28 November 2022
Cryptocurrency Trading is gradually becoming a part of everyone's life. Whether it's just for passive income or as a legitimate business, it has garnered the attention of thousands. Due to digitalization, Crypto Trading is now just a matter of a few clicks, and every Crypto Enthusiast dreams of becoming a millionaire overnight. However, it is not as easy as it seems; digital asset Trading requires patience, deep knowledge of how to read Cryptocurrency charts and a full proof strategy to make wise decisions.
Given the extreme volatility, Trading without a strategy is like diving into the well of scams. Many Crypto blogs define strategies with which you can trade Bitcoin or, rather, any Altcoin. They all work differently, so you just need to find the one that works best for your goals. One strategy that works extremely well for intermediate and novice traders is the "Price Action Strategy". It provides a complete arsenal to analyze and trade the markets efficiently.
What is Price Action in Crypto Trading?
Price Action Trading is a technique that helps traders to read the market and make wise Trading decisions based on the recent price movements. It is dependent on technical analysis tools such as charts, trend lines, price bands, high and low swings, and technical levels. It also involves observing simple price bars, price bands, breakouts, trend lines, or complex combinations involving candlesticks, volatility, channels, etc. Additionally, Psychological and behavioural interpretations also make up an essential aspect of Price Action trades.
In simple words, Price Action Trading is a systematic Trading practice based on technical analysis tools and recent price movements, where traders are free to make decisions within a given scenario, as per their subjective, behavioural and psychological state.
Also read: 10 Trusted Crypto News Aggregator Websites
There are many different Price Action Trading Strategies available. But the best ones are as follows:
The Hammer is a candlestick formation that shows the strength of the market. It forms into this shape because the open, close, and high are close to each other, while the low is long, looking like a hammer handle. This formation predicts that the buyers are strong enough to bring the price from the bar's lows to the candle's upper side. It is recommended to consider this formation in uptrends, especially when the corrective movements are towards previous support. The best entry point is above the candle's high and the stop-loss order at the bottom of the candle.
This strategy is characterized by an upward or downward trend with a corresponding fall or rise in opening and closing prices. A smaller candle is next to it, with a price movement opposite the trend direction and a smaller gap in the opening and closing prices. Thus, it generally signifies trend changes.
3. Shooting Star:
It depicts the market's weakness as the sellers are strong enough to bring the price from the highs to the candle's lower side. This formation should be taken in downtrends, preferably in corrective action towards previous resistance. The ideal entry is below the candle's low and the stop-loss order at the top of the candle.
4. Inside Bar:
An inside bar represents the price equilibrium of the market. It is a two-candlestick price formation, where the entire price range of the second candle is contained within the price range of the first candle, dubbed— mother candle. These signals should be taken in the direction of the overall trend because it increases the opportunities for success.
5. Outside Bar:
It is a two-candlestick price formation that signals a price reversal. The outside bar pattern can be recognized when the second candle takes out the previous candle's high and low. These are powerful reversal trade signals as they represent a shift in momentum. Outside bars are more effective when predicting the break of the previous price structure.
6. Pin Bar:
The pin bar pattern is like a long wick on a candle. It shows a sharp reversal and rejection of a particular price, with the 'wick' or tail showing the rejected range of price. This formation signals that the price will continue to move in the opposite direction to the tail. Depending on this, traders can decide whether to take a long or short position in the market.
Also read: 5 Tips To Make Six-Figures In Cryptocurrency
7. Head and shoulders reversal trade:
It looks similar to the silhouette of a head and shoulders. In simple words, prices keep rising and falling until a modest drop is attained. It is one of the most popular Price Action Trading Strategies as it's relatively easy to choose an entry point ( right after the first shoulder) and to set a stop loss (after the second shoulder) to benefit from the temporary peak (the head).
8. Retracement entry:
It is a simple Price Action Strategy in which the trader simply follows the existing trend. If a price is on an evident downturn, with lower highs being consistently created, the trader might take a short position. If prices continuously rise, with the highs and lows trending increasingly higher, the trader might want to buy in.
9. Breakout Entry:
This trend is based on the assumption that after a price spike, a retracement will occur. Breakout is a condition when a market moves outside a defined support or resistance line; it's known as a breakout. Experienced Traders will take a long position if the asset is moving upwards or breaks above the resistance line. While a short position if it moves below the support line.
Also read: 9 Top Crypto Trading Bots
Who Uses Price Action Trading?
Since Price Action Trading is based on price predictions and speculation, it is used by active day traders like swing and trend traders. Additionally, Experienced traders will often work closely with Price Action because it allows them to predict breakouts and consolidation. In addition to this, experienced traders also consider factors like volume of Trading and changing sociopolitical climates that impact prediction accuracy.
- The signals produced by Price Action are usually easy to interpret, even if you do not have much Trading experience.
- The most significant advantage of Price Action Strategies is that traders have a pure price chart in front of them. Traders don't have to monitor multiple indicators. Multiple indicators often show contradictory outcomes.
- You have the freedom to select the most suitable entry and exit points for every Trading, depending on your interpretation.
Price Action is an excellent analysis to define the market situation. Many theories and strategies are available on Price Action Trading claiming high success rates. Still, traders should be aware of every move of the Crypto market that makes news and take decisions cautiously. Trading does not always give handsome profits. It is up to the trader to clearly understand, test, select, decide and act for the best possible profit opportunities.
Disclaimer: The author’s thoughts and comments are solely for educational reasons and informative purposes only. They do not represent financial, investment, or other advice.