Top Trading Strategies With Price Action Signals

by May 18, 2023DEX/CEX0 comments

Price action trading is a strategy that helps to predict market movements by spotting patterns or ‘signals’ in the price movements of an underlying market. Price action traders rely only on the price movements of an asset within their trading timeframe and do not use any indicators or technical analysis tools. Price action trading can be applied to any market, such as forex, commodities, stocks, indices, and cryptocurrencies. However, it requires a lot of practice and experience to master the skill of reading the market and identifying the best entry and exit points. In this article, we will show you some of the top trading strategies with price action signals that you can use to improve your trading performance. We will also explain what price action signals are, how they work, and why they are popular among traders.

What Are Price Action Signals?

Price action signals are easily-recognizable patterns in a market that can be used to predict future market behavior so you can become a crypto trader. They are formed by the interaction of buyers and sellers in the market and reflect the supply and demand dynamics of an asset.

Price action signals can be classified into two main types: continuation signals and reversal signals. Continuation signals indicate that the current trend is likely to continue in the same direction, while reversal signals indicate that the current trend is likely to change direction.

Some of the common price action signals are:

• Pin bar: A pin bar is a candlestick with a long tail and a small body. It shows that the market rejected a certain price level and reversed its direction. A pin bar can be bullish or bearish depending on its location and direction.

• Inside bar: An inside bar is a candlestick that is completely contained within the range of the previous candlestick. It shows that the market is consolidating and waiting for a breakout. An inside bar can be a continuation or a reversal signal depending on the context and direction of the breakout.

• Trend following retracement entry: A trend following retracement entry is a price action signal that occurs when the market pulls back to a support or resistance level within an established trend. It shows that the trend is still intact and offers an opportunity to join the trend at a better price.

• Trend following breakout entry: A trend following breakout entry is a price action signal that occurs when the market breaks out of a consolidation or a trading range within an established trend. It shows that the trend is gaining momentum and offers an opportunity to join the trend at an early stage.

• Head and shoulders reversal trade: A head and shoulders reversal trade is a price action signal that occurs when the market forms three peaks with the middle peak being higher than the other two. It shows that the market is losing steam and reversing its direction. A head and shoulders reversal trade can be bullish or bearish depending on its orientation and direction.

• The sequence of highs and lows: The sequence of highs and lows is a price action signal that occurs when the market forms higher highs and higher lows in an uptrend or lower highs and lower lows in a downtrend. It shows that the market is following a clear direction and offers an opportunity to trade with the trend.

Top Trading Strategies With Price Action Signals

Top Trading Strategies With Price Action Signals

Now that you know what price action signals are, let’s look at some of the top trading strategies with price action signals that you can use to improve your trading performance.

1. Price Action Trend Trading

If price action trading is the study of price movements, price action trend trading is the study of trends. A trend is a sustained movement of prices in one direction over time. Price action trend traders aim to identify and follow trends in the market using various price action signals.

One of the most important concepts in price action trend trading is support and resistance. Support and resistance are horizontal or diagonal levels on a chart where prices tend to bounce or reverse. Support acts as a floor for prices, while resistance acts as a ceiling for prices.

Price action trend traders use support and resistance levels to identify potential entry and exit points for their trades. They also use them to determine the strength and direction of trends.

For example, in an uptrend, prices tend to bounce off support levels and break above resistance levels, forming higher highs and higher lows. In a downtrend, prices tend to bounce off resistance levels and break below support levels, forming lower highs and lower lows.

To trade with price action trends, you need to follow these steps:

To trade with price action trends, you need to follow these steps:
  • Identify the dominant trend in your chosen market using multiple timeframes. You can use tools such as moving averages or trend lines to help you with this step.
  • Look for price action signals that confirm the continuation or reversal of the trend
  • Enter a trade in the direction of the trend when you see a valid price action signal. For example, you can enter a long trade when you see a bullish pin bar or an inside bar breakout at a support level in an uptrend. You can enter a short trade when you see a bearish pin bar or an inside bar breakdown at a resistance level in a downtrend.
  • Set your stop loss and take profit levels based on the support and resistance levels and the risk-reward ratio of your trade. For example, you can set your stop loss below the low of the pin bar or the inside bar, and your take profit at the next resistance level in an uptrend. You can set your stop loss above the high of the pin bar or the inside bar and your take profit at the next support level in a downtrend.
  • Manage your trade according to the market conditions and your trading plan. You can use trailing stops or partial exits to lock in profits and reduce risks as the trade moves in your favor.
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2. Pin Bar Trading

A pin bar is a price action signal that shows that the market rejected a certain price level and reversed its direction. A pin bar has a long tail and a small body. The tail represents the price rejection, while the body represents the price reversal.

