Price Action Trading Strategies

1. Introduction to Price Action Trading

In the world of trading, countless strategies exist—some rely heavily on indicators, some on algorithms, and others on fundamental data. But one timeless method stands apart: Price Action Trading.

At its core, price action trading is the art of making trading decisions solely based on the movement of price on the chart, without depending too much on lagging indicators like RSI, MACD, or moving averages. Instead, traders read the raw story of the market through candlestick structures, patterns, and levels.

Think of it as reading a book. Every candle tells a story:

Who is stronger—buyers or sellers?

Is the market trending or consolidating?

Is there a potential reversal or continuation?

This method has been used for decades by professional traders because price is the ultimate truth. Indicators may lag, news may be noisy, but price always reflects what’s happening in real time.

2. Core Principles of Price Action

Before diving into strategies, let’s build the foundation.

(a) Market Structure

Price moves in waves—higher highs & higher lows in an uptrend, lower highs & lower lows in a downtrend. Recognizing market structure helps you avoid trading against the dominant flow.

(b) Support and Resistance

These are the backbone of price action trading:

Support: A price level where demand is strong enough to stop a fall.

Resistance: A level where supply is strong enough to cap a rise.

Traders often mark these levels on daily, 4H, or 1H charts to identify potential entry zones.

(c) Supply and Demand Zones

Instead of flat lines, advanced traders look at zones (rectangular regions) where large buying/selling orders entered the market. Price often reacts strongly when revisiting these zones.

(d) Candlestick Psychology

Candlesticks show battle outcomes between bulls and bears. For example:

Long wick at bottom = buyers rejected lower prices.

Engulfing candle = strong reversal signal.

Understanding this psychology forms the essence of price action trading.

(e) Trendlines & Channels

Drawing trendlines helps in identifying trend continuation and potential breakout points. Price often respects channels before making strong moves.

3. Key Tools of Price Action

Unlike indicator-heavy traders, price action traders rely mainly on the chart itself. Key tools include:

Candlestick Patterns (Doji, Pin Bar, Engulfing, etc.)

Chart Patterns (Head & Shoulders, Double Top/Bottom, Triangles, Flags)

Breakouts & Retests

Volume Analysis (optional but powerful to confirm breakouts)

These tools are combined to form actionable strategies.

4. Popular Price Action Patterns
(a) Pin Bar (Rejection Candle)

Long wick + small body.

Signals rejection of a price level.

Example: A bullish pin bar at support indicates buyers defending the zone.

(b) Engulfing Pattern

A candle completely engulfs the previous one.

Bullish engulfing after a downtrend = reversal to upside.

Bearish engulfing after an uptrend = reversal to downside.

(c) Inside Bar

Small candle within the previous candle’s range.

Indicates indecision, often followed by strong breakout.

(d) Double Top & Double Bottom

Double Top: Price tests a resistance twice but fails → bearish reversal.

Double Bottom: Price tests support twice but fails → bullish reversal.

(e) Head and Shoulders

Classic reversal pattern indicating exhaustion of trend.

Head & Shoulders Top → bearish reversal.

Inverse Head & Shoulders → bullish reversal.

5. Price Action Trading Strategies

Now, let’s explore actionable strategies.

Strategy 1: Support & Resistance Bounce

Mark strong daily/weekly support and resistance.

Wait for price to test these levels.

Look for candlestick confirmation (pin bar, engulfing).

Trade in the direction of rejection.

👉 Example: Bank Nifty tests 45,000 support and forms bullish engulfing → buy with stop-loss below support.

Strategy 2: Breakout and Retest

Markets often consolidate before breaking out strongly.
Steps:

Identify a consolidation range.

Wait for breakout (above resistance / below support).

Don’t jump immediately—wait for retest of the broken level.

Enter trade in breakout direction.

👉 Example: Nifty breaks out of 20,000, comes back to retest 20,000 → strong buy.

Strategy 3: Trendline Trading

Draw a trendline connecting higher lows in an uptrend or lower highs in a downtrend.

Buy near trendline support in uptrend, sell near trendline resistance in downtrend.

Look for pin bars or engulfing candles as confirmation.

Strategy 4: Supply & Demand Zone Trading

Mark zones where strong rallies or falls originated.

Wait for price to revisit those zones.

Look for candlestick rejection.

Enter with stop-loss beyond zone.

👉 Example: Reliance stock rallies from ₹2,200 to ₹2,400. Mark demand zone at ₹2,200–₹2,220. When price revisits, buy again.

Strategy 5: Inside Bar Breakout

Find inside bar pattern (consolidation).

Place buy stop above high, sell stop below low.

Whichever breaks, enter trade.

Works best in trending markets.

Strategy 6: Fake Breakout (Stop Hunt Strategy)

Institutions often trigger stop-losses before moving price in real direction.

Spot false breakouts near key levels.

Enter in opposite direction after quick rejection.

👉 Example: Price breaks below support, instantly reverses with bullish engulfing → buy.

Strategy 7: Multi-Timeframe Price Action

Identify higher timeframe trend (daily/4H).

Drop to lower timeframe (15M/1H) for entry.

Align both trends for high probability setups.

Strategy 8: Range Trading

In sideways markets, mark horizontal support & resistance.

Buy near support, sell near resistance.

Exit at opposite boundary.

Strategy 9: Pullback Entry

In a trending market, avoid chasing moves.

Wait for pullback to support (uptrend) or resistance (downtrend).

Enter when trend resumes.

👉 Example: Nifty rallies, pulls back to 20EMA, forms bullish engulfing → buy continuation.

Strategy 10: Price Action with Volume

Combine volume with candlestick setups.

Breakout + high volume = strong move.

Pin bar rejection + high volume = reliable reversal.

6. Risk Management in Price Action Trading

No strategy works without proper risk control.

Always use stop-loss (below support for buys, above resistance for sells).

Risk only 1–2% of capital per trade.

Use risk-to-reward ratio (R:R) of at least 1:2.

Avoid overtrading—wait for high-quality setups.

7. Psychology in Price Action

Price action requires patience. Unlike indicator traders, price action traders must wait for price to tell its story.
Key psychological rules:

Don’t predict; react.

Avoid FOMO (fear of missing out).

Stick to your trading plan.

Journal every trade for review.

8. Advantages of Price Action Trading

Works across all markets (stocks, forex, commodities, crypto).

No dependency on lagging indicators.

Helps understand real market psychology.

Clean charts → better decision-making.

9. Limitations of Price Action

Subjective → two traders may draw different support/resistance.

Requires experience & screen time.

False signals in volatile markets.

Needs discipline to wait for confirmation.

10. Conclusion

Price action trading is a timeless and powerful method for understanding market movements. It doesn’t rely on fancy indicators but instead focuses on the raw truth: the price itself.

Whether you trade intraday, swing, or positional, mastering price action strategies—support/resistance, breakouts, pin bars, engulfing patterns, supply-demand zones—can give you an edge.

But remember: strategies alone don’t guarantee profits. Discipline, risk management, and patience are equally important. Price action is like learning a new language—the more you practice, the more fluent you become in reading the market’s story.