The Best Price Action Strategies Every Trader Should Know
Author: James Clark
The Best Price Action Strategies
Whether you’re in the market as a long or short-term trader, price-action strategies can be highly beneficial for you. Unbeknownst to many, these strategies fall amongst the most commonly used ones in the current market. If you want to gain an edge in the market, a simple yet powerful way of doing so is by analyzing the price of a security. Read on to learn the best price action strategies for traders.
But first, what is a price-action? Let’s find out.
What is a Price Action?
In layman’s terms, this involves studying the price movement of a security. Effective price action strategies therein predict, based on historical data, upcoming changes in the market. Every trading indicator is a derivative of price, and studying, understanding, learning, and applying these indicators to trading reaps profit for traders.
Best Price Action Strategies for Traders
Before settling on the desired strategy, assess the ‘why,’ the ‘how,’ and the ‘what’ of your goals. Why are you trading in a specific market? How will you carry out trade, i.e., the mechanisms and protection strategies? Finally, what outcomes are you aiming for?
With a clear mind and vision, you can apply any of the two most popular price action strategies for traders below:
1. The Harami Price-Action Strategy
This pattern signals indecision in the market and is primarily applied to breakout trading. In a bull market, the harami develops within the high and low range of a previous seller candle when a buyer candle’s high to low range forms. Concurrently, a bearish harami develops within the high and low range of a previous buyer candle when a seller candle’s high to low range forms.
Here’s how you trade a bullish harami:
Spot a bullish harami formation
Add a pip above the high of the previous day’s candle
Place a stop loss a pip below the low of the previous day’s candle
Identify a one-to-one reward to risk
Cancel the order if the trade isn’t triggered by the open of a new candle. If it is, leave it in the market until a target or stop loss is reached.
The steps to trading a bearish harami are reverse. In this case, you’ll be selling instead of buying.
2. The Hammer Price-Action Strategy
This bullish signal is commonly used in up-trending markets. It denotes a higher probability of the market going up rather than down. As the market pushes down, people continue selling in that weakness. However, at some point during the day, buyers step back in to lift the market. A hammer candle is used to signify the high, low, open, and close of the market in a day. It is normal for the close to be below the open on the candle but, the close being above the opening price is considered a stronger signal.
Here’s how you trade a hammer:
Enter when the candle break’s the high of the previous day’s candle.
Place a stop loss at the low of the previous day’s candle. No buyers stepping in signifies that the market needs to drop lower before rising.
If the trade is in profit, exit at the close of a candle. If not, place stop losses at your target price.
Other price action strategies include The Hanging man, The Shooting Star, and so on. Our list’s strategies remove all external noise, including news, economics, and fundamental data, to focus on logic and simplicity.
The Bottom Line
So, that’s about it. Price action strategies are powerful tools that can aid in your trade. The next time you’re looking for profitable trade in the market, be sure to employ these two amazing strategies. Try and test to see which suits you best.
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