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Chart Patterns Forex Forex Education

How Important are Chart Patterns in Forex?

Chartist analysis in forex consists of identifying figures on the price chart, these are usually repeated historically so you can practice in their identification, also they are usually formed in different financial instruments and periods of time, and through them, it is possible to predict with some reliability where the next price movement will follow. It is perhaps the most classic form of analysis in Forex and surely one of the most effective, so your knowledge is always very advisable.

Chartist figures are formed because the market makes oscillations and leaves a “trail” which helps to detect these figures. There are chartist figures that allow confirming the changes of trend, to identify opportunities to enter the market as well as to set objectives in the prices. Chartist figures are more effective in operating in high temporality, although in short periods they usually appear more frequently, also the failures are very recurrent.

Price Pattern in Forex Technical Analysis

The analysis of price movements originated exactly when the price chart appeared. The first graphs were drawn on millimeter paper, and it was then that the first analysts noticed that there were some areas on the graph where the price made similar oscillations at different intervals of time. Traders called them price patterns because the first patterns looked similar to geometric objects, such as a triangle, a square, or a diamond. With the appearance of computer screens and the analysis of longer time periods, new patterns began to appear. Traders use chart patterns to identify trading signals, or signs of future price movements, to enter to trade at the right place.

Chart Patterns You Should Know

“Triangle”

There are several different types of triangles, however, all are based on the same principle. In classical technical analysis, the triangle is classified as a continuation pattern of the trend. This means that the trend that has been on the market before the formation of the triangle may continue after its formation is completed.

Technically, a triangle is a lateral channel of narrowing that usually emerges at the end of the trend. Basically, the triangle is resolved when the range of price fluctuation decreases to the limit, an impulse arises and the price penetrates one of the limits of the figure, moves away from the rupture. I suggest analyzing the break scenarios both upward and downward in the given example. Although the triangle is the continuation figure, it is no more than a probability, and therefore it is worth considering an alternative scenario.

When trading with a triangle pattern, it makes some sense to open a buying position when the price, having passed the resistance line of the pattern, has reached and exceeded the local highs, marked before the break of the resistance line (buy zone). Expected earnings must be set when the price passes a distance less than or equal to the amplitude of the first wave of the figure (profit zone buy). In this case, a stop loss can be placed at the local minimum level that preceded the breakpoint of the resistance line (stop zone buy).

A sales position can be opened when the price has penetrated the figure support line, reached, or pressed through the local minimum level that preceded the breakpoint of the support line (sell zone). Expected earnings should be set when the price has passed a distance less than or equal to the amplitude of the first wave of the figure (profit zone sell). A stop-loss, in this case, must be placed at the level of the local maximum that preceded the breakpoint of the support line (stop zone sell).

“Double Top”

This pattern is classified as the simplest, so the probability of its effective implementation is somewhat lower than that of other patterns. In classical technical analysis, the double vertex is classified as a trend change pattern. This means that the trend that has been on the market before the formation of the pattern may change after its formation is completed.

The figure represents two consecutive maxima, whose peaks are at approximately the same level. The pattern can be straight and inclined, in the latter case you should carefully examine the bases of the upper parts which should be parallel to the maxima.

In classical analysis, a double vertex works only if the trend is reversed and the price decreases, if the price reaches the third maximum, the formation becomes the triple vertex pattern.

A sales position can be opened when the price has penetrated the figure support line, reached, or pressed through the local minimum level that preceded the breakpoint of the support line (sell zone). Expected winnings must be set when the price has passed a distance less than or equal to the height of any vertex of the figure (profit zone).

“Head & Shoulders”

The figure represents three consecutive maxima, whose maxima are at different levels: central must be above the other two, and the first and third, in turn, must be about one height. However, there are some pattern modifications when the shoulders are at different levels. In this pattern, we must ensure that the central maximum is higher than both shoulders. Another key feature for identifying the pattern is a clear trend line, which precedes the pattern’s appearance.

The pattern can be straight and inclined, in the latter case, you should be careful to check if the bases of the upper parts are parallel to their maxima. The minimums between these maxima are connected by a trend line called the neck.

A selling position can be opened when the price has penetrated the neckline of the figure, reached, or pressed through the local minimum level that preceded the breakpoint of the neckline (sell zone). Expected earnings should be set when the price has passed a distance less than or equal to the height of the central vertex (head) of the figure (profit zone). A stop-loss, in this case, must be placed at the level of the local maximum that preceded the point of break of the neckline or at the level of the vertex of the second shoulder (stop zone).

“Wedge”

In classical technical analysis, the wedge is classified as a continuation pattern of the trend.

Technically, the wedge, like the triangle is a lateral channel constriction, but another difference between the wedge and the triangle is its size. The wedge is usually much larger than the triangle and sometimes takes months and sometimes years to form. Therefore, in classical wedge analysis, it is usually implemented in the opposite direction to the formation of the pattern itself, in other words, the trend changes. A purchase position can be opened when the price has penetrated the resistance line of the figure, reached, or pressed through the local maximum level that preceded the breakpoint of the resistance line (buy zone).

“Flag”

This price pattern is classified as the simplest, therefore its efficiency depends on numerous factors. In classical technical analysis, the flag is classified as a continuation pattern of the trend.

The pattern indicates a corrective retreat, following the strong directed movement that often looks like a channel, tilted against the prevailing trend. In classic technical analysis, the flag pattern works only if the trend continues its direction. A purchase position can be opened when the price has penetrated the resistance line of the figure, reached, or pressed through the local maximum level that preceded the breakpoint of the resistance line (buy zone). The angle formed between the predominant trend and the flag channel should not be greater than 90 degrees. The flagship channel itself should not revert in price more than half of the previous trend.

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Forex Price Action

How to Deal with Saturation of Sideway Market Movements

The market you are in is experiencing capital outflows, that is what is going on. Pull up your plan B. You noticed how the market has changed. It may not be trending as unusual and the opportunities have been scarce for a while. What do you do now? 

First, we need to acknowledge that the market never remains exactly the same. Sometimes the market will trend for a while after which we may see equally long (or longer) periods of consolidation. In fact, the market can be so devoid of any action that you may wonder if you are ever going to get a trade opportunity that is not a fake breakout.

From time to time, we will not be able to see any definitive upward or downward movement and the prices may not get to make your take profit targets, making traders insecure about the overall market direction.

So, how do you know that you are in a dead market?

Even though we can determine market volume with the help of ATR, ADX, and Bollinger Bands, among other tools, the $EVZ volatility index has proved to be extremely useful and easy to use. When you open the full chart, you will be able to see a number under the heading “Euro FX VIX.” 

If this number is lower than seven (7), for example, this means that volume and volatility are low. Also, the lower the $EVZ index is, the lower the chance of winning a trend following trade is as well.

If we need volume to trade effectively, how should we then approach long market dry spells?

There are a few ways to deal with unfavorable markets. First of all, dead markets are not the markets we want to trade, especially as beginners. However, we can still be productive! As a beginner trader, you are probably developing your system and trying to see if your tools are giving you valid information on the market.

If you are backtesting or forward testing your system, you should be getting a clear sign not to engage in trading at the moment. If you are still getting signals that it is ok to proceed, you need to change the volume/volatility indicator you are using.

Still, low volume/volatility is a normal part of market oscillations, as these constantly fluctuate. Even if you are getting a lot of losing trades, do not get discouraged. Your time will come.

You may be wondering if you can still trade despite sideways market movements, and the answer is…

…YES and NO.

You should not trade at this time because the price direction guesswork is extremely hard to get right and you can easily lose a lot of money. If you aren’t getting any signals, there is no reason for you to push it. Just stay put.

If you are, however, getting signals to enter a few trades please choose wisely! For example, forex traders may not want to trade pairs whose currencies are heavily monitored by big banking institutions. Any strange news event will also be a reason strong enough to avoid certain currency pairs altogether at this time.

Also, be careful with your money management!

We cannot scale out when the market is unresponsive. Therefore, we should in such cases take the entire trade-off at the first take-profit point. While we may be getting wins that are smaller than usual, we know that these are safer wins after all. It is far better to have minor wins than major losses. Even if the trade you exited seems to be heading somewhere, do not be regretful. Cut your take profit targets.

If the market happens to be extremely low in volume and volatility, you should also manage your risk differently!

We usually cannot have a standard 2% risk on trades encumbered by sideways market movement. Reduce your risk to 1%, for example, if you see that the $EVZ index is reaching incredible lows, like in 2019. 

What you can also do in times like these is use a smaller time frame to pick up your wins more easily. Again, dead markets do not necessitate that you forsake your daily time frame by default, but it can be a good opportunity for you to see if there are any changes between different time frames. 

This is a reminder not to forget the power of your mind!

If you are not prepared mentally or emotionally, your account will suffer no matter the conditions. If you start panicking the first moment you spot any sideways market movement, the likelihood of you making a good decision will start to decrease exponentially.

There is also a major prejudice concerning market volume and volatility. What we need is balance – in the market and in our approach to it. Therefore, if we enter trades with high volatility or volume, we are also adding unnecessary risk, which can be detrimental to our accounts.

Looking for an ideal trading scenario to start trading is as futile as is failing to recognize the potential of dead markets. When we are faced with the saturation of sideways market movements, we should perceive the market as our fertile land. It is those moments that give us perfect room for improving our systems. Reflect on your past trades and decisions, and see what you can do better. Focus your attention on your trading and test, test, test. If you find a strategy that is working well in these conditions, this is your plan B, switch to it.

Unfavorable market conditions affect us all. Do not think that experts are making a ton of money under any circumstances. You may have even had plans to leave your current job and turn to trading only, but now is not the time. Make no rash decisions, keep all of your sources of income active, and just wait for everything to go back to normal. Even when it does, you may still need a few months or years for everything to work out as you planned.

What happens when the market finally comes back to us?

Well, no matter how well-developed your system is, most volume indicators cannot record the first big move as quickly as it occurs. So, now that you know that it isn’t your fault, do not give in to any doubts or regrets and just move on. 

Finally, there is no way for you to “trick the system” and evade the sideway market movements. It is a perfect time to develop a strategy that can work in dead markets, it will stay with you when the markets are dead again. Do not go looking for a volume indicator that would tell you what you want to hear. Instead of feeling sorrowful about your fate, look where you have the power to initiate change. Trading is not about making wins only. Protecting your account and making smart money is far more important. 

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Chart Patterns Forex Daily Topic

Chart Patterns: Ascending Triangles

Of all the bullish continuation patterns that exist, few are as sought after as the ascending triangle. Like all triangle patterns, their development and construction are dependent on two trendlines that intersect and form an apex. The two primary identifying conditions of an ascending triangle I a flat, horizontal top and an upward sloping trendline.

Ascending Triangle
Ascending Triangle

In addition to the two trendlines, there is a specific kind of behavior that the candlesticks must perform. The upper trendline and the lower trendline must be touched at least twice. Ideally, and according to Bulkowski, there should not be much open space inside the triangle. The same volume behavior that occurs in other triangles occurs here in the ascending triangle: price often breaks out in the final 2/3rds of the triangle, and volume decreases before the breakout. The psychology behind the formation of the ascending triangle is essential to understand. The pattern represents an apparent battle between longs and shorts. Short traders are under the impression that because the resistance level has been tested and has held, it will remain stronger. Long traders are under the impression that prices will move higher because of the formation of higher lows and an upward sloping trendline. Ultimately, shorts cover very quickly, just before or immediately after the breakout of the upper resistance.

