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.
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 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.
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.
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.
Editors’ Picks
EUR/USD flirts with daily highs, retargets 1.1900
EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.
GBP/USD remains well bid around 1.3650
GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.
USD/JPY edges up above 153.50 with all eyes on US CPI figures
USD/JPY appreciates above 153.00 but remains on track for a 2.4% weekly loss. Trading volumes remain subdued on Friday, ahead of the IS CPI release. The Yen remains supported by hopes of a stable government and calls for further BoJ tightening.
Editors’ Picks
EUR/USD: Yes, the US economy is resilient – No, that won’t save the US Dollar Premium
Some impressive US data should have resulted in a much stronger USD. Well, it didn’t happen. The EUR/USD pair closed a third consecutive week little changed, a handful of pips above the 1.1800 mark.
Gold: Metals remain vulnerable to broad market mood Premium
Gold (XAU/USD) started the week on a bullish note and climbed above $5,000 before declining sharply and erasing its weekly gains on Thursday, only to recover heading into the weekend.
GBP/USD: Pound Sterling remains below 1.3700 ahead of UK inflation test Premium
The Pound Sterling (GBP) failed to resist at higher levels against the US Dollar (USD), but buyers held their ground amid a US data-busy blockbuster week.
Bitcoin: BTC bears aren’t done yet
Bitcoin (BTC) price slips below $67,000 at the time of writing on Friday, remaining under pressure and extending losses of nearly 5% so far this week.
US Dollar: Big in Japan Premium
The US Dollar (USD) resumed its yearly downtrend this week, slipping back to two-week troughs just to bounce back a tad in the second half of the week.
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