Price Action Trading Strategy: The Ultimate Guide
A Price Action Trading Strategy helps find ideal entry and exit points depending on expert opinions, news announcements, or technical indicators. Instead, Price Action Trading Strategy is drawn from the currency pair’s trends and price movement in the market. In this article, we take a look at everything about the Price Action Trading Strategy.
What is Price Action Trading?
- When the currency pair prices start increasing, it indicates that more and more traders are buying the pair. Price Action traders assess how aggressive the buying is and enter or long the market accordingly.
- When the currency pair prices start decreasing, it indicates that more and more traders are selling the pair. Price Action traders assess how aggressive the selling is and exit or short the market accordingly.
How to read price action in forex?
Reading a price action in forex involves analysing the two significant waves in any currency pair’s forex chart.
- Trending waves that follow a strong trend or momentum in either an upward or downward direction. They signal traders to go long during an uptrend wave or short during a downtrend wave.
- Pullback waves refer to the temporary change in the prices against the current direction. During an uptrend, the currency pair prices pull back in the downward direction after recent highs, and during a downtrend, pullbacks occur with a temporary increase in the prices after recent lows.
By monitoring these waves along with the swing highs and lows of a currency pair, you can identify the market's direction. When the market is trending upward, the currency pair prices make higher highs and higher lows. But, when the market is trending downwards, the currency pair price makes lower highs and lower lows.
- A continuous uptrend signals traders to enter long positions.
- A continuous downtrend signals traders to enter short positions.
Top price action trading patterns
- If the currency pair is trending upwards, the price action patterns signal that currency pair prices can break higher due to the continued uptrend.
- If the currency pair is trending downwards, it signals that currency pair prices can break out lower due to the continued downtrend.
Price action reversal patterns like wedges, double top and bottom, and head and shoulders patterns occur when an opposite trend follows an uptrend or downtrend. When the currency pair is in an uptrend making higher highs and higher lows, then the recent low supported by a low swing high signals a trend reversal. When the currency pair is in a downtrend, making lower lows and lower highs, then the recent swing high supported by a high swing low signals an uptrend reversal.
The best price action trading strategies
Pin bar pattern
The pin bar pattern is a candlestick pattern with a long lower or upper wick which indicates either the low price or the high price being rejected. The pattern suggests that the currency pair price moves in the opposite direction in the presence of the wick.
- If there is a long lower wick, the low price is rejected, and there is a bullish reversal.
- If there is a long upper wick, the high price is rejected, and a bearish reversal is expected.
Inside bar pattern
The inside bar pattern is also a reversal pattern that consists of two candlesticks, where the inner bar is smaller in size than the outer bar. The inner bar always falls between the currency pair's high price and low price range. It gives traders ideal entry and exit points before a market reversal.
- If the first candlestick is bullish, it indicates a bearish reversal.
- If the first candlestick is bearish, it indicates a bullish reversal.
Breakout entry pattern
The breakout entry pattern refers to the price action that occurs right after a price hike or sudden price dip in the currency pair. It suggests that as a currency pair price spikes high, a retracement will occur, and the currency pair will either move below its support or above its resistance line. This allows traders to long the trade during an uptrend or short it during a downtrend.
How do you trade on price action?
- Identify the existing trend in the market.
- Identify trading price action opportunities based on the trend's strength. If there is a strong uptrend, place long orders and if there is a strong downtrend, place short orders. On the other hand, a weak uptrend suggests placing short orders due to an expected downtrend reversal, and a weak downtrend suggests placing long orders due to an expected uptrend reversal.
- Monitor the market and the currency pair’s price action to understand the trend better and make further trading decisions based on the same.
- Combine the Price Action Strategy with a forex price chart or indicator to confirm the trend’s direction for more successful orders.
Devise a Price Action Trading Strategy to analyse forex price movements today
Most traders prefer combining the price-based information about the currency pairs with technical indicators to confirm the market’s trend direction. Devise the ideal Price Action Trading Strategy and start trading with Blueberry Markets, the leading forex trading platform in Australia. Sign up for a live trading account or try a risk-free demo account.
Top Pullback Trading Strategies
Pullback trading strategies provide traders with ideal entry points to trade along with the existing trend.
What is High Wave Candlestick?
The High Wave Candlestick pattern occurs in a highly fluctuating market and provides traders with entry and exit levels in the current trend.
What is the Parabolic SAR indicator?
Identifying market trends becomes easier with the Parabolic SAR indicator as it provides the ideal entry and exit signals in strong trending markets.
What is Currency Correlation?
Currency correlations help trade multiple currencies in the forex market by identifying the market trends of each currency pair.
Average True Range
Average True Range (ATR) helps in identifying how much a currency pair price has fluctuated. This, in turn, helps traders confirm price levels at which they can enter or exit the market and place stop-loss orders according to the market volatility.