A pin bar can be bullish or bearish depending on its location and direction. A bullish pin bar has a long lower tail and a small upper body. It shows that the market rejected lower prices and reversed to higher prices. A bearish pin bar has a long upper tail and a small lower body. It shows that the market rejected higher prices and reversed to lower prices.

Pin bars are often found at key support and resistance levels, such as trend lines, moving averages, Fibonacci retracements, or horizontal levels. They indicate that the market is likely to bounce or break from these levels.

To trade with pin bars, you need to follow these steps:

To trade with pin bars, you need to follow these steps:
  • Identify potential support and resistance levels in your chosen market using multiple timeframes. You can use tools such as trend lines, moving averages, Fibonacci retracements, or horizontal levels to help you with this step.
  • Look for pin bars that form at or near these levels. The longer the tail of the pin bar, the stronger the price rejection and reversal.
  • Enter a trade in the direction of the pin bar when it closes. For example, you can enter a long trade when you see a bullish pin bar at a support level. You can enter a short trade when you see a bearish pin bar at a resistance level.
  • Set your stop loss and take profit levels based on the size and location of the pin bar and the risk-reward ratio of your trade. For example, you can set your stop loss below the low of the bullish pin bar or above the high of the bearish pin bar and take profit at the next resistance level in an uptrend or the next support level in a downtrend.
  • Manage your trade according to the market conditions and your trading plan. You can use trailing stops or partial exits to lock in profits and reduce risks as the trade moves in your favor.

3. Inside Bar Trading

An inside bar is a price action signal that shows that the market is consolidating and waiting for a breakout. An inside bar is a candlestick that is completely contained within the range of the previous candlestick.

An inside bar can be a continuation or a reversal signal depending on the context and direction of the breakout. A continuation signal occurs when an inside bar breaks out in the direction of the prevailing trend, indicating that the trend is resuming after a pause. A reversal signal occurs when an inside bar breaks out in the opposite direction of the prevailing trend, indicating that the trend is changing after a consolidation.

Inside bars are often found at key support and resistance levels, such as trend lines, moving averages, Fibonacci retracements, or horizontal levels. They indicate that there is indecision and balance between buyers and sellers at these levels.

To trade with inside bars, you need to follow these steps:

  • Identify potential support and resistance levels in your chosen market using multiple timeframes. You can use tools such as trend lines, moving averages, Fibonacci retracements, or horizontal levels to help you with this step.
  • Look for inside bars that form at or near these levels. The smaller the range of the inside bar, the tighter the consolidation and the stronger the breakout. The larger the range of the previous candlestick, the more significant the inside bar and the breakout.
  • Enter a trade in the direction of the breakout when it occurs. For example, you can enter a long trade when an inside bar breaks above the high of the previous candlestick. You can enter a short trade when an inside bar breaks below the low of the previous candlestick.
  • Set your stop loss and take profit levels based on the size and location of the inside bar and the previous candlestick and the risk-reward ratio of your trade. For example, you can set your stop loss below the low of the previous candlestick for a long trade or above the high of the previous candlestick for a short trade, and your take profit at the next resistance level in an uptrend or the next support level in a downtrend.
  • Manage your trade according to the market conditions and your trading plan. You can use trailing stops or partial exits to lock in profits and reduce risks as the trade moves in your favor.

4. Trend Following Retracement Entry

A trend following retracement entry is a price action signal that occurs when the market pulls back to a support or resistance level within an established trend. It shows that the trend is still intact and offers an opportunity to join the trend at a better price.

A retracement is a temporary reversal of prices within a larger trend. It is caused by profit-taking, corrections, or counter-trend movements. A retracement can be measured by using tools such as Fibonacci retracements or moving averages.

A trend-following retracement entry can be used to enter a trade in the direction of the trend when the market retraces to a key support or resistance level and bounces off it. The support or resistance level can be a horizontal level, a trend line, a moving average, or a Fibonacci retracement level.

