Trading Price Action vs. Indicators (Round 1)
Traders all over the globe have been battling over the proper way to day trade. Trading Price action or
price action trading as it’s called is taking precedence when compared to following Indicators on a chart.
What’s better? What works? What makes the most profit? Let’s compare the two methods of trading and
come to a conclusion to which trading style comes out on top. Let us digest the question that most serious
trades come to realize. Which method works better, price action or indicators.
Price Action as explained and taught by DayTradeToWin is a method of trading where price is used as
the primary tool for determining risk and reward in real-time. In terms of online day trading, price action is
the price movement displayed on the chart, and nothing more. The price as displayed and plotted on the chart
real time can provide traders everything they need. The 5 minute chart seems to be the most popular.
Inherently, price action is a singular method of trading, requiring no external trading tools (like indicators),
plugins, or other third-party software for charting purposes. All that is required is an understanding of the
market, and a set of rules for interacting with price and the ability to identify price behavior. Sounds simple
enough, right? Well not so fast. The interpretation of the price is what makes or breaks price action trading.
Without the proper understanding, education, and specific rules, the chart looks nothing more than random
bars. Having the key to decipher the code is what price action is all about. John Paul, founder of
DayTradeToWin has in fact taught traders to decipher this code with outstanding results and testimonials.
Adversely, indicators are third-party extensions that summarize data, advising traders when and how to
trade. Indicators exist for nearly every aspect of day trading for nearly every software platform that supports
them. For example, NinjaTrader’s indicator list includes indicators ranging from Bollinger Bands to oscillators,
moving averages, volume averages, stochastics, and everything in between. Indicators that focus on price
action do not exist for the most part, with the exception of those offered at DayTradeToWin.com. This
exception is a stretch, as software like the Atlas Line Indicator is really a price guide; indicating what type of
trade to take (long or short) only if price confirms the action. In order for an indicator to be considered
compatible with price action, the indicator must:
- Operate and produce signals in real-time not after the fact.
- Be compatible with price as it moves on the chart
- Produce non-conflicting signals that whipsaw a trader
Indicators look pretty and have lots of colors. The question is do they really help, or do they create
dependency for traders? Let’s first understand what an indicator does.
A trading indicator needs price to first to make a move up or down. Once this move is made the
Indicator takes what just occurred and plots a point – line – bar – graph on the chart. The indicator by
definition is already late in providing information to a trader about a move up or down in the market which
has already occurred. Indicators also have another huge issue which John Paul at DayTradeToWin educates
his traders on. Which parameter is right for the market being traded? What has worked in the past, will most
likely not work in the future. If the indicator in question has been optimized with historical data, then how will
history relate to the forward looking performance when traded? This becomes the issue at hand.
At the moment It seems price action has the advantage with the comparisons made. This is just “Round 1” and
the following articles will provide more info, but for now let’s understand what each contestant stands for and
what each brings to the table.
Price action trading:
- Is free – a trader does not need to extra software. Candles, bars, dots or any other chart price symbol will
provide ample information for price action traders.
- Can be used on any market at any time under any circumstances (E-Mini S&P, Forex, stocks, other
commodities, futures and currencies).
- Can be used with any trading software (NinjaTrader, TradeStation, MetaStock, etc.).
- Is fast – price lag is irrelevant, old data will not obstruct your trading.
- Is versatile – price action trading methods can be combined for a coherent trading system that is free of
- Must take time to learn, and understand how to trade it. Education is needed to master the methods and
practice is key. The Cost is not cheap and is compared to a semester in college.
- Is not free – most indicators are commercial.
- Lags behind price – data based on the past is unlikely to be of assistance in the present and the future in an
ever-changing market. Until data can be transferred instantaneously across any distance, this will be a
- Often produces conflicting signals and hesitation of when and how to perform trades.
- Compatibility is dependent upon the indicator’s programming; only certain markets and / or trading software
may be supported.
- Subject to the law of overuse – the more traders that use an indicator, the more a market will adapt “in
retaliation” to its overuse, thus rendering it ineffective. Price action is free from such boundaries as it is based
on watching the resulting changes in price.
- Easy to use, and follow. A no brainer, nothing to think about and only following the signals is needed.
While Price Action trading may be free, it may take a trader quite a while of practice (and a few losses)
to determine what works. The logical next step in preventing losses is pursuing a form of day trading
education. Indicators are a dime a dozen and most focus on following the heard. DayTradeToWin.com’s
beginner to advanced educational program, also known as “Private Mentorship”, features one-on-one trading
from an experienced price action trader. The Program includes exact instructions on scalping methods,
filtering trades, trading the news, and much more. Six weeks of live tutoring at the student’s own pace is
much more effective in creating a self-sufficient day trader than any combination of indicators. Let’s see what
happens in “Round 2” of Price Action VS Indicators.