Price Action Trading Futures Explained

• Price Action Defined
• To Be a Mess or Not to Be a Mess
• Identify Trending versus Consolidating Markets
• Trade Price Action in the Futures Market

What is Price Action?

Price Action Trading is the discipline of making all of your trading decisions from price. This means that you are taking your cues from the most leading thing you can, price. No lagging indicators are used in price action trading. This may seem difficult in the beginning for the new trader, but this is the best way to trade. We use dynamic support and resistance with market movement to identify the highest probability areas to enter.

Since price charts reflect the beliefs and actions of all participants (human and computer) trading a market during a specific period. These beliefs are portrayed in the price chart in the form of price action. Using lagging indicators like MACD, stochastic, RSI, or the latest coded oscillator/indicator is a complete waste of time. Let us take a look at two scenarios:

To Be a Mess or Not to Be a Mess

The image below shows a clean price chart, with no mess, no indicators, and just pure price action.

This next chart shows a convoluted mess with lots of clutter, indicators, and just mess.

Looking at the indicator filled chart you actually lose a lot of room due to all of the indicators. This draws your attention away from price action and towards the lagging indicators. If you look at both charts and think about which one is easier to analyze it is a simple answer. All indicators are derived from price action, so by adding indicators you are just adding more variables for yourself. They are not adding any insight, but just clouding the picture of what is actually playing out in the market.

Trending VS. Consolidating Markets

As we discussed above, price action trading analysis is the analysis of the price movement of a market over time. From our analysis of price movement we can determine a markets directional bias or trend. By using pure price action we can easily see where a market is likely to go. Looking at price at its most basic level we look for higher highs, higher lows, lower highs, and/or lower lows. In the chart below note how price action consolidates before moving.

Price Action Trading in the Futures Market