Price action day trading is very popular among day traders and short term swing traders alike. It’s the basis of all trading and understanding how the market moves based on pure price can open your eyes to a whole other world of profit potential. So how can we profit from price action? There are a few day trading strategies but we’re going to hammer down our favorite in this article.

What is Price Action Trading?

Price action first, is the movement of an asset’s price over either a time period or a ticking movement. This is the foundation of technical analysis for any asset out there. Very common in Forex trading but should be common practice in all walks of trading. Whether your trading stocks, futures or anything else for that matter. Short term traders love price action trading and we’ll show you why you should care too!

Price action trading is actively placing trades in the market you trade based solely on the movement of the asset. Without the use of indicators, just the movement of the assets price. You can use this method on any chart or any time frame.

 

For Free Class On Day Trading

 

Price action trading examples.

The basis of technical analysis stems from price action trading, which could mean a few different things. Watching the trends, candlesticks, patterns, etc. We would break it down to just the trend movement and how trends move. If you can identify where the trend is going to hold for its continuation and where it breaks you can trade any market. Swing trade or day trade. We’ll focus on the intraday movement of day trading and a day trading strategy in this article.

There are three main trends that every price action trader should know. The bull trend, the bear trend and the sideways trend. The image below outlines the trends in the most basic form.

 
main trend

 

  • Bull trend: higher highs and higher lows, to follow the structure continuation we want to see the lows either print higher or equal to the previous low.
  • Bear trend: lower lows and lower highs. To follow bear structure continuation we want to see the highs print lower or equal to the previous high.
  • Sideways trend: Equal highs and equal lows, should continue if everything stays constant.

Price Action Trend Trading Patterns.

There are two very simple patterns to find the continuation of the trend. They are the most important in price action trading and the most important in our day trading strategy. We’ll break these down first before getting into the strategy.

Pattern number 1: The break in the direction of the trend whether it’s bullish (this example) or bearish and a retest of the prior broken peak. In the example below, we see a bull structure forming and break through the prior peak (blue arrow) and retest and prior broken peak and continue the move higher.

 
break and retest pattern

 
Pattern 2: In this case, we see the less extended break of the prior peak, but nevertheless a break. In this pattern, it is possible for the prior broken peak to hold as support or the other alternative is the impulse move that helped create the new move higher. This is also the “last chance” level for the bulls to hold upside structure.

 
impulse and continuation

 

The Price Action Day Trading Strategy.

Now that we have gone through price action, what are price action and some key patterns? We’re ready to present the day trading strategy that is strictly price action. For this, we’ll use a 15-minute time frame on a currency pair to show you that you can use this on any asset. Using both of the patterns.

First, let’s look at the USDJPY pair from start to finish. This is a trend trading strategy in which we follow the trend rather than look for fades or breakouts. It’s identified as the “pullback strategy” in the direction of the trend.

Step 1: We identify the overall trend of the market.

Step 2: Identify the current peak to break and retest

Step 3: Identify the move (impulse) that would break the current peak

Step 4: Identify rotations in the support/resistance area for the entry

Step 5: Identify where your profit target would be, 2:1 ratio

Step 5: Place the entry based on your stop-loss

 
upward market structure

 
Based on the image above we have identified the current peak higher based on the upward market structure on a 15-minute candlestick chart. Based on this we can come up with a trade idea. Should the price break through the peak identified with the green circle, we can either:

  1. Pullback into the broken peak for a move higher (pattern 1) Green arrows.
  2. Or Pullback into the impulse that started the new high if new high forms from this current level (pattern 2) Purple arrows.

 
pullbacks Chart

 
Moving forward we can see the peak breaks, so now the potential pullbacks are similar, the previous broken peak or the point at which the impulse for the peak started. What are we looking for at one of these levels? Rotations based on candlesticks. With stops below prior support lows.

 
Profit Indicator Chart

 

We got the rotations above, circled in green at the first support level so pattern 1 held out. The entry is the blue line. Now the stop is set (moderately wide) based on the peak low with a 2:1 ratio the profit is up around 112 (green line). With Forex you can change lot sizing very easily.

 
Price Peak Chart

 
There is our trade! And profit target, without taking heat even. This is not always an occurrence. There is also a potential for another entry from the broken peak at the black line! Following the trend will always be the higher probability trade idea and this strategy has been tested for years! It’s a high probability but that doesn’t mean it’s guaranteed to win. You have to manage the trade and risk parameters!

 

TRADEPRO Academy offers futures education and a live trading room where you can interact with the top mentors to better your futures trading.

If you want to join us in our live trading room, check out the Day Trader package here >

If you prefer to trade more passively, check out our newsletter, trade ideas and live analysis in the Day Trader package here > for Free News Update Click here.

The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.