To trade with trend-following retracement entries, you need to follow these steps:

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To trade with trend-following retracement entries, you need to follow these steps:
  • Identify the dominant trend in your chosen market using multiple timeframes. You can use tools such as moving averages or trend lines to help you with this step.
  • Identify potential support and resistance levels within the trend using tools such as horizontal levels, trend lines, moving averages, or Fibonacci retracements.
  • Look for price action signals that confirm the bounce from these levels. For example, you can look for pin bars, inside bars, engulfing bars, or other candlestick patterns that indicate a reversal from these levels.
  • Enter a trade in the direction of the trend when you see a valid price action signal. For example, you can enter a long trade when you see a bullish pin bar at a support level in an uptrend. You can enter a short trade when you see a bearish pin bar at a resistance level in a downtrend.
  • Set your stop loss and take profit levels based on the size and location of the price action signal and the risk-reward ratio of your trade. For example, you can set your stop loss below the low of the bullish pin bar or above the high of the bearish pin bar and take profit at the next resistance level in an uptrend or the next support level in a downtrend.
  • Manage your trade according to the market conditions and your trading plan. You can use trailing stops or partial exits to lock in profits and reduce risks as the trade moves in your favor.

5. Trend Following Breakout Entry

A trend following breakout entry is a price action signal that occurs when the market breaks out of a consolidation or a trading range within an established trend. It shows that the trend is gaining momentum and offers an opportunity to join the trend at an early stage.

A breakout is a sudden and sharp movement of prices beyond a support or resistance level. It is caused by an increase in volume, volatility, or news events. A breakout can be measured by using tools such as horizontal levels, trend lines, or chart patterns.

A trend following breakout entry can be used to enter a trade in the direction of the trend when the market breaks out of a consolidation or a trading range that has formed within the trend. The consolidation or the trading range can be a horizontal channel, a triangle, a flag, a pennant, or any other chart pattern that indicates a pause in the trend.

To trade with trend-following breakout entries, you need to follow these steps:

To trade with trend-following breakout entries, you need to follow these steps:
  • Identify the dominant trend in your chosen market using multiple timeframes. You can use tools such as moving averages or trend lines to help you with this step.
  • Identify potential consolidation or trading range areas within the trend using tools such as horizontal levels, trend lines, or chart patterns.
  • Look for price action signals that confirm the breakout from these areas. For example, you can look for strong candlesticks, high volume, or gaps that indicate a strong movement from these areas.
  • Enter a trade in the direction of the trend when you see a valid price action signal. For example, you can enter a long trade when you see a bullish candlestick breaking above the upper boundary of a consolidation or a trading range in an uptrend. You can enter a short trade when you see a bearish candlestick breaking below the lower boundary of a consolidation or a trading range in a downtrend.
  • Set your stop loss and take profit levels based on the size and location of the consolidation or the trading range and the risk-reward ratio of your trade. For example, you can set your stop loss below the lower boundary of the consolidation or the trading range for a long trade or above the upper boundary of the consolidation or the trading range for a short trade, and your take profit at the next resistance level in an uptrend or the next support level in a downtrend.
  • Manage your trade according to the market conditions and your trading plan. You can use trailing stops or partial exits to lock in profits and reduce risks as the trade moves in your favor.

6. Head and shoulders reversal trade

Head and shoulders reversal trade is a price action signal that occurs when the market forms three peaks with the middle peak being higher than the other two. It shows that the market is losing steam and reversing its direction. A head and shoulders reversal trade can be bullish or bearish depending on its orientation and direction.

A bullish head and shoulders reversal trade occur when the market forms a lower low, a lower high, a higher low, a higher high, and a lower high in succession. It shows that the market is reversing from a downtrend to an uptrend. The lower lows and lower highs form the left shoulder and the head, while the higher lows and higher highs form the right shoulder and the neckline. The neckline is a horizontal or slightly ascending line that connects the two highs. The breakout above the neckline confirms the reversal and triggers a long trade.

A bearish head and shoulders reversal trade occur when the market forms a higher high, a higher low, a lower high, a lower low, and a higher low in succession. It shows that the market is reversing from an uptrend to a downtrend. The higher highs and higher lows form the left shoulder and the head, while the lower high and lower low form the right shoulder and the neckline. The neckline is a horizontal or slightly descending line that connects the two lows. The breakout below the neckline confirms the reversal and triggers a short trade.

