The screens of most traders, mainly beginners, are clamoring with numerous indicators, tools, and trading strategies available, each telling them that the next magic indicator would guarantee success in the market.
This category of traders might spend hours and hours in research, trying to identify or develop some “magic indicator” that will make them seek monumental success from every corner of the market. Sadly, this futile quest often leads to cluttered charts.
With more than ten years of trading experience, I can second that this is just an initial obsession. I have witnessed many traders in their early years tending to overcomplicate their approach to trading using way too many indicators. The effect, quite often, seems to be one of confusion rather than clarity.
After all these years of fine-tuning my trading strategy, I came to realize—it is all about two things: price action and volume. In this video, “I ONLY Focus on These 2 Things In Trading (2024),” we explain why these two components are taken into great consideration, how they can make your trading so much easier, and how you could move on to these in establishing a really valid trading strategy.
The Key Ingredients of Trading Success
In trading, broadly speaking, you have two different parts: psychological and technical. Of course, the former plays a great role in being a successful trader, but today we will be focusing just on the latter, with a slight focus on price action and volume.
These two make up the bedrock to build on for successfully executed trading strategies.
The Importance of Price Action
Understanding Market Movements
Price action describes the movement of the price of a security charted over time—that is, basically, raw market behavior. Through price action, a trader can identify what the sentiment on the acted security is like, market tendencies, and possible decisions for general trading entry.
Why Price Action Is Important?
In the traditional trading business, price action is the only thing they call “king”. Unlike indicators, which are normally lagging and based on past data, price action in real-time gives insight into what is going on inside a market. It is precisely the reaction of the market to different elements, whether it is news, economic data, or market sentiment.
Elements of Price Action
Several key components of price action should be the trader’s real focus.
Candlestick patterns display much of market psychology and reversing or continuing in markets. For example, an occurrence of a hammer candle at the end of a downtrend may denote reversal.
Support and Resistance: They represent basic areas of a price chart at which price tends to react. These prices can be understood in order to identify prospective entry and exit points.
Supply and Demand: These are areas that show the greatest intensity of buying and selling pressures. Understanding these areas helps in forecasting price direction.
By focusing on price action, the noise of having so many indicators is eliminated and one is better able to get a clearer picture in the direction of the markets.
The Power of Volume in Trading
What Is Volume?
Volume is the number of shares or contracts traded in a security during a given period. It therefore reflects an important activity in the marketplace, letting an analyst know that price action—either strong or weak—is involved.
Volume Decoding
Volume, however, is very often interpreted wrongly by many traders to mean it is a direct measurement of either the presence of buyers or sellers in the market. However, in fact, volume is the measure of all types of transactions that sum up buying and selling. The clue is not to look for “more buyers” or “more sellers,” but to understand who is more aggressive in the market.
If the price in a stock increases and the volume expands, this would indicate there is enough interest on the buy side to move the price higher longer. Yet, should the price increase but the volume contracts, then that would be a warning of no interest in prices moving higher, possibly indicating a warning of a reversal.
Volume and Price Action
Volumes go hand-in-hand with price action and tend to act jointly, giving a complete picture of what is happening in the market. For instance, a breakout from a resistance level would probably be more sustained if it were high than on low volume. A trader merging these two elements can get deeper insight into the strength of the market and early identification of trends, thereby making more confident decisions related to trading.
It is some kind of a peculiar phenomenon where, in some early career time, a multitude of traders clutter dozens of indicators on their charts, all questing to find that perfect trading setup.
And this typically results in an analysis paralysis situation where there are too many conflicting signals for the trader to make their trading decisions definitively.
Eliminating the Noise
If your charts are clogged with indicators, lines, and patterns, get some simplification to work. Get rid of everything that is superficial and focus on how price is behaving along with the volume. This is when you will be able to see the market clearly to make good trading decisions.
The Dangers of Overcomplicating
The charts that I started with were appalling; they had so many indicators on them, I couldn’t make head nor tail of them in terms of deciphering what the markets were telling me.
It wasn’t until I stripped my charts right back to price action and volume that I started to see consistent results. Focusing specifically on those two things, I derive important levels, mood in the marketplace, and I’m trading with more informed decision-making.
Creating a Strategy Based on Price Action and Volume
Now that you have read everything in price action and volume, you need to build your trading strategy around these two elements. If you need a point of reference now, here are some steps to get you started.
Identify Key Levels
Use price action to identify support and resistance levels. These levels are going to be your directives for the potential entry and exit points.
Volume Analysis
Observe the volume for confirmation of a price movement. For example, if a stock breaks out of a level and a resistance level with a high amount of volume, you have a strong signal to get in the trade.
Combine Price Action and Volume
Now, put both of these together to make a trading decision—an example including both could ensue. For instance, if an investor observes a bullish candlestick pattern at a pivotal support level and its volume is above average, that would work out to be a very solid buy signal.
Test and Refinement
With a strategy, test it on a demo account or with small positions, but try to refine this over time depending on said results and continue to focus solely on price action and volume.
Conclusion
Simple—no need for so many indicators and complicated strategies. Just like I have reiterated in this article the secret behind consistent profits is the understanding of price action and volume. Improve better trading decisions and by that improve overall trading performance through this simple trick of cleaning up your charts and focusing on these two aspects.
Whether you are a new or an experienced trader, it is time to take a step back, clear the noise, and concentrate on only the important things in the market. In the end, trading is not about looking for the magic indicator; it’s about understanding what drives markets—price action and volume.