Is Price Action Better Than Indicators?

Traders have many tools at their disposal when it comes to understanding entry and exit points. Or how to predict future performance, strength, and resistance.

Many traders use indicators such as Ripster’s EMA Cloud System, while others prefer to use price action strategies.

According to Statista, the US has the largest stock market in the world. The US accounts for 56% of all stocks traded globally. With this in mind, it is perhaps not surprising that there are so many strategies in place to become more successful in trading.

Of course, it isn’t only stocks that get traded. Forex trading is highly popular, and now there is huge interest in cryptocurrencies and NFTs as well.

But when it comes to indicators and price action, which is the better option for trading today?

What is price action?

Over a period of time, the value of a security or stock will change. Price action is where this value is plotted for a length of time. 

This basically refers to the ups and downs of the value or price of a particular commodity or stock.

This can then help traders to look for specific trends. This in theory lets traders make subjective decisions on long or short positions. The problem with this type of strategy is that emotions can come into play, and it is very speculative.

Many traders, especially new ones, choose price action because they believe it is simple. However, that is not necessarily the case. If you want to invest in bitcoin then there are some things to know, and the same goes for understanding price action tools.

What are indicators?

Indicators are used to help interpret financial data to help predict where the market may head.

You may have heard of terms such as exponential moving average, or simple moving average which is defined by Investopedia as a way to calculate the average of selected closing prices.

There are a number of other indicators that are used to interpret volatility, momentum, trends, volume, and more.

There are also several tools that can be used to help understand and use these indicators. The previously mentioned EMA Cloud System is one of them. This indicator in particular is proving very popular with many different types of traders.

EMA stands for an exponential moving average, and the cloud system is a way to help track past performance and predict future trends. It is proving to be very useful in forex trading as well as day and swing trading.

Is price action better than indicators?

It is actually an argument that has been going back and forth between traders for years. It could be said that in the short, or medium-term, price action is considered better.

When it comes to longer-term investments, then technical analysis and indicators could be more useful.

With something like day trading or short-term trades, it may make sense to use moving averages along with price action strategies.

In forex trading, price action traders can react much quicker than those who are relying on indicators. But there is nothing to stop someone from using price action and indicators together.

Indeed, many traders are using multiple indicators together to further their technical analysis.

How do you use price action?

A trader who is using price action will set a ceiling and a floor for whichever stock they are monitoring. He or she will have to assume that the stock is not volatile. 

While the value is within the ceiling and floor that has been set, they can then decide on which position to take. Although tools can be used for technical analysis, the decision to trade is left with the trader.

It is this subjectiveness that means that many traders prefer to use indicators.

What do indicators do?

Indicators can look at the past history of trading, valuations, and volume. They use mathematical calculations based on this performance history.

However, they don’t actually give pointers for when to exit or enter. Traders still need to make these decisions themselves. What indicators do is to give signals that can then be used by traders to make informed decisions.

Different traders have their own styles and this will affect how signals are used and how effective they are. One problem with using too many indicators is information overload. 

Summary

It doesn’t matter what type of trading you are interested in getting involved in. There are many things to learn about trading and the strategies behind it. There are important things to know before investing in gold bars for instance, just as there are if you want to day trade.

Whether price action is better than indicators may depend on your trading style, and how you use these tools. It is possible to combine them both. Some traders use indicators successfully, while others only use price action.

Whatever you choose, trade carefully and consider all the data at your disposal.