Imagine the FREEDOM of trading with just a simple bar chart...
- NO Stochastics. NO RSI. NO MACD.
Price Action Concept 1
Points vs. Areas
You can begin to trade with ONLY price data (no indicators) once you understand REAL support and resistance. Did you know that some markets have both of the following:
- Support/resistance points (with pin-point accurate values)
- Support/resistance areas (a specific, usually small, range of values)
- Spend 2-3 hours manually identifying support and resistance lines.
- Look for points where price reverses... and notice those prices (or areas) where this happens time and again.
- For example, you may notice that every time a stock hits $20, it immediately reverses (often only temporarily). If this has happened two or more times, this then becomes a point of price resistance.
- Another example is price support. Let's say the price is falling and every time it falls to $10 the price reverses - like it doesn't want to go below $10. If this has happened two or more times, then $10 becomes a point of price support.
- Sometimes you'll notice that price reverses, but it's not at a specific point - it's more like an area. For example, the first reversal might be at $19.99 and then another one a few weeks later at $20.02 and another one a few months later at $19.89. In this case, you would make yourself aware of an area of resistance. You would NOT trade based on a break through the $20 mark. Instead you would use the entire $19.89-$20.02 (+/- a few points) as your area of trade signal.
- Notice that with support and resistance - no indicators are required! It gets easier each time you do it too.
A few other excellent things to look out for when looking at support/resistance areas and points are the following:
- Consistency & Patterns: some forex charts, currency pairs, stocks, etc. seem to develop more patterns than others. The more consistent the pattern, the easier they can be to trade. If you are analyzing a chart and you see a few support/resistance areas, but really no reliable pattern, consider leaving that one alone... and move on to a more consistent 'patterning' chart.
- Ranging... sometimes markets will range between two support/resistance areas. We'll talk about this in another tip, but for now, just be aware that it happens.
- Volume (a big part of trading without indicators involves keeping your eye on volume... this is what the professionals do - and you can do it too). For example a breakout on strong volume will often be solid enough to continue, but a breakout with little volume support will often result in a fake breakout. Let's talk more about that now...
Once you've established support/resistance points and areas, you'll be able to easily spot when the price breaks through - over resistance or under support. Sometimes these breakouts will be short-lived and quickly turn back around.
Price Action Concept 2
Price Action Concept 2
Spotting REAL vs FAKE Breakout Forex Moves
(Side note: this is a great example of when it's especially important to be aware that support and resistance areas exist... not just points. A breakout might not be a true breakout if it is still traveling within the area.)
If the price genuinely breaks out of a well-ingrained support/resistance price or area, there is still a chance the breakout will be short lived and reverse... taking all your cash with it.
This can really hurt your account.
Theses are called FAKE breakouts. So how do you know if a breakout is REAL OR FAKE? Read on for more...