|Today we are busting 5 of the biggest price action and indicator myths that have been around for years and that most traders just accept for a fact. Is price action really better than indicators, is price action leading and an easy way to read charts and price action is not a system, are among the myths we will discuss in the following article. Be aware, if you are a price action fanatic, you might be in for a real shock.|
#1 Price action is better than indicators
There are two types of traders: the ones who think that indicators are the greatest thing in the world and traders who think indicators are the pure evil and just none sense and an invention to scam innocent traders.
The truth is both groups have neither understood what indicators nor what price action are. If a trader says that indicators are better, or worse than price action, he doesn’t know his craft.
Indicators and price are the EXACT same thing. Indicators just take what you see on your price charts, apply a formula to it and transform it into bars, graphs or other visual objects. A trader who thinks that price is superior to indicators has not understood this simple concept.
#2 Price action is leading, not lagging like indicators
Another myth is that price is leading and indicators are lagging. In other words, traders believe that indicators just describe the past, whereas price can provide information about what is going to happen in the future. Again, this is another none sense statement made by uneducated traders.
Both price action and indicators show the past and what has already happened. Think about it: everything on the left is the past and the white space on the right shows the limitless possibilities what could happen. When you see a pinbar, an engulfing bar, swing highs and lows or any other price formation or interpretation, it HAS ALREADY HAPPENED. To think that there is anything leading about such things is just pure ignorance. The same is true for indicators. Indicators just take what you see on your charts and apply a formula to it.
Price action and indicators are both lagging, but it doesn’t matter. As a trader, you don’t have to predict the future. You just have to find something that you can use to create an edge.
#3 Price action is objective, easy to follow and simple
‘Keeping it simple’ and ‘price action’ are used as synonyms among traders because they believe that price action is not discretionary and the signals are clear cut and obvious. Again, they couldn’t be further from the truth.
Candle size, the ratio of body and wicks, the position of the candle and the wicks, the ratio of the candles between each other and the development of candle size are just a few parameters that make it obvious that price action is not the easy way out for losing traders who don’t want to put in the work.
Price action is highly subjective and trading price action is even more discretionary than trading with indicators. Traders blank out this fact because they are looking for shortcuts which don’t exist.
#4 Price action charts are clean. Indicators are messy
This is one of the most favorite quotes of ‘trading gurus’ who are selling price action methods because they want to make traders believe that indicators are just cluttering your charts and hiding what is important. To stress their point, they will use screenshots of charts full of arbitrarily picked indicators.
In the end, it comes down to what you are comfortable with. Maybe you feel lost looking at a blank price chart without lines. Some traders need additional information and you require the guidance of pivots, moving averages, MACD or Stochastics; and there is nothing wrong about it. Remember, advertisers have used this slogan for years to trick help-seeking traders into believing that they have found a way to show them how to make money in an easy way.
#5 Price action is not a system. Price action IS the market
This brings us back to point #1: price and indicators are the SAME thing. Indicators don’t use random numbers to plot some curves on your charts; indicators use what you see on your chart and transform it into a visual manifestation.
Price action is just a ‘trading system’ like anything else. At some point, some smart marketers had the idea to pick random names for certain formations such as support and resistance, pinbars, Fibonacci, Elliot waves, harmonic patterns and then align examples of how they could be used to predict what is going to happen next.
Again, it does not mean that price action is bad or that it does not work, but you have to understand that price action is nothing special. Price action and indicators are the SAME thing.
Conclusion: Accept that price action and indicators are the same
We can’t stress this enough. Don’t fall for the smart marketing tricks of ‘trading gurus’ who promise you the easy and ‘real’ way to make money in trading. Just because price is located above your indicator windows, it does not mean that it is superior to it.