Price action

Price action is an approach to trading that relies on reading a stock's raw price movement, such as candlestick shapes, chart patterns, and levels of support and resistance, rather than leaning on calculated indicators like moving averages or oscillators. The core idea is that price itself already reflects everything the market currently knows and feels about a stock, so studying how it behaves directly can offer cleaner, faster signals than a derived indicator that is, by construction, always lagging the price that produced it.

A price action trader typically studies things like the size and shape of individual candles, where a stock closes relative to its daily range, how it reacts when it approaches a prior high or low, and whether swings are getting larger or smaller over time. Recognizable candlestick patterns and chart formations, from a hammer at the bottom of a decline to a breakout above a resistance level, are all considered price action tools, since they are read directly off the chart rather than calculated from a formula.

Because it strips away lagging indicators, price action trading demands more subjective judgment and experience than a purely mechanical, rules-based system, two traders can look at the same chart and interpret the same price behavior differently. Its appeal is that it keeps the trader focused on what is actually happening in the market right now, rather than on a smoothed or delayed calculation, which is why it is widely used by short-term and day traders who need to react quickly to what price is doing in real time.