sideline while the market is making a directional move.
- Poor placement of stops: If you read most trading books or attend trading courses, you will be taught to place your stops just beyond the highs/lows of the candle. Thus it is no surprise that traders tend to place their stops at obvious levels. E.g. a few pips beyond the wicks of the candle, just above resistance, just below support or at round numbers. However, dealers are not stupid and have an educated guess where your stops are, without looking at the order book. Yes, those juicy support & resistance levels. Because of this, you find yourself being stopped out of your trades unnecessarily, only to watch the price go back in your favor.
- Size of reversal candle stick: Candlestick reversal patterns serve as confirmation of whether a level is holding up. Candlesticks like the Pinbar and Engulfing pattern comes in all shape and sizes. But are they created equal? Not necessarily. The larger the Pinbar or Engulfing pattern, the stronger the price rejection.
Custom Indicators Advantages
- Unaware of the complete picture: Novice traders who get used to trading with these indicators can never get an entire background on what’s happening behind the charts. If they get used to this, they can never become a professional technical trader. Also, they won’t be able to identify if the signal generated by the indicator is accurate or not. Hence, it is always crucial to understand why the indicator is moving the way it is so that we can make better trading decisions.
- Not for pure price action traders: Price action trading is also a part of technical trading. It is purely based on the price movements of the asset alone. So price action traders might find indicator based trading a bit redundant because they know why the price is moving the way it is moving. Hence we can say that indicators don’t add more value to pure price action traders.
- Lagging issues: By now, we know that there are lagging indicators that portray what has already happened in the market. These indicators do add significant value to indicator based trading, but they can’t be completely used to take the trades.
Having spoken extensively while trying to make this post as brief as possible, you can be able to get some ideas about these trading systems and draw your own decisions on which you are to use.
However, you must know that in trading, what worked for another may not necesarily work for you. And this is because of the difference which we share as human beings.
PS: if you have any questrions, do feel free to leave messages behind. I will be open to answering your questions.
Goodluck!
