Price Action Trading Strategies

Price action trading strategies work for many marketing conditions, even flat markets. Instead of technical indicators, price action trading focuses on price movements directly to help understand market sentiment.

Here's how specific price action trading strategies could be used to navigate dynamic and volatile markets while optimizing trading possibilities.

1. Pin Bar

Pin bars are patterns that show up in candlestick charts with long wicks and very small bodies.

A bullish pin bar appears at the end of a downward trend and opens within the body of the previous bearish candlestick. This pattern could be confirmed by the opening of the previous bullish candlestick, so long as it is above the price of the pin bar.

A bearish pin bar, on the other hand, appears at the end of an upward trend and also opens within the body of the previous bullish candlestick. This pattern could be confirmed by the opening of the previous bearish candlestick that opens below the body of the pin bar.

For potentially positive risk-reward ratios, traders watch out on crucial support and resistance levels. Usually, the long wick indicates a price direction may reverse. Pin bars are often combined with other confirmation signals, such as candlesticks or trend analyses.

2. Inside Bar

Inside bars form when the high and low of a candlestick pattern are contained within the range of the previous candle, suggesting that the market is either consolidating or indecisive. Inside bars can be both bullish and bearish.

Since there are so many inside candles across small timeframes, inside candles are usually only considered in daily time frames. In both scenarios above, there are two inside candles following a mother candle, then proceeded by a breakout candle. Once there is a breakout of the inside bar's range, traders typically enter and follow the breakthrough.

3. Engulfing Bar

As the name suggests, engulfing bar trading occurs when one candle's body completely engulfs the previous one, the opposite of an inside bar. This is another signal for a possible price direction reversal.

Traders may wait for a closing price beyond the engulfing bar's high or low. This approach can also involve volume analysis and divergence indicators to validate patterns before entering the trade.

4. Breakout Trading

In breakout trading, the aim is to capitalize on the momentum generated by the breakout. Traders enter when prices break above or below a given support or resistance level.

To confirm breakouts, use multiple timeframes:

• Long timeframes: Define main trends
• Intermediate timeframes: Confirm trends
• Short timeframes: Check for precise entry and exit points

Coupled with chart patterns, like triangles and rectangles, timeframes make identifying potential breakouts easier.

» Find out how to use CFD technical analysis for better trading decisions

5. Trend Following

Traders also use trend strength indicators such as:

• Average Direction Index (ADX)
• Moving averages (MA)
• Moving Average Convergence Divergence (MACD)
• On-Balance Volume (OBV)
• Relative Strength Index (RSI)