Bulkowski recorded that, in equity markets, the breakout direction of an ascending triangle is upwards 64% of the time. Dahlquist and Kirkpatrick recorded that upwards breakouts occur 77% of the time. Interestingly, the performance of this pattern is roughly average across all patterns – this is contrary to the belief of many traders who self-report a high positive expectancy of upwards breakouts. Dahlquist and Kirkpatrick did warn that there are many false breakouts and that failure rates are between 11% and 13%.

As with any pattern, it is essential to pay attention to price action first and then find tools to help you filter whether an entry at the breakout is appropriate. Additionally, be wary of throwbacks as they are frequent over 50% of the time – many conservative traders wait for a retest of the breakout to confirm a valid break from the ascending triangle.


Sources:

Kirkpatrick, C. D., & Dahlquist, J. R. (2016). Technical analysis: the complete resource for financial market technicians. Upper Saddle River: Financial Times/Prentice Hall.

Bulkowski, T. N. (2013). Visual guide to chart patterns. New York, NY: Bloomberg Press.

Bulkowski, T. N. (2008). Encyclopedia of candlestick charts. Hoboken, NJ: J. Wiley & Sons.

Bulkowski, T. N. (2002). Trading classic chart patterns. New York: Wiley.

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Forex Elliott Wave Forex Market Analysis Forex Price Action Forex Technical Analysis

Is EURGBP Ready for a Fresh Rally?

In our latest EURGBP technical analysis, we commented on the cross moving in an incomplete sideways corrective formation of Minor degree, identified in green. Its internal structure suggested the completion of a double-three pattern of Minute degree.

Also, we saw the pierce and bounce of the September 03rd low at 0.8658, when EURGBP dropped to 0.88610, found fresh buyers there, and created an intraday impulsive move identified as the first wave of Minute degree, labeled in black.

As the next 4-hour chart shows, once the EURGBP cross completed its first wave, in black that belongs to wave C, in green, it reacted mostly bearish, developing a correction, extending the move below our forecasted area, and testing the lows of the previous bullish impulsive move.

The breakout of the short-term descending trendline confirmed the end of wave ((ii)) of Minute degree and the beginning of the third wave of the same degree, which remains in progress.

Likewise, in the last chart, we distinguish the advance of the third wave of Minuette degree identified in blue in its internal structure.

Short-term Technical Outlook

The short-term Elliott Wave view of the EURGBP cross, unveiled in the below 4-hour chart, reveals the breakout of the descending trendline that follows the wave ((ii)) identified in black, which suggests the beginning of a new rally.

Once the price found fresh buyers at 0.88998, the cross began to advance mostly bullish in an impulsive sequence of Minuette degree, identified in blue, that remains in progress. This upward move corresponds to the internal structural series of wave ((iii)) of Minute degree that belongs to wave C of Minor degree, in green.

Furthermore, considering the reduced period it took for the first stage of wave (iii) to complete, It is plausible that the third wave in progress will be the extended wave, as the Elliott Wave theory states that only one extended wave would occur in an impulsive structure. 

In this context, the current upward move could advance to the next supply zone between 0.90446 until 0.90686. But, if the cross maintains its bullish momentum, it could strike the next potential target zone between 0.91260 and 0.91464.

Finally, the current bullish scenario’s invalidation level is 0.88610, which corresponds to the origin of the wave C in green.

 

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Forex Daily Topic Forex Price Action

How to Professionally Deal with Fake Breakouts!

In today’s lesson, we are going to demonstrate an example of an H4 breakout at the weekly low. The price consolidates after the breakout and produces a bearish reversal candle right at the breakout level. It is a matter of time for the sellers to go short and drives the price towards the South. Let us find out what actually happens.

The chart shows that the price makes a good bearish move. It finds its support where the pair is traded for a while. The pair closes its week by producing a bearish candle. By looking at the chart, it looks that the sellers are going to keep their eyes on the chart next week.

The pair produces a bullish engulfing candle to start its trading week. The buyers on the minor charts may push the price towards the North. However, the H4 chart is still bearish biased.

The chart shows that the price may have found its resistance. The price has been in consolidation for a while. The last candle comes out as a bearish engulfing candle. The price may make its move towards the South now.

The chart produces consecutive bearish candles and makes a breakout at the last week’s low. The pair is traded below the breakout level for two more candles as well. The sellers are to wait for the price to consolidate and produce a bearish reversal candle followed by a breakout at the consolidation support to go short in the pair.

The chart produces a bullish engulfing candle closing within the breakout level. The next candle comes out as a bearish inside bar. The sellers would love to get a bearish engulfing candle closing below the bullish candle’s low. However, a breakout at the consolidation support would signal the sellers to go short in the pair. By drawing Fibonacci levels on the chart with Fibonacci extension, we see that the price finds its support at the level of 38.2% and finds its resistance at the level of 23.6%. In a word, the stage is getting ready for the Bear to make a move.

The chart produces a bullish candle. It is not a good sign, but the sellers still have hope. If the chart produces a bearish reversal candle again followed by a breakout at the level of 38.2%, the game is on for the sellers.

Now, the chart produces another bullish candle and heads towards the North. The sellers must be very disappointed since it seemed such a nice trade setup for them. The reality is it often happens to all traders. No point in being disappointed, but it must be dealt with professionalism.

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Chart Patterns

Pullbacks – How Prop Traders Manage Discounts

Pullbacks we will talk about are described as a correction candle (or bar) after a bigger, sudden price movement candle (period) on any asset chart. When you apply a technical trading system and all signals it is time to trade after a pullback, traders enter at a more favorable price. This is a great way to get more pips out of a trend although if you love this discount too much, you can easily become a discount hunter. In forex, this habit will only cut down your account. Professional traders play a very careful game with pullbacks, they are hard to gauge, and once they happen the odds are not as great as without them. The trend may not continue with the same momentum. We will address how proprietary traders manage pullbacks using their technical system and their ruleset. This example can be taken as is, although there are many ways to manage the risk of pullbacks and their psychological effect. 

Discount shoppers should not apply the same principles in forex. Entering at a better price is what we should aim for, there is a time and place for this but it does not happen often in forex. If we wait for a pullback every time, the benefits of pullbacks become a losing waiting game. Our example in this article will use technical system elements explored in previous articles to pinpoint the time and place a pullback can be used for a better price entry. With a rule addition once they happen. The element in question is the Baseline and the volatility measurements. We will also address why professional prop traders avoid them in all other circumstances. Most of the time pullbacks will not be inline with the rule set and the technical system signals, but on some occasions, they will add up and in the long term will have significance to your account. 

The pullback hunting concept is not easy to grasp for a beginner, especially if not yet accustomed to custom indicators, technical systems, and the base Moving Average element. In case you do not understand how to use pullbacks using our example, you can completely disregard this concept and move on with other strategies. Pullbacks setups do not happen often and they do not always end with benefits. Some traders will not enter a trade unless they get a pullback. This also means they miss out on 99% of other trends worth taking. But let’s see how a pullback is used in our trading system. 

Big candles happen on any currency pairs, and we are not talking about the flash crash candles like the one after the Swissy peg removal. Big candles that are unusual can be measured as the ones that break the 1.5 ATR (14) value. These candles are caused by several phenomena in the forex. Most of them are after News events, such as Non-farm payroll, GDP, rates, elections, and so on. Also, these can happen in low liquidity periods, be it brokerage, liquidity providers, or other market drivers. Stop-loss hunting by the big banks is something that happens in between these, and are more common on popular trading currency pairs. Stop-Loss hunting is deliberate price manipulation by the big banks with huge volume to trigger visible clusters around specific price levels set by traders.

This is not a conspiracy theory but a fact we can even read about in the newspapers once the fines are announced to familiar bank names. Stop hunting is not the only manipulation but this is part of forex and it is not always a bad thing. These candles are mostly in counter-trend direction and overshoot a few before it. If these movements are not caused by news, it is mostly bank dumps or a combination of both. Trends can also move like this when there is a huge trading pressure or volume but it is not that often to see it without any catalyst before. The news and big bank manipulation moves are exaggerated, and when the price is deviating so much what usually follows is a correction or a completely new trend in opposite direction – reversal. This is a point where we can take advantage of a pullback, but using elements and rules to increase our odds. 

The rules a pullback can be utilized are applied only when the price cross-closes our baseline element. This is a signal we have a good trend to enter when all other indicators agree on this. Now, we will use the ATR(14) last pip value on our target, daily chart, and see if the current candle which is about to close in a few minutes is past this ATR pip value, measured from our baseline. In MT4/5 this is quickly measured by clicking the middle mouse button or ctrl+f and dragging from the top/bottom of the candle to the baseline. The rule for pullbacks is that only trade the pullback if in the price level is back into the ATR value range from the baseline. If we do this step by step it would be like this: 

  • We use the daily chart for our trading. 
  • The candle or trading day is a few minutes before closing.
  • The price has crossed our baseline.
  • Pull up the ATR (14) indicator and see what the current pip value does it sit. 
  • Measure the range from the current price level of the candle to the baseline.
  • See if the pip range measured is higher than the ATR pip value.
  • If it is, wait for tomorrow to see if we have a pullback candle at the end of the day.
  • We measure the pullback candle current price level range from the baseline a few minutes before the day close.
  • If the measured pip range is below the current ATR pip value we enter the trade. 
  • Our system gives a trade entry signal and other rules allow for it. 

This procedure may look complicated but it is easy after a few times. Some tools which can be downloaded for free from the MQL5 market can draw the ATR range channel on the chart making it easy to see if the pullback has qualified for entry, no need to measure the distance. 

Now we will give a few pullback examples using MT4 included indicators. In the picture below we have the EURUSD pair on the daily timeframe, 20 period SMA as our baseline example, Chaikin Money Flow indicator as our trend confirmation indicator, and the ATR on the default settings (14 periods). 

Notice the big candle in the middle of the picture that close-crossed our 20 SMA baseline colored yellow. Below, our confirmation indicator signals the long trade as it is above the horizontal zero line. The ATR below the Chaikin Money Flow gives us a value of 1005 points (100 pips) when we hover over the line (take the decimal number as a whole). 

When we measure the price level distance from our baseline, we get 101 pips – bigger than our ATR value so we do not take this trade (see picture below). 

If you want to be precise, you can hove over the candle and the baseline to see the values and calculate the pip distance, although when you trade real time this precision is not important unless it is hard to tell. The next candle pulled back. Our confirmation indicator is still signaling the long trade, the closing price level is now inside the ATR range from the baseline – 33 pips.

So now we are entering this trade at a discount, 68 pips better price entry does matter plus we have a better risk as our Take Profit point is lower. Pullback situations like this are not common, but you should be ready once they do. Remember that the one candle rule is applied here. If the next candle is not in the ATR-Baseline zone you do not take that trade. We do not count later candles and qualify them as pullbacks, only the first after a big candle. Interestingly, this one candle rule is applied to some lagging indicators to give them a chance to catch up with the rest of the system, however, this is just one example of a trading system used by a prop trader. The picture below shows price action we do not qualify as a pullback, the second candle after the exaggerated one is not a correction while the third is not accountable. 

