- This movement is quite often analyzed with respect to price changes in the recent past.
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Put simply, price action is how price changes, i. This price history includes swing highs and swing lows in a market, as well as support and resistance levels. The following diagrams show examples of some simple price action trading strategies that you can use to trade the market.
The inside bar is contained completely within the high to low range of the mother bar. This price action strategy is commonly used as a breakout pattern in trending markets, but it can also be traded as a reversal signal if it forms at a key chart level.
Price Action Trading Strategies – 6 Setups that Work
Pin bar pattern A pin bar pattern consists of a single candlestick and it shows rejection of price and a reversal in the market. The pin bar signal works great in a trending market, range bound market and can also be traded counter-trend from a key support or resistance level. Fakey pattern The fakey pattern consists of a false breakout of an inside bar pattern.
In other words, if an inside bar pattern breaks out briefly but then reverses and closes back within the range of the mother bar or inside bar, you have a fakey. The first chart we are looking at shows us a bearish fakey sell signal pattern.
In this example, the trend was already down, as we can see the overall downward track starting at the top left of the chart and falling as price moves toward the left side of the chart.
What is Price Action Trading? For Beginners
Thus, this fakey sell signal was in-line with the overall daily chart downtrend, this is good. Trading with the trend generally gives a price action setup a better chance of working in your favor. The chart below shows an example of a bullish fakey pin bar combo setup in the context of an upward moving market.
- Most amateur traders make the mistake of taking price action signals regardless of where they occur and then wonder why their winrate is so low.
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In this next example, we are looking at the inside bar trading pattern. This chart shows both a regular inside about price action in trading signal as well as an inside pin bar combo setup.
An inside pin bar combo is simply an inside bar with a pin bar for the inside bar. These setups work very well in trending markets like we see in the chart below.
An Introduction to Price Action Trading Strategies
The last chart we are looking shows examples of the pin bar pattern. Note the large up moves that followed both of these pin bar buy signals.
Also, note how these pin bars both had long tails in comparison to some of the other bars on this chart that you might identify as pin bars. Pin bars wit nice long tails like these two, and that are clearly protruding out from the surrounding price action, often are very good setups to trade.
#1 Order absorption: Support and Resistance
Every pin bar, inside bar, etc. Depending on where a particular price action signal forms in a market, you may not want to trade it or you may want to jump on it without hesitation. In the case of price action trading we are looking for an area on the chart where at least a couple things about price action in trading up with a price action entry signal.
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- The Price Action Trading Strategy Guide
In the chart example below, we can see a good example of a pin bar pattern with confluence. The confluence is that the pin bar has formed in the direction of an up-trending market and that it has formed at a support level in that uptrend. The more confluent factors a price action signal has behind it, the higher-probability signal it is considered to be.
You now have a solid basic understanding of what price action is and how to trade it. Going forward, you should look to expand your price action trading understanding and knowledge as there is much more to it than is covered here.
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