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Price Action Principles

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Before one can develop a systematic approach, I think one needs to make sure the foundation on which the approach is/will be built is correct and enduring for decades. Instead often the focus is on patterns or setups with foundation either ignored or considered as an after thought.

Following are four classic principles of price action which have held over time and true for all markets.
  1. A Trend has a higher probability of continuation than reversal.
  2. Markets alternates between expansion (trends) and contraction (ranges).
  3. Momentum precedes price. 
  4. Trends end in one of two ways - Climax with testing process or V spike reversal
Methods that play trend pullbacks are generally based on first principle. What makes the pull back methods high probability is the underlying principle. It doesn't matter whether the method uses simple MA or some secret proprietary indicator or some chart pattern.

The above is just my opinion. Feel free to comment if your views are different.

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