On some occasions, your confirmation indicators may be lagging so you do not catch a baseline crossing candle or the one after. If this happens and the price is already past the ATR range from the baseline, you pass on that trade. There is no waiting for any kind of a pullback. The baseline element cannot play its role if you take trades too far from it. The baseline is there to show the “balance” point to which the price comes back to after deviations. Entering a trade in the middle of the deviation decreases the odds it will continue to move away. The baseline element is also a protective function from losses. Of course, you can try other ATR settings or levels for this rule if it proves to be more effective in the testing. 

The ATR range rule is applied to normal trading signals too in our system example. Any deviation which is too far away once the baseline is crossed does not qualify for an entry. There is one exception though – when you encounter continuation trades. More on these situations is presented in another article. 

Pullbacks can work well, so well it can make you skip the rules you have set. The hype of success can lead you to seek pullbacks wherever you can, adjusting the system to only catch them as much as it can. This change will lead you into a losing spiral not only to your account but to your morale too. It is easy to get into the pullback hype and much harder to get out of it. There are no indicators that predict pullbacks and even less the ones that predict trends after it. You may rely on your hunches whenever you see a big candle, and this is a dangerous practice for your account. When your ATR is just one pip lower to qualify a pullback, there is no tolerance, you pass on that trade.

The rule discipline will get you out of the losing trades and, more importantly, you will not wait for pullbacks and miss out on winner trends just because the price kept going. These winners are what make a difference to your account after everything, missing them out is not an option. The choice between five 300 pip winners per year and one 350 pip winner with a pullback entry is very easy to make, but the hype of getting a discount cloud our judgment. Discount shopper patience does not apply to forex when it comes to pullbacks. Waiting for a high-percentage trade is not similar. Here, you are missing out on a signal from your system and your rulebook just because you want a better price to enter after a pullback. Do not mix this with high-percentage trading which is actually what you should do all the time. 

As you may have noticed, this example is based on measurements, indicators, and strict rules in conjunction with them. It is a technical system that may not be an appropriate way of trading for everyone. Some traders trade without any indicators, or as they might describe – secondary technical indicators. The primary indicator for them is Price Action. What they see on the chart is the base for their decision making. Identifying pullbacks is not exact practice, they might wait for a pullback every time with pending orders or wait for a Price Action pattern to unfold before making an entry. However, these skills are unique to them and cannot be replicated in any technical system. On the other side, by having something you can measure, you have an easy-going decision-making system ready for anyone who can just follow their signals to be successful.

Categories
Forex Price Action

Weekly High/Low Breakout Trading: Importance of Candles’ Body before Making a Breakout

In today’s lesson, we are going to demonstrate an example of an H4 chart that seems promising to make a breakout at the last week’s low. It produces a strong bearish candle as well at last, but the price does not head towards the South. We try to find out the possible reason behind that.

It is an H4 chart. The chart shows that the price heads towards the South with good bearish momentum. The price bounces twice at a level of support. The pair closes its trading week by producing a bearish candle.

The pair starts its next week by producing a bullish engulfing candle. It means the breakout length gets bigger, which attracts the sellers more. The sellers are to wait for the price to make a bearish reversal candle followed by a breakout at the weekly low.

The price finds its resistance and produces two consecutive bearish candles. The sellers are to keep their eyes on the chart closely. It seems that the Bear is going to make a breakout soon. Let us proceed to the next chart to see what happens next.

The chart continues to produce bearish candles. However, it has not made a breakout at the weekly low yet. The last candle comes out as a spinning top closing within the weekly low.

The chart produces a spinning top followed by a bullish engulfing candle. The price then consolidates within the last week’s low and a new resistance. The last candle comes out as a bearish engulfing candle closing just below the weekly low. The question is whether it should be considered as a breakout. It is a breakout, but the H4 traders should skip taking entry on this chart based on a weekly high/low breakout. The reason behind that is the chart takes too long to make the breakout. Once the price starts trending, it must make a breakout without producing any reversal candle. It means if the chart produced the last candle right after the first spinning top; it would be a hunting ground for the sellers. Since it produces four bullish reversal candles before making the breakout, the chart does not belong to the H4 traders based on the weekly low anymore. We must not forget that it must consolidate after a breakout, though. It means it must produce bullish reversal candle/candles in case of a bearish breakout, but it must make a breakout only by producing bearish candles and vice versa.

Categories
Forex Price Action

Disobeying the Breakout

In today’s lesson, we will demonstrate an example of a chart that makes a breakout, consolidates, and produces a reversal candle. However, it does not make a breakout at consolidation support. Thus, it does not offer an entry. Nevertheless, it makes a move towards the breakout direction later. We try to find out whether breakout traders find an entry from that move or not.

The chart shows that the price makes a long bearish move. It finds its support where it bounces twice. The chart ends its trading week by producing a Doji candle. The next week should be interesting.

The chart produces a bullish engulfing candle. The buyers may wait for the price to make a breakout at the last swing high. On the other hand, the sellers are to wait for the price to make a breakout at the last week’s low.

The chart produces a spinning top, and the price heads towards the South. It makes a breakout at the last week’s low. Thus, the sellers may keep an eye on this chart for the price to consolidate and produces a bearish reversal candle to offer them a short entry.

It produces a bullish engulfing candle. It is a strong bullish candle. However, the breakout level is still intact. If the level produces a bearish reversal candle followed by a breakout at consolidation support, the Bear may keep dominating in the pair.

The chart produces a Doji candle followed by a spinning top right at the breakout level. The sellers may go short below consolidation support. It looks it is a matter of time for the Bear to make a long move towards the South.

The chart produces a bullish candle breaching the breakout level. It spoils the sellers’ party. The weekly low is disobeyed by the H4 chart. Thus, the H4 sellers may skip taking entry on this chart. The chart becomes no hunting zone for both the buyers and the sellers as far as the H4 chart is concerned. Let us proceed and find out what happens next.

The price makes a bearish move. The pair is trading below the last week’s low. Look at the momentum. The price has been rather sluggish to head towards the South. It is because the pair is traded on other minor charts. As mentioned, if the price disobeys breakout on a chart, it is better not to trade based on that chart. The price may go either way, which makes things difficult for the traders to trade.

Categories
Forex Daily Topic Forex Price Action

Fibonacci Extension: How It Helps Traders

In today’s lesson, we will demonstrate an example of an H4 chart that makes a breakout heading towards the North. However, the chart does not offer entry. We try to find out the reason behind it.

It is an H4 chart. The chart shows that the price makes a good bullish move. Thus, the weekly candle ends up being a bullish candle. Let us proceed to the next chart to see how the price starts next week.

The first candle comes out as a bearish engulfing candle. However, the support level where the price had a bounce and headed towards the North is intact. The buyers may eye on the chart for the price to have a bounce and make a bullish breakout at the weekly high.

The chart produces a bullish inside bar. The candle is produced right at the level of support. It is not a strong bullish reversal candle, but things look good for the buyers.

The chart produces three more bullish candles breaching the level of resistance. The buyers are to wait for the price to consolidate and produce a bullish reversal candle to offer them a long entry.

The price keeps heading towards the North without having consolidation. In naked eyes, it seems that the price has traveled a long way. If it consolidates now, should the buyers go long?

The chart produces a bearish candle. It means the price may consolidate now. The breakout level is far away. If the price makes a bearish correction up to the breakout level, it will come out as a long bearish wave. This often changes the trend or makes the price get choppy, at least. Let us draw a Fibonacci Extension and explain it with the Fibonacci levels.

We know when the price makes a breakout; Fibonacci Extension can be used to determine the wave’s length. The breakout length is measured at 23.6%. The best level for the price to consolidate within 23.6% to 38.2% or 38.2% to 50.0%. Over here, the price consolidates within 61.8% to 78.6%. It means the price does not have much space to travel. Thus, the buyers may skip taking entry on this chart as far as the risk-reward ratio is concerned. The price may go up to the level of 100.0%, but it often ends up being choppy or makes a reversal in such cases. This is when Fibonacci Extension comes out as a handy tool with what traders can determine the trend’s potential length and calculate whether they should take an entry or not.

Categories
Forex Daily Topic Forex Price Action

Price Action Trading: Reasons to Skip Entries on Charts with Price Gap

Forex charts often have price gaps. It usually occurs in minor time frames. However, it sometimes occurs in time frames such as the H1, H4, daily chart as well. Since price movement is the key factor determining its next move for the price action traders, thus price gap creates confusion in price action trading. Thus, it is best to skip taking entries on charts with a price gap. Let us demonstrate an example and find out the reason behind it.

It is an H4 chart. The chart shows that the price produces a bullish engulfing candle right at a support level, where the price has several bounces. Thus, the H4-H1 combination traders may flip over to the H1 chart to go long in the pair.

The H1 chart shows that the price heads towards the North with good bullish momentum. The buyers are to wait for the price to consolidate and produce a bullish reversal candle to offer a long entry.

The chart produces a bearish engulfing candle. It is a strong bearish candle. However, the buyers may wait for the price to be held at a key level and produce a bullish reversal candle. Let us proceed to find out what happens next.

The chart produces a bullish reversal candle. It is an inverted hammer. Moreover, it is produced with a bullish price gap. Technically, the H4-H1 chart combination traders may trigger a long entry above the level of resistance. Here is an equation that must be considered if they are to determine risk-reward by using Fibonacci retracement. We find this out soon. Let us see how the price reacts now.

What a good bullish move it is! The price heads towards the North with very good momentum. The last candle comes out as a bearish candle. It suggests that the price may make a bearish correction. Let us now draw Fibonacci levels and explain the chart with some Fibonacci numbers.

Categories
Forex Daily Topic Forex Price Action

Importance of Choosing the Right Chart

In today’s lesson, we will demonstrate an example of a chart that makes a breakout at the weekly low, consolidates, and produces an excellent bearish engulfing candle. It looks like a good short entry for the sellers. However, things do not go as the sellers would love to see. We try to find out what may be the reason behind it.

It is the H4 chart. The chart shows that the price action has been choppy for the last three weeks. The price has been roaming around within two horizontal levels. Ideally, the price action traders would love to skip eying on such a chart to trade at. Let us proceed and see the H4 chart of the last week.

The chart shows that the price makes a bullish move to start its trading week. Then, it makes a bearish move and closes around the level where it started its week. It seems that the minor time frame sellers are driving the price down.

The chart produces a bullish engulfing candle right at the last week’s swing low. The minor time frame traders may push the price towards the North. The H4 sellers, on the other hand, may wait for the price to make a breakout at the swing low to go short on the chart. This is what the breakout traders usually do. However, the question is whether they should do it on this chart or not? We find it out in a minute.

It seems that the Bear is about to make a breakout at the last week’s low. The last candle comes out as a bearish engulfing candle closing right at the level of support.

The price makes a breakout at the weekly low. The last candle comes out as a bearish candle closing well below the level of support. The breakout traders are to wait for the price to consolidate.

The price consolidates. The last candle comes out as a bearish inside bar. If the price makes a breakout at the last swing low, the breakout traders usually trigger a short entry. Let us proceed and see what the price does.

