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Price action trading refers to a strategy that helps traders predict market movement based on the spotted pattern or signal in the underlying market.
This strategy mainly helps during intraday trading and allows you to take the short or long position on stocks so that you can generate profits. Even a beginner trader can utilize this strategy, as it doesn’t require technical analysis.
Here, you only need to track and understand the price movement of an asset and identify the right entry and exit points. In this blog, we’ve listed the top 7 price action trading strategies.
What is price action trading?
Price Action Trading refers to analyzing the performance of a security, index, commodity, currency, or other asset chart to predict their future direction. It will allow a day trader to either take the long position or short the asset, considering the rise and fall of price.
Traders, opting for this strategy, must analyze the previous prices to understand where the market would possibly move next. Hence, they can implement certain strategies to determine the accurate price movement, using the price bars and candlesticks.
Using the right price action strategies allows traders to require less research time, and make favorable entries and exits in the comparison of indicators.
Top 7 Price Action Trading Strategies
Listed below are the top seven trading price action trends that you can use to win intraday.
1. Inside Bar
The inside bar pattern refers to a two-bar strategy, where the inner bar lies under the high and low range of the outer bar.
In simple words, traders can use this trading strategy to identify the entry and exit points and consolidation in the market. Moreover, the inner bar’s size and position determine the uptrend or downtrend.
2. Trend Trading
As the name suggests, this strategy denotes the study of price trends. There are varied trading techniques to spot and follow price action trends.
Using predefined methods like head and shoulder trade reversals can help you determine the uptrend or downtrend. You can simply take the long position for the uptrend and short the asset for a downtrend.
3. Trend Following Retracement Entry
In this price action trading strategy, traders are required to only follow the existing trend. If the market is experiencing a downturn, you have to short the asset.
Similarly, if the market is experiencing an uptrend, you may consider taking a long position.
4. Pin Bar
The Pin Bar strategy, popularly known as the candlestick strategy, demonstrates the sharp reversals and rejection of the specified asset. Its wick or tail showcases the range of prices that got rejected.
According to this strategy, the price continues to move in the opposite direction of the tail. It can allow the traders to take the short or long position in the market.
5. Trend Following Breakout Entry
This trading strategy works upon a basic assumption that a retracement will be followed after a price spike. When the market moves out of the desired support and resistance line, it is a clear signal of a breakout.
Here, traders can use it as a signal to take a long position if the market is in an uptrend or breaks the resistance line. Similarly, traders will take a short position if the market goes below the support line.
6. The Sequence of Highs and Lows
You have to follow the sequence of highs and lows strategy to understand the emerging trends in the market. Simply put, a price trading at higher highs and higher lows clearly indicates an upward trend.
If it is trading at lower highs and lows, it will be a downward trend. Hence, a trader can easily use this trend to opt for the entry point at the lower end of an upward trend. Moreover, you can also set up the stop loss, right before the previous higher low.
7. Head and Shoulder Reversal Trade
The head and shoulder pattern refers to a market movement that looks very similar to the silhouette of a head and shoulder. Simply put, it showcases the signs of price increase, decrease, increase even further, decrease again, and increase to a lower high before a modest drop.
This price action trading strategy allows you to choose the right entry point (mostly after the first shoulder) and set up the stop loss feature (right after the second shoulder) to gain the full benefits of a temporary peak (known as the “head”).
What is the difference between Price Action, Technical Analysis, and Indicator?
Here we’ve mentioned a clear difference between all these terms:
| Price Action | Indicators | Technical Analysis |
| Price action indicators allow traders to understand the emergence of trends by illustrating the trading activities over a chart. In fact, newbie traders can also utilize this indicator and make the appropriate investment decisions. | During technical analysis, you have to use different types of indicators to predict the future price movement. In contrast, in the price action strategy, you have to only focus on the price movements of an asset. There are numerous traders who utilize technical analysis tools and price history to get price action trading. | In technical analysis, traders have to widely calculate for the prediction of market movements. However, the price action analysis is a lot more simple. |
Conclusion
These are the 7 price action trading strategies that can help you understand the potential market movements. It allows the traders to identify the appropriate entry and exit points in the market. You can generate a good amount of profit through this strategy. Moreover, you don’t even have to go through any technicalities. To learn more, read more blogs on StockGro.
FAQs
Price action trading can help you make profitable entries with a fine reward and risk factor. However, you must know the scalping basics to make successful trades.
The head and shoulder reversal trade strategy is the best trading strategy. Because you can easily select the entry point here (just after the first shoulder) and set up the stop loss right after the second shoulder. This strategy will allow you to take full advantage of the temporary peak (the head).
Generally, price bars or candlesticks are the most often used price action indicators in the market. It will help you identify the open and closing price of the market. Moreover, you can also understand the high and low price levels within a specified time period.
Professional traders do use price action trading along with their multiple other methods. In price action trading, you have to analyze the historical price data so that you can understand the patterns and make the right trading decisions.
Here’s a step-by-step process to master the price action:
Primarily, you must know the existing trends in the market.
Recognize the trading opportunity, considering whether the price action is an uptrend or downtrend.
Track the market and currency pair’s price action to better understand the trend and make informed decisions.
Lastly, you should also align your price action strategy with a forex price chart or indicator to confirm the direction of the trend.