Understanding Price Action Heuristically.What is Price Action when it comes to understanding stocks?
There are more than 100 Indicators that are present in the market today. And they all are lagging Indicators. They were made in order to extract money from the retail traders and not help them make money.
You have to understand one thing very clearly - The only aim of stock markets to exist for centuries is to extract the profits out of small money(retail) and give it to the big money(Hedge Funds/Investment banks/Asset Mgt Co.s) .
PERIOD!
So if you enter the markets at 9 AM with 100 Rs. and get out at 3:30 PM with 100 Rs. YOU WON! Everything else is secondary in this market.
We focus too much on making profits and less on saving our capital in this market. And we often don't give ourselves credit for that.
90% of retail traders in this world lose to 10% crowd. Why is that? This is a question of Behavioral Psychology which focuses on why humans behave the way they do and a really good one.
90% of the time in this market we see what we are supposed to see and that does not have to be true in reality.
What differentiates the 10 from the 90 ??
They understand human behavior than the rest. They know that the majority is more predictable than the minority and it's always easy to trap them into thinking that they are right.
Everybody focuses on all kinds of tools and not the most obvious one which is the PRICE itself.
I have made this mistake myself in my 6 years of trading experience and never really understood the why of it. But now I have started too. Truth be told it's easy to predict when there is already a tool doing it for you.
The majority never likes to work. They always want to find some shortcut and that's why they blow up their accounts again and again and this business never goes out of money because of them.
The only job of retail traders is to provide liquidity to the institutions. Our job ends there.
If we happen to make money doing what they do we can put ourselves into the premium category of people otherwise we go back to performing our job.
Every Indicator can and will lie but one thing cannot. The current level/the price.
Institutions trade the candles not the patterns. That's for the majority. And the majority is least interested in learning price action. This is called a win-win situation. Trading in the turf where they dominate the market and always end up winning.
The good news is - You cannot learn price action through a course. You'd have to discipline yourself to understand every candle and decode its behavior on the chart by just observing the charts. Spend some time observing how people with the capital fight in the market to gain some every day. And you'd slowly start noticing patterns that you couldn't before.
This all is the whole gist of Price Action Theory!
Now coming to the chart.
Why did I say there is no such thing as support or resistance in the market?
Instead of calling it S & R start calling them Buyers Area & Sellers Area respectively and see how your psychology changes while trading. Any given point which has seen more reversals in the past becomes important for us then be it support or resistance it doesn't matter. It only means 2 things that there are 2 Institutions(or more) that are fighting at that point and whichever Institution has more money wins, hence giving us a breakout or a reversal. And our only job is to find who has more probability of winning.
Now how do we do that?
This is the basic fundamental of price action - If there are good green candles (Big Green candles with very small wick) in an uptrend and very poor red candles (Small Red candles with long wicks) the buyer is dominating because it is not giving any chance for the sellers to make an impact in the market. And vice versa.
Now, What do Big Green Candle in a downtrend or a Big Red Candle in an uptrend denote? It is simply a message to the other side that a big buyer or seller exists at that point (this also denotes that the markets are getting close to their respective direction of dominating) which is why they communicate to the other side that they are capable of moving the markets from that point.
Now try to think where do your indicators and strategies stand in front of 2 players who have years of experience exploiting the markets in the most legal manner possible - Playing with Human Psychology.
I'd write about price action with example in detail in some other chart next time.
If you learned anything from this Idea and want to reflect on it I would suggest simply observe the markets every day for few months without Indicators and see what does the chart tells you and what is the significance of wicks and no wicks candles in trending and a consolidating pattern.
