Today we are going to talk about why following the price action is so important in day trading. Whenever we think we are smarter than the markets, they will reach out and punch us and remind us very quickly that it is not wise to try and think ahead of prices. Everything we need to know about where prices have been and where they are going is right in front of our eyes and printed or printing directly to our trading charts. Why we think we can outsmart or out-think the markets is a mystery to me, but as a day trader, I still continue to be guilty of this on occasion myself. It’s part of the mental hurdle that makes profitable day trading so difficult.
If you are guilty of thinking ahead and trying to out smart the market, then you will want to read this article closely, because I am going to try and put this into perspective for you. The “only way to consistently make money day trading,” is by following the price action and doing nothing more. Many day traders may tell you that they make money with some special system or indicator, but if they are truly making money consistently on a daily basis as a day trader, then they know how to read a price chart, even if they don’t call it that and even if they don’t realize that. I know this to be a fact because there is no other way to consistently determine where prices are headed.
The ultimate lesson in all of this is that we can not think ahead and trade based on what prices “might” do or what we think prices are going to do. We may have a bias based on the current trend, but until the price action tells us that a correction is over, guessing as to when it is over is futile and will likely only cost us money. Sure, if we are trading with the prevailing trend, we will improve our odds of a failed trade considerably, although we may still have to watch prices move against us short term. When you understand prices and price action, and you follow them and those prices only, you will not make nearly as many bad trade decisions. It’s when we start second guessing and gambling on possible outcomes that our trading begins to deteriorate.
If you have not already watched our YouTube lesson dated for 9/13/12, then be sure to do so, because I discuss where I was thinking ahead in my trading in that video, rather than following the price action and trading accordingly. While it didn’t cost me a losing day, it did cost me some money, and as long as I have been at this business of day trading, you would think I of all people would know better and have a stronger grasp on my trading mistakes. That’s the power of the “mind” and how it can work against you when trading though. It’s like a drug or alcohol problem that you must conquer, because the urge to take a tiny sip or small taste is always there calling to you from the depths of bad trading! No matter how many times you say you will never do it again, it’s very easy to slip up and make the same mistakes over and over again when day trading.
Below is an excerpt from an article that I found at www.forexlive.com. This article talks about how the market is stacked against the small trader, and how the large traders have all of the fundamental information long before the public does, so it’s very difficult if not impossible to beat the large traders due to us not having the same level of information that they possess. Here is what the article had to say.
“It seems to me, that this is all Insider trading now. News and information is being leaked out before the day of release. ECB did it, and FED is doing it as well. Price action is showing this clearly. Market movers/ big boys who have access to this information, are moving the markets before the actual events happen. This is utter BS. There is no way for normal trader to trade anymore. Rinse and Repeat is the formula. Setup meetings in future behind closed doors, then leak the information to the guys who pay for it, move market, rip off normal traders, playing like they say it, ‘smart money’. utter %$#^” – Comment from a follower on www.forexlive.com.
So, if the markets are stacked against us, then how can anyone make money as a day trader? The answer to that problem is learning how to read a price chart. You see, a price chart is nothing more than the footprints that are left by traders as they buy and sell a particular market. Just like a hunter learns to track his prey, a trader can learn to track prices. You can learn what the footprints of the traders are telling you and how you can use that information to determine where prices are headed, even if only short term. All we need is a small advantage in order to make money as a day trader, and learning to read a price chart gives us that advantage.
This is why following the price action is so important in day trading, because it levels the playing field and helps us to get a better understanding of what the participants of that market are thinking and doing, which in turns, points us to where prices are likely headed next in the short term. If you would like to learn how read a price chart while becoming a price action day trader, then you have come to the right place. Spend some time reading our trading information and watching our price action trading videos and start learning to trade like a professional day trader today. Learn how you can become a price action trader by checking out our information at http://priceactiontradingsystem.com/pats-price-action-trading-manual/.