The chart produces a bearish engulfing candle. It is an A+ signal candle as far as the breakout trading strategy is concerned. The sellers may want to trigger a short entry right after the last candle closes.

The chart produces a bullish engulfing candle and heads towards the North instead. The Forex market is unpredictable. The price could go either way anytime. However, it looks strange after the chart producing such a nice signal candle. There is nothing wrong with the entry apart from the fact that the chart has been choppy for the last three weeks. It means either the pair is waiting for a high impact news event to find its new direction or traded based on a bigger time frame. In a word, the price action traders may skip eying on such a chart to trade at. For them, choosing the right chart plays a vital role. Today’s example proves it again.

Categories
Forex Daily Topic Forex Price Action

Determinin Risk/Reward using Fibonacci Levels

In today’s lesson, we are going to demonstrate an example of a daily-H4 chart combination trading. We also find out how the price reacts to Fibonacci retracement levels and how Fibonacci levels may help us determine risk-reward. Let us start with the daily chart.

This is the daily chart. The chart shows that the price heads towards the North with good bearish momentum and crosses a long way. The last candle comes out as a spinning top with a bullish body. It is a bullish reversal candle, but not a strong one. Let us flip over to the H4 chart and see how it looks.

The chart shows that it produces a morning star. It is a strong bullish reversal pattern. The last candle comes out as a bullish inside bar. The buyers may wait for the price to find its support and produce a bullish reversal candle to go long on the chart.

The price heads towards the South to have a bearish correction. The last candle comes out as a Doji candle. It seems that the price may have found its support. It may not take long to produce a bullish reversal candle.

As expected, the chart produces a bullish engulfing candle closing well above the last swing low. Traders love to have a signal candle like this to trigger an entry. It usually attracts more traders to trade and brings more liquidity. However, here is an equation that we must remember. When the price makes a correction, it is good for the traders to have an engulfing candle as a signal candle closing within the last swing low. It offers the price to travel more space towards the trend. However, when the price consolidates, it must make a breakout at the last support/resistance, though. Let us find out how the price moves after that bullish engulfing candle.

The price heads towards the North with a sluggish pace. Moreover, the price gets caught within two horizontal levels for several candles. It seems that the price is struggling to go towards the North further. Let us draw Fibonacci levels and try to find out the reason behind it.

The chart produces the signal candle at the 61.8% level, which is fantastic. Usually, the price goes towards the level of 161.8% if it trends from the 61.8% level. Over here, the candle closes at 123.6% level, which means the price does not have enough space travel. This is why the price moves towards the North sluggishly. Fibonacci levels help us determine where to set stop loss and take profit. It also helps us determine the risk-reward, which we must not forget.

Categories
Forex Price Action

Do Not Be Biased, Take Decisions According to the Chart

In today’s lesson, we are going to demonstrate an example of a chart that makes a good bullish move but ends up having a rejection at a double top resistance. The price then shows the potential to make a bullish breakout. However, it has another rejection around the last week’s high and makes a bearish breakout. It looks good for the sellers at the time. We find out what happens afterward.

This is the H4 chart. The price makes a long bullish move. It ranges for a while and then continues its bullish journey again. Look at the last candle on the chart. It comes out as a bearish inside bar. Do not miss the point that the candle is produced right at the resistance, where the price has had a rejection.

The chart produces a bullish candle to start the next week. It then ranges for a while and produces two bullish candles. It seems that the price may head towards the North and makes a bullish breakout at the last weekly high.

It does not. It rather finds its resistance around the same level. Moreover, it produces a bearish engulfing candle. To be more precise, the chart produces an evening star. It is a strong bearish reversal candle. Let us wait and see what the price does next.

The chart produces a long bearish candle breaching the last swing low. The breakout is significant since the price trends from the last weekly low. The sellers may keep their eyes in the pair to go short. Before going short on this chart, the sellers shall wait for the price to make a bullish retracement since the price is within the last weekly range. Keep that in mind that the price is to make a bullish correction to offer a short entry.

The price does not make a bullish correction. It rather consolidates and produces a bearish reversal candle. Since the price is within the last weekly range, so it is not a short signal.

Here it goes. The price gets choppy. This chart becomes a risky chart to trade. Thus, traders might as well skip eyeing on the chart to trade at. At first, it looks good for the buyers. Then, it shows potential for the Bear to dominate since the price has several rejections at the same level. However, it ends up being an extremely choppy chart.  Thus, do not be biased with your initial assumption. Wait for the breakout, confirmation, and then trade.

Categories
Forex Price Action

Some Moves do not Belong to the Chart that You Follow

In today’s lesson, we will demonstrate an example of a chart that makes a breakout at the last weekly low. The price then goes back within the last weekly range and makes an interesting move. We will find out what that interesting move is all about in a minute. Let us get started.

It is the H4 chart. The chart shows that the price makes a bearish move. It finds its support and trades around it for a while. The last candle of the week comes out as a Doji candle. The sellers may keep their eyes on the chart to get a bearish breakout and find short opportunities.

The first candle of the week comes out as a bearish candle. The price heads towards the level of support, and it produces a hammer. The price may roam around the level of support before making its next move. Let us proceed to find out what happens next.

The chart produces two bearish candles. One of the candles closes well below the level of support. The sellers may keep the chart on their watch list closely. They may wait for the price to consolidate and produce a bearish reversal candle to go short in the pair.

The chart produces four candles with a bullish body. The last candle comes out as a commanding bullish candle closing above the breakout level. If the chart still produces a bearish engulfing candle closing below the last swing low, the sellers may still go short in the pair. However, it does not look that good for the sellers.

As expected, the price heads towards the North further. One of the candles closes above the weekly opening as well. It means the H4 sellers may skip eyeing on the chart to go short. The chart does not belong to the H4 sellers anymore. The buyers may go long on the pair upon bearish retracement followed by a bullish reversal candle at the key level of support though. That is another ball game. Let us find out what the price does afterward.

What a strong bearish move that is! The price does not produce a bullish reversal candle. It makes a strong bearish move and makes a new swing low instead. However, the H4 sellers upon weekly high/low breakout may not be able to catch the move. The move belongs to other chart traders. Most probably, the sellers on the daily chart can catch such a move.

We often find such a move that may not offer entry on the chart that we follow. Do not get disappointed. Stick to your chart and trading strategies. Something must be round the corner for you.

Categories
Forex Daily Topic Forex Price Action

Trading Within Last Weekly Range

In today’s lesson, we will demonstrate an example of a chart where the price is having a retracement within the last weekly range. The price produces a double bottom and makes a breakout at the neckline. It then consolidates but does not head towards the North as it normally does when it makes a breakout at weekly high/low. Let us proceed and find out the possible reason behind it.

The price makes a long bearish move and finds its support. Upon producing a bullish engulfing candle, it heads towards the North and comes back again. At the support zone, it produces a bullish inside bar. Let us see what happens next.

The price heads towards the North next week. It means it is trading within the last week’s range. The price is at the last swing high. If it makes a bullish breakout, the buyers may want to go long at its weakness.

The chart produces two bearish candles followed by a bullish engulfing candle closing within the last swing high. It seems that the price may consolidate more to find its way.

The price upon producing a spinning top followed by a bullish engulfing candle makes a bullish breakout at the last swing high. It is a neckline breakout of a double bottom. The buyers may keep their eyes on the chart to go long on its weakness.

The price produces a bearish inside bar followed by a spinning top with a bullish body. Then, it produces a bullish candle closing above consolidation resistance. Since it is a breakout at the resistance, it is supposed to be a buy signal. The question is whether the buyers should trigger a long entry or not. Let us see the next chart.

The price gets choppy, struggling to make a breakout towards the North. The buyers would not love to see such price action after triggering the entry. If the price makes a breakout at the last week high/low, traders wait for the price to consolidate and produce a bullish/bearish reversal candle to take entry upon a breakout. On the other hand, if the price trades within last week’s range, the price usually makes retracement (instead of consolidation) to offer entry. The Fibonacci level, such as the 38.2% and 61.8%, play a significant role in producing the reversal candle. In today’s chart, the price is in the weekly range. Thus, traders are to wait for the price to make a retracement to offer them entry. It rather consolidates, which ends up making the price choppy.

Categories
Forex Daily Topic Forex Price Action

Weekly High/Low Breakout Trading: The Chart You May Want to Avoid

In today’s lesson, we are going to demonstrate an example of a breakout at a weekly high. The price consolidates afterward but fails to make a breakout at consolidation resistance. Thus, the price does not head towards the North. Let us find out how that happens and what lesson it holds for us.

It is an H4 chart. The chart shows that the price makes a strong bearish move to start its trading week. Then, it gets choppy for the rest of the week. The chart closes its week, producing a bullish engulfing candle. Let us proceed to see how the next week goes.

The chart produces a bullish candle to start its trading week. However, it produces three consecutive bullish candles and makes a breakout at the last weekly high. The buyers are to wait for the price to consolidate and produce a bullish reversal candle closing above consolidation resistance to go long in the pair.

The chart produces two bearish candles closing within the breakout level. A bullish reversal candle closing above consolidation resistance is the signal for the buyers to trigger entry. They must keep their eyes on this chart.

The chart produces a bullish inside bar. It is a bullish reversal candle but not a very strong one. Since it closes within consolidation resistance, the buyers are to wait longer for the chart to produce a bullish candle closing above consolidation resistance.

The chart produces two more bullish candles. However, it has not made a breakout yet. It has been taking too long to produce the signal candle. Let us wait and see what it produces afterwards.

It produces a bearish inside bar at the consolidation resistance. It does not look good for the buyers. The price has a rejection at the level, and it produces a bearish inside bar. It means it is a double top resistance. A breakout at the last swing low may change the equation and attract the sellers instead. Let us proceed and see what happens next.

The price does not make a breakout at the last swing low, either. It produces a doji candle followed by a bullish engulfing candle at the last swing low. It means the chart keeps traders waiting for the next breakout. The bull holds the edge but weekly high/low breakout traders do not love to see such price action after a breakout. It is best to avoid taking entry on a chart like this.

 

Categories
Forex Daily Topic Forex Price Action

Weekly High/Low Breakout Trading: Count the Breakout Candle’s Attributes

In today’s lesson, we are going to demonstrate an example of an H4 breakout at the last week’s high. However, the price does not head towards the North as it usually does. Let’s find out why that happens.

The chart shows that the price after making a strong bearish move gets choppy. The H4 traders may wait for the price to make a breakout at either side. A bullish breakout may attract the buyers to go long in the pair. On the other hand, the sellers may wait for the price to make a bearish breakout.

The price produces a bearish candle to start the next week. The price finds its support, and it heads towards the North. However, the last weekly high is still intact. The buyers must wait for the breakout at the level to go long.

The price finds its intraweek resistance. It comes down. Intraweek support holds the price and produces a bullish inside bar. It is not a strong bullish reversal candle. However, it is produced at double bottom support. Let us wait and see whether it makes a breakout at the neckline or not.

The price heads towards the North and makes a breakout at the neckline. The candle closes within the last week’s high and consolidates. It then produces a bullish candle closing above the last week’s high. However, the candle has a long upper shadow. Considering its upper shadow, traders do not usually get attracted to trade upon such a breakout candle.

