How to Benefit from Price Action Trading Strategies?

Price Action Trading Strategies

Most price action traders use tools like candlesticks, breakouts, and trends while leveraging support and resistance theories to create trading strategies. Here are some common price action strategies to consider:

• Trend Trading

Many traders look at the trends in price movements to make trading decisions. They use various techniques to track and follow trends in market prices. This also allows them to learn from experienced traders by following price action trends.

Price Action Trend Trading includes opening a ‘buy’ position to benefit from an uptrend and a ‘sell’ position if there is a downtrend.

• Pin Bar

A pin bar pattern is a candle with a long wick. When you observe a pin bar on a chart, it is usually an indication of reversal or rejection of a specific price. The wick indicates the price range that was not accepted by investors.

Price Action Traders assume that the pin bar indicates that the price might start moving in the opposite direction and choose to decide if they want to take a short or long position.

• Inside Bar

This is a two-bar strategy where the outer bar is bigger than the inner bar. The inner bar lies between the low and high range of the outer bar. Usually, inner bars are formed when the market consolidates and can also indicate a turning point in the market.

Experienced traders identify such trends and make an informed guess about whether the inside bar represents a consolidation or a turning point. 

• Trend After a Breakout Entry

A breakout is when the market moves outside the support or resistance levels. Most day traders assume that after a price spike (in either direction), the stock market will retract. Hence, they use such instances to take long or short positions.

• Head and Shoulders Reversal

Usually, markets are volatile, with a lot of ups and downs. A ‘Head and Shoulders’ pattern is when:

The market rises Falls Rises higher than before Falls again Rises to a lower high Drops modestly

This looks like a silhouette of the head and shoulders of a person. It is one of the most popular price action strategies used by day traders. Usually, traders choose an entry point after the first shoulder and set a stop-loss after the second shoulder to take advantage of the peak offered by the head.

Summing Up

To summarize, price action trading is a strategy that uses movements in price to estimate the potential movements in the market. Price Action Traders try to identify trends using actual prices and not moving averages (as is the case with technical analysis).

There are various price action strategies that can be deployed by new and seasoned traders to identify earning opportunities. Make sure that you practice these strategies before deploying them for making trading decisions. 

Good Luck!