Price action trading is a technique that helps predict market movements by detecting patterns or “signals” in the underlying market’s price movements. Learn about some of the most profitable price action strategies here.
1. Trend analysis
If original price action trading is the study of price action, then price action trend trading is the study of trends. Traders can use several trading techniques to identify and follow price action trends, such as head and shoulders reversals.
This is a great tool for new traders. It helps them effectively learn from their more experienced counterparts by tracking price action trends as they emerge.
2. Pin bar
The pin bar pattern, sometimes referred to as a candlestick strategy due to its distinctive shape, looks like a long wick candle. It represents a sharp reversal and rejection of a certain price, while the “wick” or “tail” shows the range of the rejected price.
Price is expected to continue moving in the opposite direction of the tail, and traders will use this information to decide whether to go long or short the market. For example, if a pin bar pattern has a long lower tail, this tells the trader that there is a lower price rejection trend, which implies that the price may be about to rise.
3. Inside bar
The inside bar pattern is a two-bar strategy where the inside bar is smaller than the outside bar and falls within the high and low range of the outside bar (or mother bar). Inside bars often form when the market is consolidating, but they can also act as a red herring, signaling a market reversal.
Experienced traders can spot this trend at a glance and should be able to use their macroeconomic knowledge to predict if an inside bar represents consolidation or a change in the prevailing trend. The size and position of the inside bar will determine whether the price moves up or down.
4. Sequence of ups and downs
At its core, price action trading is about analyzing past highs and lows. Price action traders can follow a high and low sequence strategy to chart new trends in their market.
For example, if the price is trading with higher highs and higher lows, this indicates an uptrend. If it is trading at lower highs and lower lows, it is in a downtrend. Traders can use their knowledge of the sequence of highs and lows to pick an entry at the lower end of an uptrend and place a stop-loss order just before the previous higher low.
Price action is a great way to start making huge sums in trading. However, this skill comes with experience.
Understanding price action trading involves studying patterns and identifying key indicators that can influence your investment. Many traders utilize various price action strategies to forecast market changes and generate short-term profits. But as a beginner, you should first consider mastering the above-mentioned ones.