What is Price Action?
Price action is the movement of a security price plotted over time. Price action forms the basis for all technical analysis of a stock, commodity or other asset chart. Many short-term traders rely exclusively on price action and the formations and trends extrapolated from it to make trading decisions. Technical analysis as a practice is a derivative of price action since it uses past prices in calculations that can then be used to inform trading decisions
What Is a Technical Indicator?
Technical indicators are heuristic or pattern-based signals produced by the price, volume, and/or open interest of a security or contract used by traders who follow technical analysis.
By analyzing historical data, technical analysts use indicators to predict future price movements. Examples of common technical indicators include the Relative Strength Index (RSI), Money Flow Index (MFI), stochastics, moving average convergence divergence (MACD), and Bollinger Bands®.
Price Action vs Indicators
Price action trading is based on the belief that past price history can help predict the future of a market, or the potential for a pattern to repeat.
Indicators are similar in this way. However, when using price action you are reading live price as it is being printed on a chart, whereas indicators are ‘lagging’.
This means that indicators are using old price information to create the indications you see. For example; a 21 period moving average is using the past 21 periods of price action.
Whilst some traders are very anti indicators, often the best systems will come when price action and indicators are combined.
The reason for this is because indicators can often help you filter out bad price action, find trends, find strong momentum and even help with profit targets.