“Price action, price action, price action.”
You’ll hear that phrase repeatedly as a trader, much like the real estate mantra “location, location, location.”
When it comes to day trading and swing trading, one of the biggest challenges people face is focusing on the wrong elements.
They might hone in on the story, the catalyst, the news, or the overall market trends like the S&P and the Dow.
But what truly trips people up is that, at the end of the day, you have to recognize the trend in the price action over any sector news or market trends.
Many traders fall into the trap of ignoring the price action. This is one of the most common mistakes newer traders make.
Let’s say you find yourself in a trade where, despite doing your due diligence, the stock goes against you…
As a new trader, you might start googling for news, checking their webpage, or asking prominent traders on Twitter what they think of the stock.
You’re looking for an excuse to ignore the price action. But this is a recipe for disaster.
Let me show you how to respect the price action (and be a better trader for it)…
Once you’re in a trade that’s going against you … no amount of Googling, asking other traders, or checking financials and SEC filings will make a difference.
If a stock is steadily uptrending for days or weeks, breaks a key level, and then drops right after you buy it — that’s a mistake.
This specifically applies once you’re in the trade. Ignoring price action and choosing to stay in the position is a common error.
We use specific time frames: a five-minute chart on a five-day pattern, a 15-minute chart on a 15-day pattern, and a one-year chart for daily patterns to track price action.
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Aligning trends across these time frames can provide a clearer picture of the stock’s behavior.
Writing down your trade plan before entering a stock can be an absolute game-changer.
A good trade plan includes your entry point, stop loss, and target goals, all based on price action and trends.
For traders with smaller accounts (under $5,000 or $10,000), having a “boredom contingency” is essential.
This means having a plan for when a stock doesn’t move much throughout the day.
Decide whether to hold overnight or take a small loss, gain, or break-even trade to avoid unnecessary risks.
If you want help forming your trade plan, you should join Daily Income Traders. It’s live, 100% free, and we go over this concept every day.
Random trades yield random results.
Doing the same thing repeatedly while expecting different outcomes is the definition of insanity.
Many new traders lack a plan, leading to inconsistent results.
To become profitable, you need to respect the price action, stop relying on social media for trade validation, and avoid taking small gains on steadily uptrending stocks.
The sooner you start respecting price action and planning your trades meticulously, the sooner you’ll see significant improvements in your trading performance.
Great trading tools can speed this process up. The Oracle system uses computer-generated algorithms to transform complicated stocks into simple yet effective trade alerts…
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Ultimately, more than anything else, price action is the foundation of successful trading.
Respect it, plan for it, and watch your trading skills soar.
Have a great day everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
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