3 Price action strategies for forex traders

Price action strategies differ from technical led strategies as they do not rely on signals from technical indicators. Such signals can be problematic as they are often followed by thousands of other traders around the world. 

Price action strategies, on the other hand, are subjective and are drawn from a traders own perspective on the market. This causes it’s own problems as price action strategies can therefore be hard to define. 

Nevertheless, many traders swear by price action techniques and here are 3 classic types.

Head and shoulders

Head and shoulders patterns form when a currency moves towards a type of ridge before moving higher once more, only to drop back towards the ridge. The two ridges are therefore the shoulders and the higher price point is the head. 

What this indicates is a market that is struggling to move past the higher price levels so it’s a bearish sign. The pattern becomes even more bearish if the price moves underneath the shoulder line, and when it does a sell order should be entered into the market.

Pin bars

Pin bars, also known as dojis, are a type of candlestick price action pattern that help traders judge the momentum in the market and they can work both as reversal indicators and confirmation signals. 

Pin bars occur when a market moves up or down fairly strongly, but then cannot hold onto those gains/losses. The market ends up pretty much back where it started and the candlestick ends up looking like a pin head. 

It’s a classic sign that traders are winning the battle on only one side of the trend so indicates that the trend will carry on in that direction.

Wedge pattern

A wedge pattern can often be drawn onto a price chart to show a market that is converging and therefore readying for a breakout. Wedges are essentially triangle patterns and can also be called ascending, descending or bilateral triangles. 

The wedge or triangle pattern is drawn from a significant high and low to a much more recent high and low. This pattern encompasses the whole of the recent price action and shows a market that is coming together in a consolidation phase. 

The beauty of the wedge pattern is that the closer the two lines get to one another, the greater the inevitably of a breakout move. Since when the two lines come together, to form what is known as an apex point, the market will have nowhere to go but break out.