As anticipated, the chart produces some bullish candles with long upper shadow after the breakout. The price heads towards the North with a sluggish pace. It then produces a bearish Pin Bar and drives the price towards the breakout level again. A bullish reversal candle closing above consolidation resistance may attract the buyers to go long in the chart again. Let us find out what happens next.

The chart produces a long bearish candle with long lower shadow. The pair is trading within the last week’s range again. The H4 buyers have lost their hope. They may skip eying on the chart to concentrate on somewhere else.

If we look back, a double bottom, along with a breakout at the last week’s high, do not push the price towards the North. Most probably, this is because of the breakout candle’s attributes. We may still keep an eye on such a chart, but it would be wise to concentrate more on those charts, which makes a breakout with a commanding candle.

 

Categories
Forex Daily Topic Forex Price Action

Breakout at Weekly High/Low, Wait for Consolidation

In today’s lesson, we are going to demonstrate an example of an H4 breakout at the weekly low. The chart produces a strong bearish candle to make the breakout. The Bear looks good to make a strong move towards the South. However, the price does not head towards the downside. It rather gets choppy. Let us find out the reason behind it.

It is an H4 chart. The chart shows that the price makes a strong bearish move. It has a bounce at a level of support twice. If the price makes a breakout at the neckline, the buyers may look to go long in the pair upon bearish correction. On the other hand, the sellers may wait for the price to make a breakout at the week’s low to go short upon consolidation and getting a bearish reversal candle.

The chart produces a strong bearish candle breaching through the last week’s low. The breakout length is good as well. It means that the sellers may wait for the price to consolidate and to get a bearish reversal candle to go short in the pair. It seems that the sellers may dominate in the pair in this week as well.

The chart produces another bearish candle followed by a bullish engulfing candle. Producing a bullish engulfing candle to consolidate is not a good sign for the sellers. However, if the next candle comes out as a bearish engulfing candle closing below consolidation support, the sellers will be right on the track.

The chart does not produce a bearish engulfing candle. It rather produces another bullish candle. It seems that the price is having a bullish correction. When the H4 chart makes a breakout at the weekly low/high, the price is supposed to consolidate and produce a reversal candle to offer entry. If it makes a long bullish/bearish correction, it is assumed that the traders are not confident to take the price towards the trend. The chart shows that the price is obeying the level of support, where it has its first bounce.

The choppy price action continues. The H4 traders may wait for the price to make a breakout in the next week. The level of support becomes daily support now. Thus, weekly-H4 traders must wait to find the next direction.

We must remember when a pair trades within last week’s high and low, the price usually makes a correction. When it makes a breakout, it consolidates. If it takes too long or too many candles to make a breakout, traders may skip taking entry on that chart.

Categories
Forex Daily Topic Forex Price Action

Count the Breakout Length

In today’s lesson, we are going to demonstrate an example of a chart where the price makes an H4 breakout at the last week’s low. However, the chart does not offer entries. It rather gets choppy. We will try to find out the reason behind that. Let us get started.

It is an H4 chart. The chart shows that the price makes a bearish move and had a bullish correction. Upon producing a bearish engulfing candle, it heads towards the South again. The market is about to close for the weekend, and the sellers are going to wait for the H4 chart to make a bearish breakout and go short in the pair.

The chart produces a Doji candle to start its trading week. The next candle comes out as a bearish engulfing candle. It seems that the pair is going to make an H4 breakout at the week’s low soon.

The chart produces a long bearish candle closing well below the week’s low. It does not consolidate but produces a spinning top with a bearish body. The chart looks bearish, and the sellers may love to wait for the price to consolidate and to offer them a short entry. The question is whether they should wait to go short in the pair or not.

Look at those two drawn lines. One at the above indicates the highest high of the current week. The other one at the bottom indicates the lowest low of the last week. The difference between these two lines is vital. It determines the length of the next move. Usually, the price travels twice the distance of that length with good momentum. Once it travels three times that distance, the price usually makes longer consolidation or correction. The price travels three times that distance here. Thus, it may make a long bullish correction.

The chart produces a bullish engulfing candle followed by another bullish candle closing within the last week’s lowest low. The chart then creates an inverted hammer and drives the price towards the South. Look at the pace of that bearish move. It has been sluggish, and it suggests that the sellers are not interested in going short in this chart. The price has been roaming around the last swing low for quite a while. In a word, the H4 traders must wait for the price to give them the next direction. Meanwhile, it is a chart not to invest money and time in.

Categories
Forex Daily Topic Forex Price Action

Weekly High/Low Offers a Better Reward in the H4 Chart Trading

We are going to demonstrate an example of a trade setup on the H4 chart. The price, after breaches the last week’s low; it consolidates and produces a strong bearish reversal candle. It then heads towards the South with extreme bearish momentum. Let us find out how that happens.

It is an H4 chart. Look at the vertical line on the left. It is the beginning of the week. The chart shows that the price gets trapped within two horizontal levels. The pair is about to finish its trading week. The chart suggests that both the sellers and the buyers are going to keep their eyes on the chart next week to get the breakout and trade.

The pair produces two bullish candles consecutively to start its trading week. However, it produces a bearish engulfing candle and drives the price towards the South. Do you see anything here? Yes, the pair makes a breakout at the last week’s low. It means that the Bear may dominate on the H4 chart. Ideally, traders are to wait for the price to consolidate or make a bullish correction followed by a bearish breakout to go short in the pair.

The price consolidates. It produces some bearish reversal candles such as spinning top, hammer, Doji candle. However, it does not make a breakout at the last swing low. The sellers must wait for an H4 candle to close below consolidation support. Let us wait for more and see what the price does.

The chart produces a bearish engulfing candle closing well below consolidation support. The sellers may trigger a short entry right after the last candle closes. They may set their stop loss above consolidation resistance and set their take profit with 2R. This is the beauty of using weekly high/low and the H4 chart. It offers an excellent reward. Let us now proceed and find out how the entry goes.

The price heads towards the South with good bearish momentum. It produces three bullish inside bars in this move. The last candle comes out as a bullish engulfing candle. The sellers may consider closing their entry and come out with the profit. If we count, we find that the entry offers more than 2R reward. This is what usually happens when the price makes an H4 breakout at the last week’s high/low. Deep consolidation and a strong reversal candle add more fuel to its journey as usual. In our fore coming lessons, we will learn to integrate Fibonacci levels in this strategy to determine our target with better accuracy. Stay tuned.

Categories
Forex Price Action

It is Not over until It’s Over

In today’s lesson, we are going to demonstrate an example of a trendline trade setup. The price heads towards the North, and upon finding its support, it keeps moving towards the upside. At some point, it seems that the price is about to make a breakout at the trendline. However, the trendline works as a level of support and produces a beautiful bullish engulfing candle ending up offering a long entry. Let us find out how that happens.

The chart shows that the price makes a bullish move and comes down to make a bearish correction. It makes a bullish move again but finds its resistance around the same level. At the moment, the chart suggests that the bears have the upper hand.

The chart produces a Doji candle having a long lower spike. It pushes the price towards the North, and the price makes a breakout at the highest high. The last move confirms that the bull has taken control. The buyers may look for buying opportunities. Assume you are a trendline trader. Do you see anything?

Yes, you can draw an up-trending trendline. The last candle comes out as a bearish engulfing candle. It suggests that the price may make a bearish correction. As a trendline trader, you are to wait for the price to produce a bullish reversal candle at the trendline’s support to go long on the chart.

The chart produces two more candles that are bearish. The last candle closes just below the trendline’s support. It seems that the price is about to make a breakout at the trendline. The next candle is going to be very crucial for both. If the next candle comes out as a bullish reversal candle, the buyers are going to push the price towards the North. On the other hand, if the next candle comes out as a bearish candle closing below the trendline’s support, the sellers may push the price towards the South. Let us find out what happens next.

The chart produces a copybook bullish engulfing candle. Traders love to get this kind of reversal candle. The buyers may trigger a long entry right after the last candle closes. Let us proceed to find out how the trade goes.

The price heads towards the North with good bullish momentum. It makes a breakout at the last swing high as well. It means the trendline is still valid for the buyers. The chart produces a bearish reversal candle. Thus, the buyers may consider taking their profit out here.

If we look back, we find that the trendline’s support produces an excellent bullish reversal candle, which some buyers may not expect. This is what often happens in the market. Thus, never give up until its really over.

Categories
Forex Daily Topic Forex Price Action

What Does A Combination of Double Top and Evening Star Do?

We know a double top is a strong bearish reversal pattern. When the price trends with a double top, it usually creates strong bearish momentum. At consolidation, if it produces an evening star, it creates more momentum that is more bearish since the evening star is a strong bearish reversal pattern as well. In today’s lesson, we are going to demonstrate an example of that.

The chart shows that the price has been roaming around within two horizontal levels. It has several rejections at the resistance zone. At the last two rejections, it produces two bearish engulfing candles. Moreover, the last candle breaches through the level of support or the neckline. It means the chart may get bearish since it produces a double top.

As expected, the price heads towards the South with good bearish momentum. The sellers are to wait for the price to consolidate and a bearish reversal candle/pattern to go short in the pair.

It seems that the price may have found its support. It produces a bullish inside bar followed by a Doji candle. If the price makes a breakout at the level of consolidation support, the sellers may go short in the pair and drive the price towards the South.

The chart produces a bearish engulfing candle closing well below consolidation support. It is a strong bearish reversal candle itself. The combination of the last three candles is called the evening star, which is a very strong bearish reversal pattern. It suggests that the price may get very bearish soon. The sellers may trigger a short entry right after the last candle closes by setting stop-loss above the last candle’s highest high. We talk about the take-profit level in a minute. Let us find out how the trade goes.

The price heads towards the South with extreme bearish momentum. The last candle comes out as a bullish engulfing candle. It may make a bullish correction or reversal now. However, before producing the bullish engulfing candle, the price travels 2R. Even if the sellers close the entry at the last candle close, they make 1R profit.

When a trend starts with a strong reversal pattern such as the double top/double bottom, morning star, evening star, and it produces a strong reversal pattern at consolidation as well, the price usually produces a longer wave. Trade management is to immaculate, though. Thus, make sure that the trade is made relatively on a bigger time frame such as the H4, the daily, the weekly, etc.

Categories
Forex Daily Topic Forex Price Action

Using Weekly High or Weekly Low in the H4 Chart Trading

The Weekly high or Weekly low plays a significant part in the H4 chart traders. In today’s lesson, we will demonstrate an example of how last week’s high works as a level of support and pushes the price towards the upside by offering a long entry to the buyers. Let us get started.

It is an H4 chart. Look at the vertical dotted line. The price starts its week with a spinning top having a bullish body. The price then heads towards the North and come down again. In the end, the price closes its week around the level where it starts its trading week.

The pair starts its week with a spinning top having a bearish body this time. The price heads towards the North and makes a breakout at the last week’s high. The price usually comes back at the breakout level to have consolidation and ends up offering entry upon producing a reversal candle. Let us draw the breakout level to have a clearer picture.

The drawn line indicates the last week’s high. Now, the H4 chart suggests that the price made a breakout, and the pair is trading above the level currently. The buyers are to wait for the price to consolidate and produce a bullish reversal candle to go long in the pair.

