Price Action Trading Strategies

Some traders use these price action trading strategies to adapt to various market conditions and improve predictions.

By Marcel Deer

Edited by Dragan Stevanovic

Published November 20, 2024.

Trader sitting in front of two computer screens monitoring the stock market

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.
Note: Fortrade offers the ability to trade the price changes of instruments with CFDs and NOT to buy/sell ownership of instruments themselves. All the information in this blog is purely educational and should NOT be considered advice.
1. Pin BarPin 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.
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2. Inside BarInside 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 BarAs 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 TradingIn 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 FollowingTrend-following strategies identify the prevailing direction of a market. To that end, traders use moving averages, trendlines, and price action patterns to confirm trends before deciding on trades.
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)
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6. Counter-Trend TradingCounter-trend trading uses potential reversals against the main market direction. In this approach, traders look for overextended moves, or price indicators and momentum divergences.
Counter-trend signals are usually combined with trend analysis or longer timeframes.
A common signal in counter-trend trading is "the opposite candle," i.e., a candle that forms in the opposite direction of the market trend. However, this method can be highly risky, so make sure to confirm first and only consider it if you are confident in your trading knowledge.
7. Fibonacci RetracementsFibonacci retracements use mathematical ratios to help identify support and resistance levels in price movements. The Fibonacci method helps traders identify entry and exit points and set stop-loss and take-profit limits.
Fibonacci Retracements in PracticeTraders could take two significant points on a chart and divide the vertical distance by Fibonacci ratios, such as:
23.6%
38.2%
50% (not technically a Fibonacci ratio but still considered important for this trading method)
61.8%
78.6%
Let's say a price moves from $50 to $75. In that case, the 38.2% level would be at $70, the 50% level at $62.50, and the 61.8% retracement level at $55. This theory could be used to potentially extrapolate the direction of a trend.
Though this strategy is widely used, it's best combined with other technical analysis strategies and tools, such as trendlines and candlestick patterns.
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8. Price Level TradingPrice level trading identifies vital price levels where significant buying or selling pressure occurs. These include:
Historical support levels
Critical resistance points
Round numbers
Traders typically use price action patterns and indicators to confirm price level signals and execute trades accordingly. This strategy can be further boosted with volume analysis and market depth data that validate price levels and improve trading accuracy.
» Are price movements enough? Discover how geopolitical events shape market volatility﻿
Seeing Beyond the ChartsRegardless of the strategies themselves, traders should adapt and refine their methods through research, trading webinars, and thorough practice with demo accounts. There is no universally safe and profitable strategy for trading. Rather, it's a combination of in-depth market research and knowledge.
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