3 Price Action Trading Secrets You Need to Know
When you are day trading, the less indicators you are using the better.
My favorite amount of indicators is 0.
Imagine you are at a car auction. You placed your last bid at $30,000 for a BMW M5.
Your friend has guaranteed to buy this car from you for $50,000. This is an immediate and quick $20k profit!
Someone runs up to you and says the relative strength is showing an exhaustion of buying in the market.
Do you cancel your bid and run away?
No – you keep bidding as long as the price stays below $50k because you have a buyer lined up.
Indicators in the stock market are a secondary and slower source of information delivery.
Price action will always tell you the same information faster and more accurately.
So let me share 4 price action trading secrets with you.
Price Action Trading Secret #1: Your stops are not being hunted, your entry timing is off.
I love hearing this from new traders. My brokerage keeps hunting my stop loss orders.
The second I place my stop loss I am triggered and then the trade goes my way.
But who is this predatory mysterious stop hunter in the market?
Just kidding, but not really. The stop hunters are professional and profitable traders that understand this secret.
You can also be a stop hunter.
Retail traders make emotional entries. The market really knows how to get you excited for a rally. You jump on board when it has already rallied based on emotion.
Professional traders can see this using order flow analysis. This is the analysis that we teach in our day trading course.
So the PROs know that all these buyers have stops below. Guess what they do?
They sell the market to trigger the downside liquidity and trigger all the sell stops of the emotional buyers.
Guess who’s down there buying?
Me. Along with all the professional traders, who are now positioning themselves for the real break out and run higher.
What happens when we get back to the top and finally break out?
You say darn those stop hunters!
They got me the first time. Not this time, I’m gonna buy it again.
Guess who you’re buying those contracts from?
Me – I’m selling them to you after I used them to run your stops from below.
You know what happens next, the market drops lower and wipes out the emotional retail buyers again.
This process repeats all day long.
This is the real dynamic of a double sided market.
Look at the chart below, all that red selling in the SP500 futures are short sellers on new lows.
This is emotional selling. After a few rotations lower we accumulated some retail traders flush with emotion and excitement.
A few moments later the short squeeze was on – and most professional traders were long for it.
Price Action Trading Secret #2: You are using the wrong charts.
If you are still using time charts, stop right now.
If you are looking at a 5 minute, 1 minute, 30 second – ditch those charts. They are useless and will show you misleading information for price action day trading.
Why does a new candle have to form just cause 5 minutes is up? Time is not important. The flow of contracts between buyers and sellers does.
This is called volume. Another chart favorite is the range.
This is an example of the ES, in the same time frame.
Chart on the left is our favorite chart type that we teach in our futures course here. Chart on the right is your traditional 5 minute chart.
Notice how the right chart is very messy and full of wicks. Those are all fake-outs where retail traders got stopped out and head faked.
Now look how clean the chart on the left is. Imagine trading on smooth price action like that?
Remember, this is a range. When markets are trending the opportunities are even greater.
I used this example because ranges are where traders have a particularly hard time, especially new traders.
Price Action Trading Secret #3: You are trading at the wrong time, and spending too much time in front of the screen.
I often hear traders tell me I don’t have 8 hours every day to trade.
Then I ask, who trades for 8 hours? That’s a waste of time. I’m in front of the screen from 9AM to 11AM EST in our live trading room. That’s all you need.
The times you trade are very important, because the opportunities are vastly different.
Here are the times you should avoid in the SP500 futures:
- 12PM to 2PM EST – this is lunch hour at most institutions and we are prone to ranges and fake outs.
- 4PM to 9:30AM – this overnight session is choppy and very low volume. Low volume is low opportunity.
Now here are the times you should definitely be trading:
- 9:30AM EST to 11:30AM EST – this is enough to make a full time income. That’s it. Why? This is when the US market opens, and at 11:30AM est the European markets close.
- 2PM EST to 4PM EST – this is smart money hour. Retail traders can get bruised here if they are not careful. New traders should avoid these time zones and focus on the top one first.
You should take the approach of less is more in price action trading. Especially when day trading.
It doesn’t matter what happens before, or after you are trading. It’s all about what happens while you trade. Focus on that window.
If you are at the computer when there is highest volume, you will have the highest amount of opportunities and highest probability.
The algos will have a hard time manipulating a market that is very thick of volume.
You want to trade with the professional money, not against it.
Price Action Trading Secrets – Conclusion
The truth is that new traders start trading as a side thing. You know, to earn a little extra income?
But they enter into the arena of professional traders and learn a lesson very quickly – this is a business not a get rich quick scheme.
The good news is if you know what to look for in today’s market you can achieve your goals with just a few hours a day.
But you need to know how price action trading works, and how to analyze order flow like professional traders.
More importantly, you need to join a community or group of traders who are doing it in a real time environment.
I am inviting you to join our community, be our next TRADEPRO and join our family of traders.
We have a complete education platform ready for you, including lessons, quizzes, exercises and live support and application. This is institutional level training for an affordable price.
See you in the room tomorrow at 9AM EST.
The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.