📈 What is Price Action Trading?
Price action trading is a method of analyzing and trading based on the movement of price itself, without relying on technical indicators. It focuses on candlestick patterns, support and resistance, and price formations to make trading decisions.
Introduction to Price Action Trading
Price action trading is one of the purest forms of technical analysis. It relies solely on price movement and patterns, making it applicable to all markets and timeframes.
Why Use Price Action?
- No Lag: Real-time signals
- Universal: Works on all markets
- Simple: No indicator clutter
- Fast: Quick decision making
- Reliable: Price tells the story
Key Price Action Concepts
1. Support and Resistance
Definition: Price levels where buying/selling pressure is strong.
How to Identify:
- Previous swing highs/lows
- Round numbers
- Areas of multiple touches
- Fibonacci levels
2. Candlestick Patterns
Definition: Visual patterns formed by price bars.
Common Patterns:
- Engulfing patterns
- Pin bars (rejection candles)
- Inside bars
- Learn More
3. Price Structure
Definition: The overall pattern of price movement.
Types:
- Higher highs, higher lows (uptrend)
- Lower highs, lower lows (downtrend)
- Sideways (range)
Price Action Trading Strategies
Strategy 1: Pin Bar Trading
Bullish Pin Bar
Pattern:
- Long wick below body
- Small body at top
- Signals rejection of lower prices
How to Trade:
- Identify pin bar at support
- Wait for confirmation (next candle)
- Enter long
- Stop: Below pin bar low
- Target: Next resistance
Bearish Pin Bar
Pattern:
- Long wick above body
- Small body at bottom
- Signals rejection of higher prices
How to Trade:
- Identify pin bar at resistance
- Wait for confirmation
- Enter short
- Stop: Above pin bar high
- Target: Next support
Strategy 2: Engulfing Patterns
Bullish Engulfing
Pattern:
- Bearish candle followed by larger bullish candle
- Bullish candle engulfs previous candle
- Signals reversal
How to Trade:
- Identify at support
- Enter on completion
- Stop: Below pattern
- Target: Next resistance
Bearish Engulfing
Pattern:
- Bullish candle followed by larger bearish candle
- Bearish candle engulfs previous candle
- Signals reversal
How to Trade:
- Identify at resistance
- Enter on completion
- Stop: Above pattern
- Target: Next support
Strategy 3: Inside Bar Breakout
Pattern:
- Small candle inside previous candle's range
- Consolidation before breakout
How to Trade:
- Identify inside bar
- Wait for breakout (above/below)
- Enter in breakout direction
- Stop: Beyond inside bar
- Target: Measured move
Best Timeframes for Price Action
Scalping
- Primary: M5, M15
- Patterns: Quick patterns, fast signals
Day Trading
- Primary: M15, H1
- Patterns: Standard patterns
Swing Trading
- Primary: H4, D1
- Patterns: Larger patterns, stronger signals
Price Action Trading Rules
Entry Rules
- Pattern Identified: Clear price action pattern
- At Key Level: Support/resistance
- Confirmation: Pattern complete
- Context: Trend or range identified
- Enter: On confirmation
Exit Rules
- Target Reached: Next support/resistance
- Pattern Failure: Price reverses
- Stop Loss: Pattern invalidated
- Time Limit: Pattern taking too long
Common Price Action Mistakes
- Trading Every Pattern: Not all patterns are equal
- No Context: Ignoring trend/range
- No Confirmation: Entering too early
- Wrong Timeframe: Using inappropriate charts
- Ignoring Structure: Not understanding price structure
Price Action Checklist
Before trading price action:
- [ ] Clear pattern identified
- [ ] Pattern at key level (support/resistance)
- [ ] Pattern complete and confirmed
- [ ] Context understood (trend/range)
- [ ] Stop loss set (beyond pattern)
- [ ] Take profit set (next level)
- [ ] Risk/reward ratio at least 1:2
- [ ] Position size calculated using risk management rules
Advanced Price Action Techniques
Multiple Timeframe Analysis
- Higher Timeframe: Identify trend/range
- Lower Timeframe: Find entry
- Entry Timeframe: Execute trade
Price Action Confluence
Combine multiple price action signals:
- Pattern + Support/Resistance
- Pattern + Trend
- Multiple patterns
Market Structure
Uptrend Structure:
- Higher highs
- Higher lows
- Buy on pullbacks
Downtrend Structure:
- Lower highs
- Lower lows
- Sell on bounces
When Price Action Works Best
Ideal Conditions
- Clear Patterns: Well-defined formations
- At Key Levels: Support/resistance
- With Structure: Clear trend/range
- No Major News: Avoid news events
Avoid When
- Choppy Markets: Unclear patterns
- No Structure: Random movement
- Major News: Can invalidate patterns
- Low Liquidity: Wide spreads
Summary
Price action trading is a powerful method for analyzing and trading markets using pure price movement. Success requires understanding patterns, support and resistance, and strict risk management.
Key Takeaways:
- Focus on price movement only
- Learn candlestick patterns
- Identify support/resistance
- Understand market structure
- Always confirm patterns
- Use proper risk management