A lack of consistency is a reality most traders often face with the ever-changing landscape of financial markets. Each time you win, it somehow gets erased and just builds a sense of an endless cycle of losses. And what will break this endless cycle of losses?
Only the master of price action trading that an elite prop trader boasts of. Four powerful setups in price action will allow you to understand the elements that will build up a more consistent performance in the trading world, giving you control over every trading action. By the end of this article, you will understand how to implement these strategies to capture high-probability trades and make adjustments as the market shifts.
Achieving consistent profits in trading can be quite challenging because of shifting market conditions. Traders get stuck when their usual strategies fail to adjust to such changes, causing missed opportunities and losses.
The changes allow for very flexible, adaptive price action trading. Because it involves only the movements and levels of prices, traders take advantage of the real-time opportunities by catching trades that will work with psychology in the markets without making heavy reliance on specific indicators or rigid systems.
This article presents four effective price action trading techniques used by top proprietary trading firms. Applying these strategies can help you improve consistency, adapt to market shifts, and build confidence in your trading decisions.
4 Powerful Price Action Trading Setups
1. The Open Drive (Up Through the Open)
This is actually a classic price action strategy where the initial burst of market activity right after the opening bell is utilized. This approach is ideal for traders who are looking to have quick trades with entry and exit points that can be well-defined.
Applying this strategy:
- Identify Key Levels: Look for an obvious area of resistance from either pre-market or previous price action. If price reaches this level not long after the open, you have a potential trade.
- Entry: Sell short when price breaks below the open price following a failure to stay above the pre-market resistance level.
- Stop Placement: Place your stop just above the high of the day or the pre-market resistance level.
- Take Profit: As price action falls, trail your stop to capture profits. Get out when price reaches another key support level or when you feel buying pressure.
This trade works best with open volume explosion that dwindles as the price falls. It is the in-and-out trade with quick volatility prop traders are attracted to when building their P&L.
2. Consolidation Breakout Continuation Trade
A continuation trade looks for the price to break down below the former support, which had turned into resistance. In a way, this strategy is very patience-dependent, with the best trading opportunities provided through confirmation.
Main Components of Consolidation Breakout setup include:
- Look for Breakout Support: Watch for the price action to break down below a strong supporting level, preferably the pre-market low. From there, once the price action is held below that level, you might get your short opportunity.
- Entry: When you see a clean move downward from the consolidation area, go short.
- Stop Placement: Place your stop above the consolidation area or a little bit above the resistance level.
- Take Profit: Target the next support as a profit point or trail your stop down to follow the trend.
This strategy works because it simply implements the principle of “support becomes resistance.” After the price breaks below a support, it tends to have trouble returning above, making for a nice profit play as the sellers drive the direction.
3. Hitchhiker Scalp (Short Continuation Trade)
The Hitchhiker Scalp is the most sensitive trade that catches short-term price imbalances. It is one of the best trades for a trader who has an eagle eye for quick entry and exit based on volume and the behavior of other market participants.
Steps to Execute Hitchhiker Scalp
- Identify the Major Resistance Area: Find a key area of resistance that price can’t break and stays above. Once it reaches the area, you will find sellers showing up.
- Entry: Get short once the selling force becomes stronger than the buyers when price action gets in the resistance zone. Confirmation will come through high volume spikes or a series of lower highs.
- Stop Placement: Place your stop above the last high or resistance.
- Take Profit: Look for the next support below, but be cautious, because this is a scalp trade—the sooner you get out, the better.
The Hitchhiker Scalp is great because it allows you to react quickly to any price action and pick up those small, high-probability trades without trying to catch the big moves.
4. Fashionably Late Pullback (Fade the Failure)
A very smart short strategy if a buying trend loses momentum; and even better if such market dynamics play in extremely erratic price action.
Now let’s see how the Fashionably Late Pullback works:
- Entry: Enter short when price falls back below VWAP or another significant moving average, indicating a shift in sentiment.
- Stop Placement: Place your stop just above the recent high or resistance level where buyers failed.
- Take Profit: Trail your stop as price continues to fall lower, locking in profits along the way as price hits the next significant support.
This strategy uses watching for a change in buying momentum and allows the price to come to you so that entry is taken at a favorable position. It is most suitable for a risk-averse trader who wants to capture a sentiment shift but does not like chasing price action.
Conclusion
These four patterns—Open Drive, Consolidation Breakout, Hitchhiker Scalp, and Fashionably Late Pullback—are part of the elite prop trader’s toolkit. It is how they trade off of market changes, noticing important levels, price movement, and volume without depending on overly complicated indicators, that is a mainstay.
Price action trading as an elite prop trader would require mastering these setups and knowing when to apply them in the conditions.
Focus on price action and adjusting based on changes in the market; identify high-probability trades; most importantly, consistency over time. Remember, the concept here is to let the trade come to you. Taking this approach can shift trading from reactive to proactive so that you can build in consistency and confidence in trades.