Luckily, a few price-action trading books on the market are rare gems. Sadly, hundreds of books are out there for trading, and most are not worth the paper they’re printed on. At best, trading books should provide the user with specific trading strategies that are simple to implement. At worst, many are overwhelming, offering too many choices of candlestick patterns, chart patterns, and indicators.
Despite providing a buffet of options, they are inadequate for traders who want to focus on trading price action.
Ultimately, I will suggest a few good books on price action. However, before that, you must understand the core basics of price action trading.
Table of Contents
Best Price Action Trading Books
- Here are price action trading books, but we’ll look at two favorites in detail below
- Trading Price Action Trends by Al Brooks
- Martin Pring on Price Patterns
- Japanese Candlestick Patterns by Steve Nieson
- Benefits of Using Price Action Within Your Trading Strategy by Vin Castillo
- Forex Price Action Scalping by Bob Volman
1: Trading Price Action Trends
I’m on a simplification journey in all aspects of my life, trading included. Undoubtedly, one of the keys to success as a trader is to find a system that works, keep it simple, and stick to it.
Author Al Brooks has done just that. By simplifying his trading system and trading only 5-minute price charts, he’s found a way to secure profits regardless of market direction or economic climate. How great is that!
Brooks’s three-part book series takes you through his system step by step. His books will allow you to identify the type of trend that’s unfolding and how to use techniques that are specific to that type of trend to place the right trades.
Moreover, he extensively covers the importance of knowing what the institutions, or “big banks,” are doing.
This is critical because the key to profits in trading is to piggyback on institutional trades, and you can’t do that unless you understand what the charts tell you about their behavior.
Overall, this series should be on your bookshelf if you’re looking for a simple and easy way to make money without having a million indicators on your charts. It is a bit pricey but well worth the investment in your future wealth.
2: Martin Pring on Price Patterns
Pring is another authority in price action trading techniques and technical analysis. Beyond that, he is one of the industry’s most esteemed researchers and practitioners in using charts and patterns.
In his book on Price Patterns, he covers all key technical analysis aspects related to price patterns. His choice of topics is fantastic.
He covers support and resistance, trend lines, volume analysis, breakout analysis, chart patterns, and bar patterns.
You’ll see every popular price pattern, from classics such as head-and-shoulders to shorter-term patterns for today’s fast-action traders.
Pring then provides an in-depth examination of today’s most widely used price patterns, explaining which works better than others and why.
In the book, he gives examples that are not only clear and convincing but easy to understand. I also love the book because of his tips on placing stops so they kick in when a false breakout occurs.
I think you will find value in this book. However, this book won’t detail how to trade the setups nor provide you with a complete trading plan.
It will help you identify the price action patterns to plan your trade accordingly. On a brighter note, Bullish Bears can help you with your trading plan and risk management approach, so I wouldn’t worry too much.
What Is Price Action?
It’s a technique in which you base your trading decisions on price movements instead of relying solely on technical indicators. Price action is the movement of a stock or other commodities price plotted over time. The result is a series of formations and trends traders use to make trading decisions.
Does this sound familiar? It should, as technical analysis is a derivative of price action trading. Like price action, technical analysis relies on past prices to inform trading decisions.
Despite what many “experts” may say, fundamentals–PE ratios, profit projections, and the like–don’t directly impact market performance. Instead, what drives performance is traders’ reactions to the fundamentals.
If you take a bird’s eye view of any market, you’ll see that responses are surprisingly consistent from one market to the next. Not only are these reactions consistent, but the patterns of price movement are also equally predictable.
History has shown that traders who understand this distinction will consistently have the edge over those who do not.
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What Does It Tell You?
Price action tells us a story. Will a trend reverse? Will a trend break out? Is the trend bullish or bearish? In conjunction with candlesticks, traders can spot and interpret trends, breakouts, and money-making reversals.
You might be wondering why you should use candlesticks to confirm. Candlesticks also tell us a price action story by displaying the open, high, low, and closing prices.
You can see in the image below that the price is ping-ponging off the supply and demand zones. The price is currently stuck in a range, but you can still profit in a range.
To trade, you can park a limited sell order in the supply zone, and for a short while, people take profits. Alternately, you can park a limit buy order in the demand zone and catch the bounce as shorts cover.
How to Master It
- To master this trading style, two things are very crucial:
- Identifying Support & Resistance Levels
- Price Acceptance or Rejection at support-resistance levels
Identifying Support and Resistance
There are various ways to arrive at support and resistance levels, but drawing trendlines is the most straightforward. A trend line is a straight line drawn on a chart connecting two or more price peaks.
Below are some useful suggestions on how to draw a trend line:
a. Price Peaks – You should connect a minimum of 2 peaks to consider it a valid trend line.
b. The Slope of the Trend Line – Ideally, the trend line should have a slope of fewer than 45 degrees, which means it’s a healthy trend. More importantly, the support or resistance zone validity decreases as the trend line slope increases.
c. The price should respect the Trend Line – Whenever you draw a trend line, ensure it respects the trend line with all its peaks.
Technical Indicators
Many traders use a technical indicator to confirm their price action trading strategy. But did you know price action data is used when calculating technical indicators? Fundamentally, our goal is to find order in the chaos of price movement. Even the most seemingly random price movement tells a story if you know what you want.
For example, let’s take a look at the ascending triangle pattern. When formed, this money-making pattern has a high potential to break out.
On the chart, the price action shows us the bulls have attempted several times to break out of the channel. Each time the bulls gain momentum, the probability of a breakout increases.
After knowing the support and resistance levels, knowing whether the price will respect that level is essential.
This is important because the more times the price hits the line, the higher the probability it will break through.
Some patterns, such as the Harami cross, engulfing pattern, and three white soldiers, are examples of visually interpreted price action.
And this is just the tip of the iceberg; many other candlestick formations are generated from price action.
How to Use It When Trading
Price action is not a trading indicator like the RSI, MAD, or VWAP, but rather the data source in which the tools are built.
For example, many swing traders tend to forgo fundamental analysis in favor of support and resistance levels to predict breakouts and consolidation periods.
Similar to indicators, interpreting price action is very subjective. It’s not uncommon for two traders to arrive at very different conclusions when analyzing and interpreting the same price action.
One trader may see a bullish uptrend, and another might think a bearish reversal is imminent. Of course, the time frame you’re looking at on your chart also greatly influences what you see.
For example, a stock can have many intraday downtrends while maintaining a month-over-month uptrend. What is important to take away from all of this is that trading predictions made using price action on any time scale are subjective.
In the end, however, it’s best to confirm with other indicators. Therefore, the more tools you can apply to your trading prediction to confirm it, the better.
Final Thoughts: Price Action Trading Books
I hate to be the bearer of bad news, but you won’t be successful trading if you rely solely on technical analysis. Technical analysis does not deal with certainties, only probabilities.
Yet those probabilities improve dramatically when traders understand the psychology of price patterns and how that psychology influences traders’ behavior and the movement of prices themselves.
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