The chart produces a bearish candle closing within the breakout level first. The next candle comes out as a Doji candle. The buyers are to wait for a breakout at consolidation resistance to go long in the pair. Let us proceed to the next chart to find out what the price does next.

The chart produces three more bullish candles. One of the candles breaches through the level of resistance closing above it. The buyers may trigger a long entry right after the last candle closes. The buyers may set their stop loss below the breakout level. To set the take-profit level, the buyers may set their take profit with 2R. It is the best thing about this trading strategy. It offers at least 2R. Sometimes the price travels even more than 2R. Let us find out how the trade goes.

The price heads towards the North with good bullish momentum. Before hitting 2R, it produces a bearish inside bar. It continues its journey towards the North and travels more than 2R. The last candle comes out as a bearish engulfing candle. It suggests that the price may get bearish now.

The best things about using the strategy are

  1. Traders know where the price is going to consolidate.
  2. Which level is going to produce the signal candle.
  3. It offers an excellent risk-reward.
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Forex Daily Topic Forex Price Action

Keep an Eye at the Last Daily Candle’s Closing

In today’s lesson, we are going to demonstrate an example of the daily-H4 chart combination trading. In the daily-H4 chart combination trading, the daily chart plays a very significant role. As long as the price in the daily chart heads towards the trend, the traders may find the opportunities to take entry. Let us now proceed and find out what that means.

It is a daily chart. The chart shows that the price heads towards the North with good bullish momentum. The last candle comes out as an inverted hammer with a tiny bullish body. The long upper shadow suggests that the price has a strong rejection at a level of resistance. Nevertheless, the candle has a bullish body, and the candle closes above its last candle’s highest high. Thus, the daily-H4 combination traders may flip over to the H4 chart to go long in the pair.

This is how the H4 chart looks. It produces a bearish engulfing candle followed by a spinning top. It seems that the price may have found its support. If the price makes a breakout at the last swing high, the buyers may go long in the pair.

The chart produces two more bullish candles. The last candle comes out as a hammer with a bearish body. It seems that the price does not know where to go. Traders must be patient here.

The chart produces a bullish engulfing candle closing well above the last swing high. The buyers may trigger a long entry right after the last candle closes. It seems that the bull may make another strong move towards the North. Let us find out how the trade goes.

As expected, the price heads towards the trend with extreme bullish pressure. It hits 1R by the next candle. The candle closes with a thick bullish body. It means that the buyers still have control in the chart. Thus, the buyers may wait for the price to consolidate and get a bullish reversal candle followed by a bullish breakout to go long and drive the price towards the North further.

If we concentrate on the daily chart, we see that the last daily candle is not a strong bullish candle. However, consolidation and a bullish engulfing candle in the H4 chart attract the buyers to go long in the pair. As long as the daily candle closes above/below the last candles highest high/lowest low, the daily-H4 chart combination traders shall keep their eyes in the H4 chart for finding trading opportunities.

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Forex Daily Topic Forex Price Action

Double Top and Evening Star Drive the Price Far Down to Consolidate

In today’s lesson, we are going to demonstrate an example of a double top offering an entry, not right after the breakout. It rather offers an entry upon finding its resistance, which is well below the neckline level. Let us find out how that happens.

The chart shows that the price gets trapped within two horizontal levels. It produces a bearish engulfing candle but heads towards the North upon having a bounce at the level of support. The last candle comes out as a Doji candle around the resistance zone. Let us find out what happens next.

The chart produces a bearish engulfing candle closing well below the neckline. The chart produces an evening star to make the breakout. It suggests that the price may head towards the South with good bearish momentum.

The price heads towards the South with three more candles. However, the price does not consolidate around the neckline. Thus the sellers in the chart may find it difficult to go short in the pair. Let us wait and see whether it consolidates or not.

The chart produces two bullish corrective candles. If the price finds its resistance and produces a bearish reversal candle, the sellers may go short below the last swing low.

The chart produces a bearish engulfing candle closing well below the last swing low. The sellers may trigger a short entry right after the last candle closes by setting stop-loss above the candle’s highest high and by setting take profit with 1R.

The price travels a long way towards the South. The last candle comes out as a bullish inside bar. It is a weak bullish reversal candle. However, the way the price has been heading towards the South; it suggests that the price may continue its bearish move. However, many sellers may want to close their entries and come out with the profit after the last candle.

Usually, traders wait for the price to consolidate and produce a reversal candle at the breakout level. However, when a trend starts with a strong reversal pattern, such as the morning star/evening star, the price may not consolidate around the neckline level. Nevertheless, if the chart allows the price space to travel, traders may wait for the price to consolidate and to get a reversal candle to trade. This is what happens here. The price finds its resistance, not at the neckline but somewhere else, and produces a strong bearish engulfing candle offering an entry.

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Forex Daily Topic Forex Price Action

Trendline Trading: A Trendline forming with a Tiny Slope

In today’s lesson, we are going to demonstrate the formation of a down-trending Trendline. A trendline can be formed with a double top or double bottom as well. However, double top’s resistance or double bottom’s support may not be horizontal. Let us find out how they may look in the chart.

The chart shows that the price heads towards the South with moderate bearish pressure. The last candle comes out as a bearish engulfing candle closing well below the last swing low. The sellers may wait for the price to consolidate or make a bullish correction to go short.

The chart produces two bullish candles. The price has a rejection from the zone where it had a rejection earlier. The last rejection does not come from horizontal support, but it looks adjacent to that. Thus, it can be considered as a double top’s resistance zone.

The price heads towards the South by making a breakout at the last swing low. It produces a bullish inside bar. If the chart produces a bearish reversal candle, the sellers may go short below the last swing low. Let us proceed to find out what happens next.

The price gets bearish by making a breakout at the last swing low. Look at the last three candles. The combination of these three candles is called Morning Star. It seems that the price may make a long bullish correction. Can you guess where the price may find its next resistance?

We can draw a down-trending trendline here by using those points of the double top. Look at the price action around the trendline’s resistance. The last candle comes out as a bullish candle with an upper shadow. A bearish reversal candle at the trendline’s resistance may drive the price towards the South again.

The trendline’s resistance produces a bearish engulfing candle. It has a long lower shadow, though. The sellers may go short below the last candle’s lowest low. Let us find out what the price does.

As expected, the price makes a strong bearish move and makes a new lower low. Thus, the sellers may wait again for the price to go towards the trendline’s resistance and get a bearish reversal candle to go short in the pair. In a word, a very valid trendline is in play in this chart. Do you remember how it has started? It has started from a point that does not seem to form a trendline. The slope has been tiny, making it difficult to spot out. However, the market often produces such a trendline with a tiny slope, which shall be taken into account by the trendline traders.

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Forex Price Action

An Interesting Fact about Equidistant Channel

In today’s lesson, we are going to demonstrate an example of the formation of an up-trending equidistant channel. Usually, the price forms an up-trending equidistant channel by having two bounces and one rejection. However, the price sometimes determines the upper band first by having two rejections. In today’s lesson, this is what we are going to demonstrate.

The chart shows that the price makes a bullish move and produces a bearish engulfing candle. The last candle in the chart comes out as a doji candle with a long lower shadow. It suggests that the price finds a strong level of support in the minor charts.

The price heads towards the North and has a strong rejection. The last candle comes out as a bearish engulfing candle again. A candle with a long upper shadow followed by a bearish engulfing candle may drive the price towards the South.

It does not. It produces a bullish engulfing candle and pushes the price towards the North. The chart produces an inverted hammer. The long upper shadow suggests that the price has a rejection from a strong level of support. So far, we have noticed that the price is up-trending by making new higher highs. Do you notice anything else? Let us proceed.

After making a bearish correction, the price finds its support. It produces a bullish engulfing candle and pushes the price towards the North. The last candle comes out as a bullish candle with a long upper shadow though. It is more evident now that the price is up-trending by obeying an equidistant channel.

Upon finding its support, it produces a bullish inside bar. It seems that the buyers based on the equidistant channel may go long in the pair. We have not drawn the channel yet. The reason is we have to be able to spot out the channel by looking at the price action. Let us now draw an equidistant channel and see how the price has been obeying it.

It looks like a copybook equidistant channel. It offers two good long entries. Do you notice one thing here? The price gives a clear sign that it may form an up-trending equidistant channel at the very outset. When it has its second rejection, it does not trend from the lower band. However, it determines its upper band, which helps traders sniff about a potential up trending equidistant channel. This is what happens so often. The price may determine its upper band first not by bouncing off at the lower band or it may determine its lower band by not having rejection from the upper band.

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Forex Daily Topic Forex Price Action

Double Top/Double Bottom and Intraday Trading

In today’s lesson, we are going to demonstrate an example of a double top that drives the price towards the downside in an intraday chart. The double top/double bottom usually makes the price bearish if they are formed in a major chart. However, they work in the same way in minor charts as well. Let us find out how it drives the price in an H1 chart. Let us get started.

It is an H1 chart. The chart shows that the price makes a long bearish move. The chart belongs to the sellers. The sellers may wait for the price to make a bullish correction and produce a bearish reversal candle at flipped resistance to go short in the pair.

The chart makes a strong bullish move instead, upon producing a bullish engulfing candle. The last candle comes out as a bullish engulfing candle after consolidation. It seems that the buyers are dominating the minor charts.

The price does not continue its bullish move. It has been in long consolidation. The price is roaming around the level of resistance, where it has had a bounce. A bullish breakout may attract the buyers to go long in the pair. On the other hand, a bearish reversal candle at a double top resistance may make the sellers wait to go short in the pair below the neckline.

The chart produces a long bearish candle closing below the neckline. It suggests that the Bear may dominate in the pair. The sellers are to wait for the price to consolidate and produce a bearish reversal candle to go short in the pair. Let us find out what happens.

The next candle comes out as a spinning top closing within the breakout level. It seems that the pair is getting ready to get bearish. The sellers are to keep their close eyes in the pair to get a bearish reversal candle and a breakout at the lowest low to trigger a short entry.

Here it comes. The pair produces a bearish engulfing candle. The candle’s body engulfs the last candle’s body. However, the sellers may wait for the price to make a breakout at the lowest low of the last candle (wick’s lowest low). It is very important as far as intraday trading is concerned.

The price breaches the wick’s lowest low and heads towards the South with good bearish momentum. It travels a long way by offering 1:2 risk-reward. It’s a good thing about intraday trading that it offers good risk-reward.

We have demonstrated an example of a double top driving the price towards the downside in the H1 chart. They work in any time frame from 1M to 1Month. However, it is better not to use it in too minor time frames such as the 1M, 5M, 15M.

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Forex Daily Topic Forex Price Action

Intraday Trading: Watch Out for Highest High/Lowest Low

In today’s lesson, we are going to demonstrate an intraday chart that ends up offering an entry. Intraday trading can be prolific if it is done in the right way. In today’s example, the price heads towards the North by making a good bullish move. It seems that the bull is in control. However, the price gets bearish later and ends up offering entry to the sellers. Let us find out how that happens.

It is an H1 chart. The chart shows that the price makes a good bullish move. The last candle comes out as a hanging man. The price does not make any bearish correction, so the daily candle closes without having an upper shadow. It suggests that the bull may dominate in the pair the next day.

