A widely respected approach that relies on the interpretation of market behavior based purely on the action of price, price action trading has a major problem in its application: movement of price is not enough to make consistent profitable trades. Traders end up being caught in a trap leading to dependent decisions solely on price, often finding them making trades without any concrete statistical edge or reliable indicators for support in making decisions.
Price action strategies may be hard to implement without the right tools and psychology. In fact, if you add in the market factors that are not correlated with each other, such as dominant market energy, support and resistance levels, and some level of psychological discipline, you will significantly enhance profitability. Here’s an introduction to this simple hack that will take your price action trading to the next level by combining all these essential elements.
In this article, we will guide you through a straightforward price action hack to boost your trading profits. You will bring together such key elements as statistical probability, market energy, and proper discipline to enhance your trading strategy and improve your success rate.
What Is Price Action?
Price action is said to refer to the organic natural prices within a market as they fluctuate organically, not through lagging indicators defined by moving averages or oscillators. This is strictly based on candlestick patterns, support and resistance levels, and the price trend. This, without a doubt, is very attractive, considering its simplicity. However, it can become pretty tricky to use price action solely because the price may change dramatically within volatile markets when the direction is utterly unclear.
In order to be able to appreciate price action entirely, however, traders will need to introduce yet more devices for evaluating the trend of the overall market.
The preponderance of Evidence Hidden Trick
The biggest disadvantage with price action trading is that from the mere movement of prices, one may not get the entire picture of how markets are working. It is here that the concept of “preponderance of evidence” comes into play. Rather than relying on just one item of evidence—price movement—it combines several uncorrelated pieces of evidence for trading decisions.
This simple price action hack involves:
- Price Action Patterns: Identify reliable price action patterns, such as support and resistance levels or candlestick formations (pin bars, engulfing candles, etc.).
- Market Energy Analysis: Assess dominant energy of the market, such as buyer and seller momentum, and avoid trading in the neutral zones of the market.
- Support and Resistance Levels: Utilize support and resistance levels as conflations with price action to enhance the accuracy of your entries.
- Statistical Edge: Add a statistical edge by determining how often similar configurations led to a winning trade. This way, you are trading on probabilities and not trading on how something “feels.”
Hedge Your Sprockets With Bollinger Bands
Market energy is another way to describe Bollinger Bands that illustrate price volatility. In the price action sense, it can be used in “squeezes” to identify low volatility, where a breakout is on its way. It’s not enough simply seeing a squeeze and jumping into a trade. You need further confirmation of your trade.
For instance, once you have a Bollinger Band squeeze, study further confirmation at either support or resistance levels to determine if the price might respond to such levels. The more variables added to trade upon means that you are not automatically entering market stalls or reversals, for example at mid-pivot levels, which embody neutrality in the market.
The Role of Statistical Probability
Trading is probabilities, not certainties. Many traders fall into the trap of searching for the “perfect” setup, which puts them on roads of emotional decision-making. The simple fact of the matter is no strategy will work 100% of the time. The plan is to create a system that will give you a statistical edge over time.
To accumulate in your profit of trading, use a mix of strategies that offer statistical evidence to support their argument. This means you want to backtest your strategies so they work over a long period of time and at different market conditions. Your rules should make you have an edge in the market; that is, they win more often than they lose over a large number of trades.
Trading Psychology Management
Another area in which the price action trader psyches themselves down is psychological discipline. Numbers can demonstrate the best strategy, but it is usually here that the human mind will bring down a good trading plan. The desire to break your trading rules, hold positions too short, or enter positions without thinking can jeopardize an otherwise quality trading plan.
Keep a Trading Log:
Tame your psychology using a trading log. Make sure you record each trade you make and every mistake you have. This means that deviating from the set trading rules is a mistake. From your observations and records of such mistakes, you will have begun to notice some patterns characterizing your behavior, which you can then work on conscious efforts at correction. Suppose you find that you keep exiting trades too early most of the time; you can work on the effort to ensure you hold on till the time determined by your strategy before it suggests it is the right time to exit.
The key here is to remember that losses don’t necessarily fail your strategy; losses can be part of the process, whereas breaking the rules and emotional trading are part of those things that can be corrected with time.
How to Apply the Hack: A Practical Example
Let’s have a practical example of how this price action hack works in real-time:
Your Bollinger Band squeeze suggests that there might be a breakout. Instead of jumping into the trade, you now check your nearest support and resistance levels. You can see that the price is approaching the mid-pivot level where there often is a point of market neutrality. Under such circumstances, you will hold back from entering the trade because the market is likely to stall or reverse there.
And by coupling price action with even more evidence, that is to say, support and resistance and even market energy, you escape the losing trade. This is the benefit of using a preponderance of evidence in your trading strategy.
The Involvement of Mistakes in Trading
Even the best strategy will experience losses. But the way a professional behaves from a nonprofessional trader revolves around his reaction to those losses. Losses, by following the rules, are “good” because they were in the plan. Mistakes, however, are those deviations from the rules, and these are the ones that you should track and avoid.
Conclusion
This simple price action hack boosts your trading profits by much more than just the interpretation of the price movement, and it’s the most simple approach to trade with confidence and a high statistical edge: always use multiple uncorrelated factors to back your decisions and maintain strict discipline through trading logs.
Trading is not about being right all the time. That would be boring, actually. It’s more just about managing probability and minimizing mistakes. Therefore, with this hack plus your price action trading skills, you’re on the way to much more consistent profits.
