Recently, a friend asked me how to tell whether you truly understand what market action means. In my view, you need to be able to clearly review past price movements, make a clear judgment about your position right now, and have a reasonable expectation of what may happen next. Only then can you interact with the market in a way that is logical, consistent, repeatable, and sustainable.

So how do you operate in practice? Put simply, truly understanding what market action means is understanding the underlying laws. Different trading systems capture different laws, but the most basic and most important thing is still being able to judge where the highs and lows are.

I often think: on the same candlestick chart, what market trend do you see, and what do I see? The difference is how well you understand those laws. After adding a trend line, can you see the current direction more clearly? When the trend line hasn’t broken, shouldn’t you hold off on shorting first? If you insist on going against the trend with short orders at the resistance level, then you need to be ready to enter and exit quickly.

In the end, understanding what market action means is about building your own thinking framework—making your ideas logical—so that you can improve the accuracy of your judgments.