The next day, the price makes a bullish breakout at the last day’s highest high. The pair is trading above the level. Ideally, the price above the last day’s highest high means the bull is in control. However, in this chart, the price does not make any bearish correction before making the breakout. Thus, the buyers are to wait for the price to consolidate and produce a bullish reversal candle to go long in the pair.

The next candle comes out as a bearish engulfing candle. The candle closes below the breakout level. If the level works as a level of resistance, the sellers may come into play and go short in the pair. Let us find out what happens next.

The next candle comes out as a hammer closing within the breakout level. It looks good for the sellers. The sellers may wait for the price to produce a bearish reversal candle and go short below the hammer’s lowest low.

The chart produces a bearish engulfing candle closing below the hammer’s body. The sellers may trigger a short entry below the hammer’s lower shadow. The last day’s lowest low offers the price to travel towards the North with a good reward.

One of the candles comes out as a bearish Marubozu candle closing well below the hammer’s lowest low. The entry may be triggered earlier just by using price breakout. Some traders may wait for a 15M breakout to trigger the entry, and some even wait for an H1 breakout. Ideally, a 15M breakout is good enough to trigger such entry. Traders may set their stop loss above the breakout level since it is the new resistance and Take profit with 2R. If they set the stop loss above the trend’s highest high, they may set take profit at the previous day’s lowest low. Let us find out how the entry goes.

The price heads towards the South with good bearish momentum. It hits 2R in a hurry. The way it has been going, it may hit the previous day’s lowest low soon as well.

To do intraday trading, pay attention to the last day’s highest high and lowest low, breakout, breakout confirmation, and reversal candle. Do some backtesting and then try live trading with a tiny lot at the beginning. Once you have mastered this, it can make your hand full.

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Forex Daily Topic Forex Price Action

Trendline Trading: How a Trend upon a Trendline Run Longer

In today’s lesson, we are going to demonstrate an example of a chart that made a long bearish move obeying a bearish trendline. The price after forming a bearish trendline does not offer entry to the sellers. It makes a breakout at the first trendline and then produces another bearish trendline ending up offering short entries. Let us now have a look at the chart and find out how it happens.

The chart shows that it makes two swing lows trending from two swing highs. By joining those points, we can draw a trendline shown in the above chart. The sellers may wait for the price to go back at the trendline’s resistance and produce a bearish reversal candle to go short in the pair. However, the price action has been choppy around the trendline’s resistance. The last candle comes out as a bullish engulfing candle. It does not look good for the sellers.

The price makes a breakout at the trendline’s resistance. It heads towards the North and then makes a strong bearish move. Such price action may puzzle traders. Do you notice something interesting here? Have a look at the next chart.

The sellers may draw another bearish trendline by joining two swing lows. As long as the price makes new lower lows, we can draw a bearish trend line by joining two higher highs. We know what sellers are to do here. Yes, they are to wait for the price to go back to the trendline’s resistance and produce a bearish reversal candle to go short in the pair.

The chart produces a bearish inside bar. It is not a strong reversal candle. However, it is produced at a trendline’s resistance. The sellers may keep their eyes in the pair to go short according to their trading strategies. The price may find its next support at the last swing low. The chart shows that the price has enough space to travel towards the South.

The price heads towards the South at a moderate pace. It makes a long bearish wave, though, by making a breakout at the horizontal support. In the end, it comes out as an excellent trade for the sellers.

If we recap, the first drawn trendline is disobeyed by the price. It is breached, and the chart looks slightly bullish biased. It does not make any more bullish breakout but makes a long bearish move by making a breakout at the last swing low. It gives the sellers an opportunity to draw another bearish trendline, and that ends up offering an excellent entry.

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Forex Price Action

When Key Fibonacci Level Produces an Engulfing Candle

In today’s lesson, we are going to demonstrate an example of a chart that makes a strong bullish move upon producing a bullish engulfing candle at a key Fibonacci level. We know an engulfing candle creates good momentum. If it is created at a significant Fibonacci level, it often pushes the price towards the trend further than traders’ expectations. Let us see and find out what and how that happens.

It is an H1 chart. The chart shows that the price heads towards the South. It keeps making new lower lows. At the last bounce, the chart produces a Morning Star. It may make a bullish reversal now. Let us wait and see whether it makes a breakout at the last swing high or not.

The chart produces four consecutive bullish candles. The price breaches the last swing high. The buyers may wait for the price to consolidate around the breakout level and get a bullish reversal candle to go long in the pair.

It produces a bearish candle closing within the breakout level. The buyers may keep their eyes sharp to see how the next candle comes out. A bullish reversal candle followed by a breakout at the highest high is the signal to trigger a long entry. If the reversal candle comes out as a bullish engulfing candle closing above the resistance, the buyers may trigger a long entry right after the candle closes.

The candle comes out as a bullish engulfing candle closing well above the resistance. The buyers may trigger a long entry right after the candle closes. Since it is an H1 chart, Fibonacci levels come extremely handy to determine the take profit level. We find out that in a minute. At first, let us find out what the price does.

The price heads towards the North with extreme bullish momentum. It produces only one bearish candle and resumes its bullish journey. With naked eyes, we can tell that the price travels about 4R. It means as far as risk-reward is concerned, it is an excellent deal. Let us draw Fibonacci and see price trends from where to where.

The price makes the bullish reversal at 61.8% and heads towards the level of 161.8% in a hurry. It makes a breakout at 161.8% consolidates and resumes its bullish move. Ideally, the buyers should set their take profit at 161.8%. It would allow them to take 1:2 risk-reward. However, we have seen here that the price travels towards the North even further than that. It often happens when the reversal candle comes out as a bullish engulfing candle, and it is produced at the key Fibonacci level at 61.8%. We may not be too greedy but set our take profit at 161.8% in such cases. However, back in our mind, we know that we are dealing with an excellent trade setup.

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Forex Daily Topic Forex Price Action

Trend Line Trading: The Entries to be Skipped

In today’s lesson, we are going to demonstrate an example of a chart that trends towards the North by obeying a trendline. It offers a long entry once the trendline is established. At the fourth bounce, it produces a bullish reversal candle. We find out whether the buyers should take a long entry or not upon getting the bullish reversal candle at the trendline’s support. Let us get started.

The chart shows that the price heads towards the North upon producing a bullish reversal candle. It consolidates and resumes its bullish journey. The chart looks like the buyers’ hunting ground.

The price upon producing a spinning top, it produces a long bearish candle. It consolidates with some candles and produces a bullish engulfing candle. The buyers may keep an eye in the chart to go long above the last swing high. If the price makes a bullish breakout, the buyers get two swing lows and two swing highs to draw an uptrending trend line.

Here it goes. The price makes a bullish breakout and heads towards the North further. The chart produces a bearish engulfing candle. It may make a bearish correction. As it looks, the chart belongs to the Bull without any doubt.

The price makes a bearish correction; consolidates and heads towards the North again. The breakout traders may find a long opportunity and grab some pips. The price makes a long bearish correction. In fact, it makes a breakout at a significant level of swing low. It seems that the chart is slightly bearish biased. Have a look at the chart below.

The trendline’s support holds the price and produces a bullish engulfing candle. The trendline traders may go long in the pair right after the last candle closes. The last swing high is the safest option to set take profit. It means the risk-reward ratio looks good for the trendline traders.

The price heads towards the North with good bullish momentum. However, it seems that the horizontal level of resistance is too strong to be breached. The price consolidates here with several candles. The last candle comes out as a bearish engulfing candle. The buyers may close the entry. The question is does the price come back to the trendline’s support or it makes a breakout at the highest high.  Let us proceed to the next chart and find out what happens.

The price comes back at the trendline’s support. It produces a hammer. Should the buyers go long from here as far as trendline trading is concerned? Think about it for a minute.

If your answer is ‘No’, you are right. The reason why the buyers should not go long from here is it does not make a new higher high upon getting its last bounce. In fact, traders may wait for the price to make a breakout at the trendline’s support and go short in the pair. In our forthcoming lessons, we will learn about trendline breakout and trendline breakout trading. Stay tuned.

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Chart Patterns

Forex Chart Patterns Might Be an Illusion

If you are new to forex trading, chart patterns are likely to attract your attention quickly because the trader community is full of praises for this kind of trading. They will certainly seem appealing due to habits developed from a young age when our parents used different shapes and forms to keep us entertained and amused. Nowadays, the entire toy industry and children based video games are based on shapes and forms used to provide preschool education to toddlers and children. Our brains are naturally wired to see patterns in every abstract form, be it star constellations or forex charts. We give meaning to randomness. Therefore, who could blame you for jumping on the chart pattern bandwagon once you enter the world of forex trading?

Indeed, some pattern names will easily trigger childhood memories that instantly attract you to explore more about pattern trading: triangle, wedge, rectangle, flag, and pennant. Some of them are appealing enough, such as head-n-shoulders or cup-n-handle. It just sounds like fun and games, and why not have some of it while trading. To make things more serious, most traders will tell you that it works and they will provide you with an abundance of examples. But the question is: have you learned to lose fun games when you were a kid?

The question is posed because there is not much information available on when chart patterns are not working. In reality, chart patterns supporters will show you examples when chart patterns have already worked but will rarely share the failed stories on using patterns that have completely misled them. The first instance would obviously create an image of a prominent trader, while the latter would discredit them and portray them as a showoff. Therefore, psychology plays a significant role in chart pattern trading as the availability of successful examples plays hand in hand with the trader’s inclination and ability to boost self-confidence. Reliance on the limited information that is available to the narrow circle of traders and a strong belief in skills that provide an advantage over the competition will eventually lead to overconfidence. Such a mindset represents a perfect stage for doubtless use of chart patterns as successful examples visible only in the aftermath is seen as an actual confirmation of self-confidence and perceived ingenuity. This fact is your first red flag when considering chart patterns as your go-to strategy in forex trading. 

It is also important to keep in mind that the overwhelming majority of traders are impressed by chart patterns, which is why new traders are attracted to this kind of trading. It is a classic example of social learning theory that can be summarized as the acquisition of new behaviors by noticing and imitating the behavior of others in the group. That same theory is proven in social experiments in which a random person not aware of the experiment is acting the same way as the group participating in the experiment, without even knowing the reasons for such behavior and regardless of how ridiculous that behavior may be. Simply put, chart patterns should not be utilized without any doubts just because the overwhelming majority is doing so, according to the contrarian traders’ opinion. This resonates as the second red flag especially if you put in the perspective that the majority of traders are on the losing end of the forex market. 

As a beginner, it is not easy to spot a forming shape when looking at charts. In fact, you have to draw it yourself and there are no clear instructions on how to do it. Line drawing can cause a lot of frustration, consume much of the precious time, and requires plenty of creativity. You are bound to make mistakes, redraw numerous lines and shapes and it still does not guarantee success. A good example that demonstrates drawing patterns is a matter of frustration rather than efficiency is drawing trend lines. As you may know already, traders analyze charts in numerous different manners and therefore see trend lines arising at different points. Therefore, your decision on breakouts and entry points will differ from other traders and chances are that the same is applicable to drawing chart patterns. There is simply no consistency in drawing patterns. When the first red flag is added to the equation, the fact that chart patterns work perfectly for others makes us question our own abilities and we quickly start blaming ourselves when the drawn patterns are not giving results.

