Price action

In simple terms, price action is a trading technique that allows a trader to read the market and make trading decisions based on the actual price movement on the chart, rather than relying on lagging indicators. Most indicators are derived from the actual prices on the chart, so they are in fact, giving them information on past price movements.

Why would traders want to base their trades on past information, when the most important factor in trading is what prices are doing right now, and what they are most likely to do in the very near future? By using certain strategies, past information can help the trader to learn what prices are most likely going to do in the short term, rather than trying to guess using lagging indicators.

A more technical explanation is:

Price action is the movement of a security's price. This action is encompassed in technical and chart pattern analysis, which attempts to find order in the sometimes seemingly random movement of price. Swings (high and low), tests of resistance and consolidation are some examples of price action.

The candlestick and price bar are important tools for analyzing price action, since they help traders visualize price movement. Candlestick patterns such as the Harami, engulfing pattern and cross are all examples of visually interpreted price action.

Price action traders

Price action traders keep things simple, which can also be an effective methodology when it comes to trading. Price action traders are a form of technical trader who rely on technical analysis but do not rely on conventional indicators to point them in the direction of a trade.

These traders rely on a combination of price movement, chart patterns, volume, and other raw market data to gauge whether or not they should make a trade. This is seen as a "simplistic" and "minimalist" approach to trading but is not by any means easier than any other trading methodology. It requires a sound background in understanding how markets work and the core principles within a market, but the good thing about this type of methodology is it will work in virtually any market (stocks, foreign exchange, futures, gold, oil, etc.).