Price Action Trading for Beginners (Simple & Repeatable)
- FinancialWisdom
- 12 hours ago
- 5 min read
How to Trade Stocks Using Pure Price Action: A Real Trade Breakdown on Merck (MRK)
Summary:
This video walks through a real-world trading example using Merck & Co, showing how simple price action can be used to plan entries, exits, and trend changes without prediction. Using weekly charts, trendlines, pivot points, and the 20-week moving average, the analysis demonstrates how traders can react to what price is doing rather than forecasting what it might do. The focus is on structure, confirmation, and discipline, highlighting how objective price behaviour can guide long-term trading decisions with clarity and consistency.
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Turning Trading Theory Into Real-World Execution
Our channel is full of videos covering trading theory, legendary traders, and the psychology behind successful investing. In this series, however, we shift gears and focus on real charts and real decision-making, showing how theory translates into a practical approach you can apply today.
The aim is simple: remove prediction, reduce complexity, and show how price action alone can guide entries, exits, and position management. If this is the kind of practical content you find useful, feel free to leave a comment or hit the like button so we can continue building this series.
Today, we’ll walk through a real example using Merck & Co (MRK), a healthcare stock currently held in our longer-term portfolio.
Why We Use Weekly Charts
We begin with the weekly timeframe, which helps strip out short-term noise and highlights the true underlying structure of price. Weekly charts better reflect institutional activity, major trend shifts, and meaningful support and resistance.
While this example uses weekly data, the same principles apply to any timeframe, from daily charts to intraday trading.
Identifying the Initial Trend Shift
Starting in May 2023, Merck printed a clear pivot high, followed by a meaningful reversal. Price began oscillating around the 20-week moving average, signalling a potential change in trend.
After a large bearish candle, a second pivot formed. These two pivot points allowed us to draw the initial downtrend resistance line, marking what could be interpreted as a lower high, an early warning of structural weakness.
Watching Resistance Do Its Job
As price progressed, it repeatedly found resistance at the 20-week moving average, confirming selling pressure overhead. On two occasions, price briefly pierced both the trendline and the moving average, but crucially failed to close above them.
Those failed closes are important. They indicate that despite temporary strength, sellers remained in control by the end of the week, a classic price action signal.
The First Confirmed Entry
Eventually, we get what we’re waiting for:👉 A weekly candle that closes decisively above resistance
This close represents a potential long entry, as it shows buyers overwhelming sellers on a closing basis. Once this occurred, momentum followed quickly as short sellers covered positions and fresh buyers entered the trade.
Structuring an Exit Using Price Action
After the advance, price began to stall and form another pivot — identified by a decline followed by an attempted recovery. This allowed us to draw a new support trendline beneath price.
Rather than predicting a top, we waited for confirmation. That confirmation arrived when we saw the first weekly close below the support line, coinciding with visible lateral resistance above. This candle represented a logical exit point, where probability shifted in favour of sellers.
The Bearish Phase Unfolds
From there, price began to unravel. Multiple candles rejected the upper resistance trendline, followed by a strong close below the 20-week moving average.
Subsequent weeks failed to reclaim the average, and a larger bearish candle wiped out any remaining lateral support. At this point, the structure clearly favoured downside continuation.
Preparing for the Next Opportunity
With a bearish structure in place and a declining moving average, we once again returned to observation mode. As traders, our job is not to act constantly, but to act only when price gives permission.
Soon after, a strong pivot formed where price attempted to recover but was firmly rejected at prior resistance. Using the opening prices of the two strong bearish candles and aligning them with the pivot, we were able to draw a new downward trendline.
The Trend Turns Again
For several weeks, price repeatedly tested both the trendline and the 20-week moving average, and failed each time to close above them.
Eventually, we saw a clean close above the trendline, followed shortly by a close above the 20-week moving average. This combination provided another high-probability long entry.
As price continued to move higher, additional pivots formed, allowing us to draw a rising support trendline. With the moving average now turning upward, further continuation setups became viable, including a multi-week breakout visible later on the chart.
Where We Are Now
This is where our group currently sits with Merck. A long-term position was taken in alignment with the emerging uptrend, and from here we allow price action to dictate future decisions, not opinion, news, or prediction.
Reaction, Not Prediction
This entire example highlights an important principle:
Price action is reactive, not predictive.
We don’t forecast tops or bottoms. We don’t guess outcomes. We simply respond to confirmed structure, trend, and behaviour.
While volume wasn’t included in this walkthrough, it can provide powerful confirmation when used alongside price. Indicators such as MACD can also add confluence — and it remains one of my preferred tools — but price always comes first.
Final Thoughts
I’ve been using price action successfully for over 30 years, studying many of the great trading legends along the way. Out of that experience came our bespoke breakout scanner, designed to identify the strongest stocks at the most opportune moments — using the same principles demonstrated in this example.
We combine this technical framework with quality fundamentals and momentum factors, because trading is ultimately a game of probabilities. The more aligned factors you have, the better your odds.
If you want to see our stock trading approach built on similar approaches.:
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Those interested in a structured, rules-based approach can explore the Financial Wisdom Strategy Blueprint, available free, which outlines a complete framework refined over decades.
Related Reading
Inside the Financial Wisdom Weekly Consolidation Breakout Framework
Risk Management in Trading: The Foundation of Long-Term Profitability
Frequently Asked Questions
1. Why use weekly charts instead of daily charts? Weekly charts reduce noise, highlight true market structure, and align better with longer-term trends and institutional activity.
2. What role does the 20-week moving average play in this strategy? The 20-week moving average acts as a dynamic support and resistance level and helps confirm trend direction.
3. Is this a predictive trading strategy? No. This is a reaction-based approach that responds to confirmed price action rather than trying to forecast outcomes.
4. How are trendlines drawn in this example? Trendlines are drawn using clear pivot points formed by strong reversals and confirmed price rejection areas.
5. When is an entry confirmed? Entries are taken only after price closes above resistance or a trendline, often in confluence with reclaiming the 20-week moving average.
6. How are exits determined? Exits are considered when price breaks key support levels, trendlines, or shows confirmed weakness through structure changes.
7. Can this approach be used on other timeframes? Yes. While this example uses weekly charts, the same principles apply to daily or intraday timeframes.
8. Do indicators like MACD add value here? Yes. Indicators like MACD can add confirmation, but price action remains the primary decision-making tool.
Published by FinancialWisdomTV.com Trading Education | Risk Management | Trading Psychology
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