Anton from Million Dollar Traders Shares his experiences as a trader and offers many valuable insights in this interview. Enjoy!

Hey All, site was down for a bit due to some technical issues. Were back up and running now. I apologize for the inconvenience this down time may have caused Pro Course students. Happy Trading!

Regards,
Shoot

Interesting documentary about the famed "flaw" mentioned by Alan Greenspan after unregulated markets failed during the housing crisis.

Why Price Action Trading is Better

Price Action Trading - you've probably heard of or are somewhat of a "Price Action Trader" yourself. Usually the proponents of Price Action Trading are die hard enthusiasts and would never trade any other way. But why? What is so amazing, effective, profitable about Price Action Trading? And why do some traders love it so much? In this article we'll go over 5 main reasons why many traders consider themselves price action purists, including myself.

1.The Trader Can Take Advantage of the Uniquely Human Ability to Adapt-

- Price Action Trading is almost entirely based upon the simple logic of how markets work. Trading with indicators is different than this because when using indicators there are often complicated algorithms and raw data processing that produce some sort of signal that either tells you when to buy or sell or promotes the idea of buying or selling. Indicators are generally programmed to process data in a very specific way and usually then output some sort of visual feedback so that a human can understand this data being presented from a certain angle. When relying heavily on indicators the trader is not really making the decision to pull the trigger, software based on historic data is responsible for creating the signal to buy or sell. When Price Action trading the trader usually has a logical understanding of why the market may be doing one thing or another and are not relying on software to process this data and spit out a biased version of it. They are then able to execute a plan based on this understanding of how markets work, which is primarily about the psychology of its participants. When someone understands not only that they should be doing something but why they should be doing it they tend to do it better. This is because when they understand why they should do something they are able to adapt to a changing scenario with their end goal in mind, which in this case is making money trading. Let's compare this to a robot who was programmed to do something. The robot who only understood that it should be entering a trade when one line crosses another would be lost if something changes to the point where those two lines would not cross in a way that would create a buy signal. There are elements of the market that stay the same but there are also elements of the market that continue to change. There is a consistent flow of new information that effects what prices do and this information is never exactly the same. What the Price Action Trader does is focus on the factors of a market that do not change, which ends up being a small number of simple but very powerful market truths, while still considering the slight slant that the ever changing information poses. The Price Action Trader understands how people think when price looks a certain way. They understand the concept of absorption. They understand that if they base their decisions on these simple truths it's possible to develop an edge in trading. Most importantly, they understand how to make slight variations in their trading plan as time goes by with the end goal of making money as traders. A computer could simply never do this as it would need to be reprogrammed every time there was a slight variation in the way the market was presenting price/volume/fundamental information, and if a programmer had to ceaselessly update a robot it is essentially a human trading in a very unnecessarily complicated way. Let's use an example: A man who holds a P.H.D in robotics from M.I.T programs a robot to perform the very simple task of going out to get the mail from the mailbox each day. Then there's his construction worker neighbor who simply has his son or even himself get the mail each day. The robot would perform this task beautifully each day, that is until one day the mailman accidentally drops a few pieces of mail on the ground. As usual the robot would make its way outside, open the mailbox, grab the mail that's in it and head back inside, and there the mail that fell on the ground still lay. Why didn't the robot pick up the mail? Because the robot does not understand the P.H.Ds goal of getting the mail. All the robot knows is the sequence of very specific tasks it was programmed to do. It has no idea why it is doing them and therefore, in this case, has zero ability to adapt to changing obstacles. The mailman had some bad food the night before and is feeling a little dizzy so again he drops more mail on the ground next door at the construction workers home. The construction worker's son walks outside, pops open the mailbox and grabs the mail inside. As he turns to go he sees some mail on the ground. He picks it up. Why did he pick it up? Because he understands that the goal is to get the mail for his father so when the process of getting the mail varies slightly he knows exactly what to do to meet the end goal.
When you trade using price action and without conventional indicators you are taking full advantage of the human ability to observe and adapt. Although trading with indicators may initially take on the appearance of making trading easier and more by the numbers, trading is not about numbers at all and therefore cannot be properly quantified. Trading is about the psychology of market participants. Why and when they do things is all dependent upon this psychology. While the whole world trusts computers over humans with numbers. There is scarcely a single person who would go to a robot shrink.

2.Simplicity -

Trading doesn't need to be complicated. So why complicate something if it doesn't need to be complicated? Einstein said, " Make everything as simple as possible, but not simpler." Focus is a commodity. Concentration is preferred. If there is something we can do to promote focus and concentration without causing a loss we should do it. As traders, complexity is our enemy. There are two main properties of complexity that do not produce a favorable outcome when trading.

1. Mental Capacity- Our minds can only actively keep track of so many things. The more complex the demand for our attention the more probable it is to fail at keeping track.

