Price action

An approach rather than a tool. It reads the sequence of highs and lows, the shape of individual bars, where price accelerated and where it stalled, and the levels it has repeatedly turned at. The argument behind it is that every indicator is a transformation of price which both lags it and discards information, so the record itself is read directly. Its vocabulary is descriptive: swing highs and lows, inside bars, rejections, breaks and retests.

In practice it is worked on a chart with few or no overlays, frequently across more than one time frame, with the higher frame supplying context and the lower one used for timing. Readings are conditional by construction and are usually stated that way: a level is said to have held only once price has approached it and left, and the same bars carry a different reading on the frame above. There is no formula and no parameter to set, which its practitioners consider the strength of the method and its critics consider the problem with it.

The honest limits are two, and they are related. The phrase has no agreed definition, so two people using it are frequently not describing the same method, and comparisons between them are comparisons of nothing in particular. And because there are no parameters, it cannot be tested without first encoding a reading into explicit rules, at which point it has become the mechanical system it defined itself against, and the test measures the encoding rather than the practice. Published evidence is correspondingly thin and most of what circulates is instructional rather than tested. What is not in dispute is the usefulness of the vocabulary for describing what a market has already done.