Price action is trading based on the raw movement of price itself — the shape of the candles, where highs and lows form, which levels get respected and which get broken — rather than leaning primarily on indicators derived from that same price. The underlying idea: price already reflects everything the market currently knows, so the chart's own behavior is the most direct signal available, not a lagging summary of it.
Reading structure
Before anything else, a price-action trader reads structure — the sequence of highs and lows a market is making. A series of higher highs and higher lows defines an uptrend; lower highs and lower lows define a downtrend. The moment that sequence breaks — an uptrend fails to make a new high and then breaks below its prior low — is often the first real evidence that the trend itself is changing, well before any indicator would confirm it.
Support and resistance
Support is a price level where buying has previously stepped in hard enough to turn a decline around; resistance is the mirror image on the way up. These levels matter because of memory, not magic: traders who bought near a level and got stopped out remember it; traders who missed an entry near a level wait for price to return to it; round numbers attract clustered orders simply because people round. The more times a level has been tested and held, the more traders are watching it — which becomes somewhat self-fulfilling.
The handful of candlestick signals actually worth knowing
- Pin bar (or hammer). A candle with a small body and a long wick on one side — price pushed hard in one direction within that candle and got firmly rejected, closing back near where it started. A long lower wick at support suggests buyers stepped in hard; a long upper wick at resistance suggests sellers did.
- Engulfing candle. A candle whose body completely swallows the previous candle's body, in the opposite direction — a sharp, visible shift in who's in control within a single period.
- Inside bar. A candle that trades entirely within the range of the previous one — compression, often right before a breakout, as the market briefly pauses to decide its next move.
How this actually turns into a trade
A typical price-action entry follows the same shape regardless of market: identify a level in advance from prior structure — a swing high, swing low, or well-tested support or resistance — then wait. Don't act until price actually reaches that level and shows a rejection or confirmation candle there. The stop goes just beyond the level, at the exact point that would prove the idea wrong; the target sits at the next meaningful structural level in the direction of the trade. Nothing here depends on the timeframe — the same logic applies on a 5-minute chart or a weekly one, which is a big part of why price action translates so cleanly across markets and holding periods.
Why trade this way instead of leaning on indicators
Every indicator — moving averages, RSI, MACD — is mathematically derived from price, which means every one of them is, by definition, lagging the thing it's summarizing. That's not an argument against ever using them; a moving average is a genuinely useful way to see the underlying trend more clearly through the noise. It's an argument for treating price itself as the primary evidence and indicators as a secondary filter layered on top — rather than the other way around, waiting for an indicator to catch up to something the chart already showed you several candles ago.