Have you ever seen those Magic Eye posters that were popular in the ‘ 90s that had an image hidden inside the image and you had to adjust your eyes just and be a certain distance from the image to see the image?
I personally remember loving them as a child and I really don’t know what happened to them, but when I started thinking about today’s lesson, these images came to mind. This is because like those images, the market contains a “hidden” message that only those trained in the art and skill of trading price action will be able to see correctly. For the average person looking at a price chart, they will see a bunch of seemingly random bars that mean nothing, but the price action operator sees the message that the money footprint (price action) on the charts is telling them.
To hear what the market is trying to tell you, you must first know exactly what to hear. What you’re hearing are hints of price action, left behind as the” history ” of the market unfolds on a chart. And just like reading a book, for the current “page” to make sense, you must know what happened before, which means you must know how to analyze the past price action to make sense of the current price action and use that to make a polite prediction about what might happen next.
You see, any single bar, by itself, really doesn’t mean anything. It is the bar combined with the structure of the surrounding market or the context that paints the image of that market for you. Once you start following a market long enough, you will begin to get to know it intimately and begin to get an idea of it, this comes with time.
Now, how exactly do you listen to the market and “listen” to what it’s trying to tell you? This is done through price action analysis and I will give you some specific examples of this below…
The graphics are the way the market “speaks” to us, but if you don’t know what to hear, the message will go directly about you. Let’s take a look at some of the main pieces of market price action language…
Recent price behaviour and market conditions
The first important message you should learn to listen to in the charts is whether or not the market is trending. If you are in trend, that is very, very good for you because Trend Trading is absolutely the easiest way to make money in the markets. If it is not trending, it is probably consolidating into a wide trading range (which can be good for trading) or a very small and more random trading range (short and not good for trading generally). This is something important to learn to decipher from the beginning because it really dictates in which direction you are looking to trade and what should be the overall approach to that market in that condition.
Notice in the chart below that the price went from a short / lateral price action period (small range) to a strong break, then a pullback to the midpoint of the trading range, before an uptrend strengthened and the price moved to
The signals of failed price action are impressive. Wait, what?
Ah, the action signal of the failed Price, yes, can be painful and, in fact, sometimes, a trade just does not work, that is a fact of trading you have to deal through proper risk management. But, (you knew a but came) sometimes failed price action signals can be very powerful signals. For example, if you see that the price violates the high or low of a particular signal that you thought would have the opposite result, ask yourself what that tells you? What is the market trying to tell you???
Don’t think too much. If you see that a price action signal fails, that’s a strong clue that the price may continue to move in that same direction…
Recent profitable price action and event areas
If you don’t know what the event areas are, I suggest you read my lesson on the subject, because they are very important message areas that the market wants you to see. When you see multiple price action signals that worked from the same or similar area, you may have an event area, and if you see another signal in that area, it’s a very strong signal to consider.
Note the pin bars this level, when the last one on the right formed you lost in a hugely profitable move if you didn’t know how to interpret the message that the market was giving you…
I need you to think beyond the actual act of trade
Technical analysis is a language and we need to interpret that language if we are to have a chance of long-term and continuous commercial success.
As most wealthy business people will tell you; a lot to listen, listen to what others have to say and gather feedback, then make a decision. It is often said ‘Be the last guy in the talking room’ ; a business phrase cliche from most business leadership books, but it turns out to be true. Translated into the trading world, we can ‘listen’ to the message from the markets and then let the market show us what it wants to do, then we use that collected feedback to form our opinion, make a plan and then act accordingly.
However, it is more than just “listening to the message” , you must combine the messages that the market is sending you (see previous examples) and formulate those messages in the “story” that is told in the graph from left to right. You want to paint a visual ” map ” by noting the technical factors in your charts just like me in my weekly market comment.
We use the message to take trades and to avoid trades and to develop a general sense of market conditions, as well as to read the weather and form forecasts. You are not acting on every forecast you make, but some of them could be very useful for planning what you will do next.
In that sense, you want to act on the clearest messages and act on the strongest market forecasts only, the messages we interpret are not simply what you would normally teach as a confluence of factors. The concept of “listening to market messages” is really something bigger than simply detecting a trading configuration. We are talking about listening to the message that the market is telling us about smart money, with that information we can decipher many many things, we go far beyond the idea of ” hey I can see 1 + 2 things, so now I have to take action.”Once you reach a certain point in your price action dominance, you will feel that the market is actually “talking to you” and telling you what to do instead of trying to tell you what to do .
My business approach is based on seeing charts daily and interpreting the messages that are transmitted from the market. We need to be there to listen to it, map it and interpret it. Think of it as reading a page in a book every day. In the trading world, that means that at the close of New York every day from Monday to Friday, I’m there listening to the message being transmitted (i.e., reading the price action, mapping the charts, and deciphering your hidden message). However, that doesn’t mean I’m sitting there all day looking at the graphics. I have my schedules planned to check the markets every day and if I’m not “listening” to any of the charts that day, then I forget about them until tomorrow. I don’t sit there trying in vain to “force” something that isn’t there
Nine out of ten times I don’t take action, but one out of ten times I take action I’m pulling the “trigger” in the trade like a deadly sniper waiting to take the “kill shot” once the proper trade setup is in focus. If you want to learn more about how to listen to what the market is saying and learn how to interpret it effectively, check out my professional trading course for more information.