To trade with head and shoulders reversal trades, you need to follow these steps:

To trade with head and shoulders reversal trades, you need to follow these steps:
  • Identify potential head and shoulders patterns on your chosen market using multiple timeframes. You can use tools such as trend lines or horizontal levels to help you with this step.
  • Look for price action signals that confirm the formation of the left shoulder, the head, the right shoulder, and the neckline. For example, you can look for pin bars, inside bars, engulfing bars, or other candlestick patterns that indicate a reversal from these levels.
  • Enter a trade in the direction of the breakout when it occurs. For example, you can enter a long trade when you see a bullish candlestick breaking above the neckline of a bullish head and shoulders pattern. You can enter a short trade when you see a bearish candlestick breaking below the neckline of a bearish head and shoulders pattern.
  • Set your stop loss and take profit levels based on the size and location of the head and shoulders pattern and the risk-reward ratio of your trade. For example, you can set your stop loss below the low of the right shoulder for a long trade or above the high of the right shoulder for a short trade, and your take profit at a distance equal to the height of the pattern from the neckline.
  • Manage your trade according to the market conditions and your trading plan. You can use trailing stops or partial exits to lock in profits and reduce risks as the trade moves in your favor. You can also use other price action signals or indicators to confirm the trend reversal or continuation. 
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FAQ 

What is price action trading?

Price action trading is a strategy that helps to predict market movements by spotting patterns or ‘signals’ in the price movements of an underlying market.

What are price action signals?

Price action signals are easily-recognizable patterns in a market that can be used to predict future market behavior. They are formed by the interaction of buyers and sellers in the market and reflect the supply and demand dynamics of an asset.

What are the two main types of price action signals?

The two main types of price action signals are continuation signals and reversal signals. Continuation signals indicate that the current trend is likely to continue in the same direction, while reversal signals indicate that the current trend is likely to change direction.

What are some of the common price action signals?

Some of the common price action signals are pin bars, inside bars, trend-following retracement entries, trend-following breakout entries, and head and shoulders reversal trades.

How do I identify the dominant trend in a market?

You can identify the dominant trend in a market using multiple timeframes and tools such as moving averages or trend lines. A trend is a sustained movement of prices in one direction over time.

How do I identify support and resistance levels in a market?

You can identify support and resistance levels in a market using tools such as horizontal levels, trend lines, moving averages, Fibonacci retracements, or chart patterns. Support and resistance are horizontal or diagonal levels on a chart where prices tend to bounce or reverse.

How do I trade with price action trends?

To trade with price action trends, you need to identify the dominant trend in your chosen market, look for price action signals that confirm the continuation or reversal of the trend, enter a trade in the direction of the trend when you see a valid price action signal, set your stop loss and take profit levels based on the support and resistance levels and the risk-reward ratio of your trade, and manage your trade according to the market conditions and your trading plan.

How do I trade with pin bars?

To trade with pin bars, you need to identify potential support and resistance levels on your chosen market, look for pin bars that form at or near these levels, enter a trade in the direction of the pin bar when it closes, set your stop loss and take profit levels based on the size and location of the pin bar and the risk-reward ratio of your trade, and manage your trade according to the market conditions and your trading plan.

How do I trade with inside bars?

To trade with inside bars, you need to identify potential support and resistance levels on your chosen market, look for inside bars that form at or near these levels, enter a trade in the direction of the breakout when it occurs, set your stop loss and take profit levels based on the size and location of the inside bar and the previous candlestick and the risk-reward ratio of your trade, and manage your trade according to the market conditions and your trading plan.

Conclusion

Price action trading is a strategy that helps to predict market movements by spotting patterns or ‘signals’ in the price movements of an underlying market. Price action traders rely only on the price movements of an asset within their trading timeframe and do not use any indicators or technical analysis tools.

In this article, we have shown you some of the top trading strategies with price action signals that you can use to improve your trading performance. These strategies are:

Price action trend trading: This strategy involves identifying and following trends in the market using various price action signals and support and resistance levels.

• Pin bar trading: This strategy involves entering trades in the direction of pin bars that form at or near key support and resistance levels, indicating a price rejection and reversal.

• Inside bar trading: This strategy involves entering trades in the direction of inside bars that break out of a consolidation or a trading range, indicating a price continuation or reversal.

• Trend following retracement entry: This strategy involves entering trades in the direction of the trend when the market retraces to a key support or resistance level and bounces off it, indicating a trend continuation.

• Trend following breakout entry: This strategy involves entering trades in the direction of the trend when the market breaks out of a consolidation or a trading range that has formed within the trend, indicating a trend momentum.

We hope that this article has helped you to understand how to use price action signals to enhance your trading skills and results. Remember that price action trading requires a lot of practice and experience to master, so make sure to test these strategies on a demo account before using them on a live account. Happy trading!

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