What Is Price Action in Trading

Price action refers to the study and analysis of an asset’s price movement on a chart, without relying on lagging indicators like moving averages, RSI, or MACD (However, some traders refer Price Action as using anything that access price movement, including using indicators, in that case they could count these indicators as part of Price action trading). Traders who use price action base their observations directly on the raw data of open, high, low, and close prices (and sometimes volume) to interpret market behavior, identify trends, reversals, and potential entry/exit zones.

Price action is one of the oldest and most widely practiced forms of technical analysis, rooted in the idea that “price is the final reflection of everything known to the market.” Its popularity stems from simplicity, universality across timeframes and instruments, and the belief that patterns in price reflect underlying supply and demand dynamics.

While the core concept is consistent, practitioners and educators have developed slightly different definitions and emphases over time. Below are the example of main interpretations. This article is not for financial advice but for informative purpose only.

(For basic HH-LL see How Traders Identify Trend)

1. Classic Definition: Pure Candlestick and Chart Pattern Reading

(Charles Dow, Richard Schabacker, early 20th century)

The earliest form of price action traces to Charles Dow (late 1800s–early 1900s), who emphasized price trends, highs/lows, and market phases in his Dow Theory. In the 1930s, Richard Schabacker and later Edwards & Magee formalized classic chart patterns (head and shoulders, triangles, flags, double tops/bottoms) in Technical Analysis of Stock Trends (1948).

In this definition, price action means:

Recognizing recurring geometric patterns formed by price swings.
Using support/resistance levels drawn from previous highs and lows.
Interpreting individual candlestick shapes (doji, hammer, engulfing) for reversal or continuation clues.

This school views price action as the direct visual language of market psychology.

2. Candlestick-Focused Definition: Japanese Candlestick Techniques

(Steve Nison, 1990s onward)

Steve Nison introduced Japanese candlestick charting to the West in his 1991 book Japanese Candlestick Charting Techniques. He popularized single and multi-candle patterns (pin bar, inside bar, fakey, etc.) originally developed by 18th-century Japanese rice trader Munehisa Homma.

Here, price action is defined primarily through:

The shape, size, and position of individual candles or small groups.
Context of the preceding trend (e.g., a bullish pin bar at support is more meaningful after a downtrend).
Rejection or absorption signals showing buyer/seller control.

This version emphasizes psychological interpretation of each candle’s open-close battle.

3. Al Brooks’ Price Action: Microstructure and Bar-by-Bar Analysis

(Al Brooks, 2000s–present)

Al Brooks, a former ophthalmologist turned full-time trader, developed one of the most detailed frameworks in his three-volume Reading Price Charts Bar by Bar series (2009–2012).

Brooks defines price action as:

Reading every single price bar (typically 5-minute charts) in real time.
Classifying bars as trend bars, doji bars, reversal bars, or climactic bars.
Understanding “trapped” traders and institutional order flow behind each move.
Trading primarily in the direction of the trend with tight stops, using concepts like “trading ranges,” “breakouts,” and “failed breakouts.”

This approach is exhaustive and microstructure-focused, treating each bar as evidence of buying/selling pressure.

4. Modern Retail Price Action: Support/Resistance + Confluence

(Nial Fuller, Lance Beggs, 2010s–present)

Popularized by online educators like Nial Fuller (Learn To Trade The Market) and others, this version combines elements above into a practical retail framework.

Price action here means:

Identifying key horizontal support/resistance levels and trend lines.
Waiting for clear candlestick signals (pin bars, engulfing, inside bars) at those levels.
Requiring “confluence” — multiple factors aligning (e.g., pin bar + support + trend direction).

This definition prioritizes high-probability setups with clear risk parameters, making it accessible to part-time traders.

5. Institutional/Order Flow Price Action

(Modern prop firms, ICT/Smart Money Concepts, 2010s–present)

A newer interpretation, often associated with “Inner Circle Trader” (ICT) and similar mentors, views price action through the lens of institutional order flow.

It defines price action as:

Reading how large players accumulate/distribute positions via “order blocks,” “fair value gaps,” and “liquidity grabs.”
Identifying manipulation patterns (stop hunts, false breakouts) before the real directional move.
Using market structure shifts (higher highs/lows, breaks of structure) rather than traditional patterns.

This school blends price action with concepts of market maker behavior and liquidity pools.

Common Elements Across All Definitions

Despite differences, every version of price action shares:

Reliance on clean charts (few or no indicators).
Focus on price levels, trends, and candle patterns.
Belief that price movement reflects all available information and participant psychology.
Emphasis on context — the same pattern means little in isolation.

Why Price Action Matters in Forex and Stock Trading

Universal applicability: Works on any timeframe, any liquid instrument.
No lag: Unlike indicators derived from past price, raw price is real-time.
Psychological insight: Patterns and levels reveal where buyers/sellers are active.
Discretionary edge: Allows adaptation to changing market conditions.

Price action remains popular because it strips trading to its essence: observing what the market is actually doing rather than what indicators suggest it might do. Whether through classic patterns, candlestick signals, bar-by-bar reading, or institutional concepts, practitioners agree that price itself is the most honest source of market information.