Price action trading strategies are associated with price graphs to determine entry and exit points into a market. When you see a trend forming, that’s often the time to buy or sell. Price action trading requires no indicators, but traders will use several popular strategies to build their setups.
Trend Trading Strategies
Trend following is a strategy for those who trade trends. After finding a trend by looking at moving averages or support levels, they try to join forces with the current force and ride the wave until it ends. They do not take out profits too early because one never knows how long a trend may last.
Trends rarely go straight up or straight down, so an x-6 (1-3 ) box size is advisable. One would use a moving average to draw the line for which it is currently trading off.
Simple Moving Average Crossover Strategy
This strategy is simple in that you are simply looking at two averages, one long term and one short term, then waiting for the shorter-term MA to cross above or below the longer-term MA. When this happens, it can be used as an entry signal for traders holding a position in the stock/currency/commodity being tracked by these averages. It can also be used as an exit signal if traders have bought calls or puts of this instrument and want to protect their winnings against a downward move.
Trading Range Strategies
Tand low ticks. The range is usually identified by drawing a trend line connecting the highs and at least one point where price touches this trend line as it makes a new high or low. When price action breaks outside a predetermined level, a trader takes the trade either long or short, depending on how the price went. Time frames can vary from hourly to monthly periods.
The disadvantage of trading ranges is that there are times when the price will break out only to return to the same area many times before breaking out for good. It requires traders to be patient until they see a strong enough move in their favour before taking the trade setup.
Swing Trading Strategies
Swing trading is a trend following strategy that looks for a predetermined profit target and stop-loss after a given time frame. If the trader takes half his position at the profit target, he will only have one-half of the initial risk left. It’s known as scaling out of trades. There must be an objective method of determining where your trade may reach its targeted profit level.
It’s also advisable for traders to keep some powder dry in case their first entry fails so they can wait for another opportunity if the price returns into range or shows signs of reversing direction again. Using a 1 unit box size or tick chart, using a 4 point exit would mean you take off 1/4 of your position and hold the rest with a 2 point stop loss.
Scalping Strategy
Scalpers generally try to profit from concise term market movements, such as intraday swings. They never have a holding period of more than a day because they want the price action to go in their favour as soon as possible so they can exit at break even or close half their trade quickly for a small gain before the price starts going against them again. It’s called scaling in and out of trades or getting on and off the train while it’s still moving.
What’s your Strategy
The truth is, everyone has a strategy, and we tend to trade the market we know the most about. This means if you’ve been trading breakouts all your life and you feel comfortable playing wedges within those range-bound price levels, why would you suddenly convert yourself to day trading intraday swings if it goes against everything you’ve done in the past. That aside, it is possible to make money using any price action or indicator so long as there are enough traders making money with them.
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