Moving Average Crossover
The Moving Average Crossover is a valuable tool to find the middle price-point of a trend in forex trading. When currency prices crossover their current moving averages, it helps traders identify the favorable buying or selling points for the currency.
What is the Bullish Engulfing Candlestick?
Bullish Engulfing Candlesticks helps in identifying an uptrend reversal in the market. This candlestick pattern stands out because a trader does not need to wait until the entire pattern is completed to enter a trade.
How To Trade The Gartley Pattern
The Gartley pattern helps identify price breakouts and signals where the currency pairs are headed. The pattern is also widely used in the forex market to determine strong support and resistance levels.
How to Trade Forex With NFP V-Shaped Reversal
A Non Farm Payroll (NFP) V-shaped reversal refers to a sudden increase or decrease in the currency pair prices right after an NFP report is released.
Candlestick Patterns: Top Candlestick Charts Every Trader Should Know
Candlestick patterns depict the price movement of assets in a graphical manner. Candlestick patterns also enable traders to predict market behaviour.
What is the Evening Star Candlestick Pattern?
Evening Star Candlestick Patterns help traders identify ideal exit levels in the forex market by signalling a slowed upward momentum and strengthened downward momentum.
How to Use Ichimoku Cloud in Forex?
The Ichimoku Cloud provides a clear market trend direction to the traders and helps them make market decisions accordingly.
Pennants Pattern: How to trade bearish and bullish pennants
Pennant Patterns work as a continuation signal in the forex market and help identify the ideal entry and exit price points
How to Trade Forex With Renko Charts
Renko Chart is a technical indicator that provides strong market trend directions by filtering out minor price movements
What are Ascending and Descending Triangle Patterns?
The Ascending and Descending Triangle Patterns confirm continued trends in the forex market.
How to Identify Cup and Handle Pattern in Forex Trading
The Cup and Handle Pattern is a technical price chart that forms the shape of a Cup and a Handle, which indicates a bullish reversal signal.
What is the Head and Shoulders pattern?
The Head and Shoulders pattern is a trend reversal indicator that predicts bullish to bearish and bearish to bullish reversals in the forex market.
What is the Hammer Candlestick Pattern?
Hammer Candlesticks enable traders to identify potential market reversal points, determine the ideal time to enter the market and place buy or sell orders accordingly.
What is The Opening Range Breakout Strategy
The Opening Range Breakout (ORB) Strategy involves taking forex positions when the currency pair prices break below or above the previous day's high or low
Morning Star Indicator
The Morning Star Indicator helps identify strong trend reversals in the forex market and enables you to take trade position entry decisions accordingly.
How Does Stochastic Indicator Work in Forex Trading?
Stochastic Indicator helps traders identify overbought and oversold market conditions that substantially lead to market reversals.
Favourite Fib Fibonacci Retracement
Fibonacci retracement strategies help traders identify the market's support and resistance levels, trend reversal points, and entry and exit decisions.
Heikin Ashi Candlestick Pattern
The Heikin Ashi Candlestick pattern is almost the same as the traditional candlesticks, with one big difference—the former is an averaged out version of the latter.
Multiple Time Frame Analysis in Forex
By monitoring different currency pairs in different time frames, you can make your Forex trades more successful and profitable.
What are Bollinger Bands?
The Bollinger bands can help identify overbought and oversold market conditions, protecting you against placing any orders that could lead to losses.
Andrew's Pitchfork Trading Strategy
Andrew's Pitchfork is a Forex trading strategy that can predict protracted market swings and help you in identifying potential market trends that can indicate potential exit and entry points.
Fibonacci retracements are one of the most popular methods for predicting currency prices in the Forex market. Predicting upward or downward market movement can help traders with accurate price analysis for exiting or entering the market.
Trading in Volatile Markets
Forex volatility is the measure of how frequently a currency's value changes. A currency either has high volatility or low volatility depending on how much its value deviates from its average value.
The ABCD pattern
One of the most classic chart patterns, the Forex ABCD pattern represents the perfect harmony between price and time.
The Bearish Gartley Pattern
The Bearish Gartley pattern was introduced in 1935, by H.M. Gartley in his book, “Profits in the Stock Market”. The pattern helps Forex traders in identifying higher probabilities of selling opportunities.
The Bullish 3 Drive pattern
The Bullish Three Drive pattern in Forex trading is a rare pattern that gives traders information about the Forex market's potential at its most Bearish point, and in turn, suggests probabilities for a market reversal.
What is the MACD Indicator?
The Moving Average Convergence Divergence (MACD) indicator helps traders quickly identify short-term trend directions and reversals in the forex markets. You can use the MACD indicator to determine a currency pair price trend's severity and measure its price's momentum and even identify the bearish and bullish movements in the currency pair prices.
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