Trading pure price action

Gary Smith four–article collection

Many traders look at me with a skeptical eye when I tell them how I trade the stock market for a living. That’s because I’m totally opposed to perpetual filters like charts, oscillators, waves, cycles, moving averages and all the other approaches and systems traders typically use to understand price behavior. To add insult to injury, I also believe all the glitzy computer equipment and software so frequently advertised for traders in unnecessary. For me, less is more. I believe that trading pure price action — market behavior you can see and do not have to measure by traditional (and often lagging) analytical tools. My trading has evolved to the point that if I had to, I could make my trading decisions based solely on half–hourly quotes of the Dow, S&P 500, Nasdaq 100, and Russell 2000 cash indices. So, you may ask, how profitable has this simplistic trading style been over the years? Starting with a $2,200 account in the spring of 1985, I have methodically parlayed my trading skills and capital in such a way that over the past three years (ending December 1999), I’ve averaged more than $14,000 in monthly trading profits.