2. Failure Potential Increase-The more complex any system is the higher its failure rate will be. If you have 20 components in your trading system that are all supposed to convey some sort of information about the future direction of price there will be a higher percentage of inaccuracies associated with these 20 components than if there were only a few components. This is because each component introduces the potential for failure. Generally speaking, the simpler the system the less opportunity for failure. This is exactly what Einstein meant. When something is more complex than it has to be there is drag. When something is simpler than it should be there is loss of utility.
In trading, all you need is Price and Volume information. In my experience this is the sweet spot. Keep it simple.


3.Versatility -

Even traders who don't consider themselves simple Price Action traders generally use at least some Price Action trading concepts. What does this mean? It means that some may use Bollinger Bands, some may use MACD, but regardless of which of the hundreds of indicators people have on their screen they all see the same support and resistance levels. Regardless of what else traders are looking at they all see and act on simple support and resistance levels, which is the core of Price Action Trading. Price Action is the common factor amongst all traders and this means there will generally be more activity centered around Price Action. One of the basic goals of trading is to have people do what you do after you do it. If you go long you are going to need others to go long after you in order to make money. The more activity surrounding the reasons you get into a position the more opportunity for your wise decision to pay off. When you trade using Price Action and Volume you are essentially only trading at times where there will be more price volatility and liquidity. Two factors that short term traders rely on to find opportunities in the market.

4.Longevity-

Since the early days of price charting people have noticed certain patterns in price as time went by. Certain price levels would appear to be either holding price down or holding price up. From this phenomena people began developing an understanding of how markets function and subsequently began using terms like "support" and "resistance" to signify these particular areas that appeared to be holding up or holding down price. Because price data is so raw and does not need any processing to fit into any particular format for analysis we are able to identify it as something that will never change in markets. As long as there are markets there will be price data and price data is the purest form of what is actually happening in the market outside of asking every trader why he or she traded the way they did and receiving an honest answer. Think of it like this; would you rather see something for yourself or have someone explain it to you? Let's take a beer bottle for example. If someone explained it to you they would probably outline the color, shape, type of label, name, size, and maybe a few more visual characteristics of the bottle. However, if you were able to see the bottle yourself you would ascertain much more information about the bottle in an instant. Using indicators are like having someone explain to you what is happening with price. It is highly processed information, condensed down to certain numbers to be laid out in a certain way with the purpose of interacting with other highly processed data to help form an idea of the state of the market. Using raw price action is like seeing for yourself what is happening with the market. Using the same idea from the point before this one, Versatility, let's talk about why indicators may work to the limited extent that they do and then explain how using them puts the trader at a disadvantage. In the "Versatility" point we outlined that there is a group using indicator A., a group using indicator B. and a group using indicator C. but all three of these groups are using price action as well. Essentially this means that there will be a greater response when something happens because of price action vs something happening because of one of the many indicators these various groups are using. So looking at it from an opportunity standpoint let's imagine two different traders. Trader 1. is using pure price action. Trader 2. is using MACD and price action. In order for trader 1. to see an opportunity to trade he must see a set up with price action alone. In order for trader 2. to see an opportunity he must see a set up with both MACD and price action. Naturally the trader with the simpler criteria will experience more opportunities to trade good setups, and this puts the trader who needs the stars to align a certain way before he takes a trade at a disadvantage. Since price information is probably the single most important string of data used by traders, investors, commentators and dabblers we know that it will not pass away as long as markets exist. Different fads of indicators will come and go, but you can count on price action and volume being around for the long haul.

5.Availability - All you need is raw market data. You don't need custom software or the creator of the software with a conflict of interest to explain to you exactly how to use this magic squiggly line. Every trading platform that you would ever find yourself using will have price and volume data because it is essential to understanding the first thing about what's going on with markets. This allows the trader to focus on trading and not on a complicated setup that requires special software and fine tuning.

There it is, five reasons why Price Action Trading is better than other types of trading. What do you think, are there any more reasons why price action is better or worse than other types of trading. We'd like to hear your thoughts on it, too.

Shoot

WTF happened with the Facebook IPO?

We all remember it, the hype before Facebooks IPO was asinine, annoying, perhaps even unbearable. Facebook was going public and everybody knew it. On May 18th, 2012 the big day arrived. The market opened and "FB"(Facebook's ticker symbol on the nasdaq) remained motionless, which was normal. Most major IPO's don't start trading until 11:00, which was when FB was set to begin trading. Which is why it must have been very strange to see 11:00 come and go without a tick of price movement to be seen. Finally it begins trading at 11:30 and folks let me tell you, it has been dropping ever since. So wtf happened? It was supposed to be such a good runner. The only way is up. Everyone was supposed to be rich, rich I say.

Unfortunately for Zuckerberg and his Harvard cronies the FB IPO was a lemon from the get go. Here's why:

MORE...

Join the discussion as Dave and I discuss the inner workings of price action and volume market patterns!

read more...

Watch Money, Power and Wall Street: Part One on PBS. See more from FRONTLINE.