Finally, it is not shapes and forms that move the prices but the big banks reacting to the retail traders. None of them are putting effort into creating triangles and wedges on the charts. On the contrary, they are bound to form eventually as a natural process of market movements. Their natural formation is not a clear indicator that prices are going to take a direction predicted by the pattern, despite the time amount invested in identifying the pattern. The reality is that the prices still have even odds of going one way or another, and there are more systematic ways to connect the dots that give us a higher chance of success than chart patterns.

Forex trading is not universal science and many different strategies and approaches could be used – and even developed – by traders. Those who develop unique trading systems based on evidence that demonstrate consistent results are more likely to achieve success, simply because they start to trust the process over time. In the process of building their exclusive trading system, traders develop a greater understanding of arising issues and use distinctive rationale thus dealing with market obscurities more effectively. Such traders do not waste time identifying and drawing shapes nor do they adjust their skills and knowledge to the chart pattern system that has not been empirically proven.

Although chart patterns are not supported by practical evidence that would confirm their (in)famous reputation, the red flags pointed out in this article represent just one school of thought. There is no need to change the system heavily relying on chart patterns that yield profits, as it certainly is a powerful tool for those traders who found the winning formula. Such traders may have a strong argument on using chart patterns; however, they cannot draw the lines and shapes for all the traders who just can’t get it right. And it is no surprise overwhelming majority struggles with chart patterns since there is more evidence available on why chart patterns do not work in practice. Once caught in its web, it is difficult for traders to break away from the habit of identifying shapes on the chart. Moreover, they tend to modify their systems and overthink when they spot a shape on the horizon. In an effort to avoid this trap, any trader should eventually pose the same question when getting lost with chart patterns: would I rather trust my own work and judgment or follow the signs along the way?

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Forex Price Action

Fibonacci Trading: Fibonacci Levels Maximize Profit for Intraday Traders

In today’s lesson, we are going to demonstrate an H1 chart offering an entry by using intraday support/resistance. To go with it, Fibonacci levels are used to spot out the stop-loss and take-profit levels. Let us now get started.

The chart shows that the price makes a long bearish move. The H1 chart makes a breakout at the last day’s lowest low (black drawn line). Usually, the chart attracts the sellers to look for short opportunities upon getting a bearish reversal candle. However, look at the combination of the last three candles. It is called Morning Star, which is one of the strongest bullish reversal patterns.

The price heads towards the North and goes back in the last day’s lowest low. Moreover, it makes a breakout at today’s highest high as well (black drawn line). Within four candles, the chart looks good for the buyers. The buyers may look to go long in the pair upon getting a bullish reversal candle at the breakout level.

The chart produces a bearish candle. The breakout level seems to hold the price as a level of support. A bullish reversal candle at the level may attract the buyers to go long and push the price towards the North further.

Here it comes. The chart produces a bullish engulfing candle right at the breakout level. The buyers may trigger a long entry right after the last candle closes by setting stop loss below the lowest low of the signal candle. We are going to talk about the take profit level in a minute. Let us find out how the trade goes.

The chart produces a bullish candle. The price heads towards the upside with the next candle as well. However, the candle comes out as a Doji candle having a long upper shadow. It suggests that the price may make a bearish correction or make a bearish reversal. Since the trade setup is based on the H1 chart, the buyers may lose a good number of pips if they are to wait for the chart to produce a reversal candle to close their entry. It is tough to manage trade in the H1 chart manually. Thus, setting the take profit is the best way. The question is, where should we set our take profit? In this regard, Fibonacci levels come extremely handy. Let us draw the Fibonacci levels in the chart and find out how they work in the chart above.

There you go. The price produces a bullish reversal candle at 61.8% level and heads towards the level of 161.8%. It means the buyers may achieve 1:2 risk-reward easily by using Fibonacci levels in intraday trading. In our fore coming lessons, we are going to demonstrate more examples of integration of Fibonacci levels and intraday trading. Stay tuned.

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Forex Daily Topic Forex Price Action

A Classic Example of Trading on a Double Top

Last week, in one of our lessons, we showed an example of how the price gets bullish based on the double bottom and flipped support. In today’s lesson, we are going to demonstrate an example of a double top and flipped resistance. a Double Top is the opposite of a Double Bottom, so it drives the price towards the South. It is one of the strongest bearish reversal patterns. Traders love to go short when a chart produces a double top in the Forex market. Let us now proceed and find out how it usually works.

The chart shows that the price heads towards the North and finds its resistance. It produces a bearish engulfing candle. Sellers on the minor chart may look to go short in the chart. However, the sellers in this chart may wait for either the price consolidates and makes a bearish breakout or to produce a double top.

The price finds its support and heads towards the level of resistance again. It consolidates around the level of resistance. A bearish reversal candle followed by a breakout at the last support may attract the sellers to go short in the pair since the chart would produce a double top, and the breakout would be a neckline breakout.

Here it goes. The price heads towards the South with good bearish momentum. It makes a breakout at the neckline and produces one more bearish candle. The sellers are going to wait to go short in the pair below the lowest low. However, it is best to wait for the price to consolidate around the breakout level and produce a bearish reversal candle to get a better risk-reward.

The price consolidates around the breakout level and produces a bearish engulfing candle at the breakout level. The sellers may go short below consolidation’s support by setting stop-loss above consolidation’s resistance and by setting a take-profit target with 1R at least. Please note, a double bottom/double top and consolidation around the neckline breakout level usually offers more than 1R. Let us find out how the trade goes.

The price heads towards the downside with extreme bearish momentum. It produces an inverted hammer. The price may make a bullish correction from here. Count the length that the price has traveled so far. It has traveled a long way offering about 6R to the sellers. One trade like this in a week may make a trader fulfilled. Thus, keep your eyes on patterns such as the Double Top/Double Bottom. Remember the procedure; wait for the price to consolidate and produce a reversal candle at the breakout level; trigger an entry below consolidation support/resistance, and manage your trade accordingly.

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Forex Price Action

Trendline Trading: Be Sensible to Count or Not to Count Shadows

We are going to demonstrate an example of trendline trading in today’s lesson. The price, after being bearish, produces a bullish engulfing candle and heads towards the North. It makes a bearish correction and produces another bullish candle to make a bullish breakout at the last swing high. At the second bounce, the candles have tiny lower shadows. In the end, the pair makes another bullish move at the trendline’s support without counting those lower shadows at the second bounce. Let us now have a look at what and how that happens.

The price makes a bearish move makes a bullish correction and resumes its bearish journey. Upon finding its support, it produces a bullish engulfing candle at the last bounce in this chart. The chart is slightly bearish biased. Let us see what happens next.

The chart produces another bullish candle, consolidates, and heads towards the North. Then, it makes a bearish correction. A bullish reversal candle followed by a breakout at the highest high will make the chart a hunting ground for the buyers.

The chart produces a bullish engulfing candle and makes a breakout at the last swing high. It means the buyers may draw a trendline and wait for the price to come back at the trendline’s support to go long in the pair.

This is the drawn trendline, which is drawn by using the first two spikes. However, spikes at the second bounce are not counted. After the second bounce, the price heads towards the North, but it doesn’t come at the trendline’ support to offer a long entry to the buyers. As long as the price does not breach the trendline support, it is valid, and traders may wait for the price to come back at the trendline’s support and offer them a long entry.

Here it comes. The chart produces a bullish engulfing candle right at the trendline’s support. The buyers may go long right after the last candle closes by setting stop loss below the signal candle’s lowest low and by setting take profit with 1R. Let us find out how the trade goes.

The price hits 1R in a hurry. It then produces a spinning top. However, the next candle comes out as a bullish engulfing candle, which suggests that the buyers may wait again for the price to come back at trendline’s support to take another long entry.

If we use spikes of the second bounce, the trendline’s support would have more space for the price to travel. We have used spikes of the first bounce and candle’s bodies of the second bounce. Since both spikes of the second bounce cannot be added with a line, it is better to skip it. Moreover, the price at the third bounce produces a bullish engulfing candle. Most probably, the price is going to obey the trendline. This is what happens here, and this is what usually happens with a trendline.

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Forex Daily Topic Forex Price Action

The Double Bottom and the Flipped Level of Support

In today’s lesson, we are going to demonstrate an example of a double bottom, which pushes the price towards the North. The example also proves an old theory of support becomes resistance or resistance becomes support after a breakout. Let us get started.

The chart shows that the price makes a bearish move and finds its support. The level of support produces a bullish candle, which is followed by two more bullish candles. The buyers may wait for the price to consolidate and produce a bullish reversal candle to go long in the pair.

The price makes a long bearish correction. It comes back to the level of support again. A bearish breakout may attract the sellers to go short and drive the price towards the South. On the other hand, the buyers may wait to get a bullish reversal candle at its second bounce.

The chart produces a bullish engulfing candle. Since it is produced at the second bounce, the buyers in the chart may wait for the price to make a breakout at the neckline and go long.

The price heads towards the North with good bullish momentum. It makes a breakout at the neckline and trades above the level for one more candle. The buyers would love to see the price to consolidate or make a bearish correction at the breakout level and produce a bullish reversal candle to trigger a long entry.

The price makes a bearish correction and produces a bullish engulfing candle closing above the level of resistance. The buyers may trigger a long entry right after the last candle closes by setting Stop Loss below the candle’s lowest low and by setting Take Profit with 1R. Here we must notice that the neckline level becomes the level of support. This is one of the most reliable theories in the financial market.

The price heads towards the North with extreme bullish momentum. It hits 1R in a hurry and travels towards the North further. The last candle comes out as a hanging man, which is a bearish reversal candle. However, it is not a strong one. The price may keep traveling towards the North. Anyway, the buyers achieve their target with the entry, which is taken on two theories.

  1. Double Bottom- A very strong bullish reversal pattern
  2. Resistance works as a level of support after the breakout.

In the case of a double bottom and neckline breakout, we may sometimes find that the price does not come at the breakout level. It consolidates well above and makes a bullish move. In some cases, the price may not hit the target. However, if the price comes and produces a bullish reversal candle at the breakout level, the price may hit the target in most of the cases.

Categories
Forex Daily Topic Forex Price Action

Trend Line Trading and Trade Management

In today’s lesson, we are going to demonstrate an example of trendline trading and how the trade may be managed. We know that trading with a trendline is very rewarding since an established trendline often ends up offering several entries. However, things may not always go as smoothly as we like. Like other trading strategies, trendline trading may end up offering entries that may not hit the target or make traders have a loss. In today’s lesson, we are going to see an example of trendline trading, where things do not go according to traders’ expectations.

The chart shows that the price makes a strong bearish move. It may have found its support. It produces two bullish candles. The sellers may wait for the price to make a breakout at the lowest low to go short in the pair. Let us find out what happens next.

The price makes a long bullish move followed by a bearish correction. It produces a bearish engulfing candle and heads towards the South again. The chart is bearish biased, but the pair is trading around the level, where it had a bounce earlier.

The price makes a breakout at the level and trades below the level for several candles. It means the sellers have two higher highs from where the price makes two bearish breakouts. It means the sellers can draw a trendline here and wait for the price to go towards the trendline’s resistance to go short in the pair.

The price heads towards the South and produces a bearish engulfing candle. The sellers may trigger a short entry right after the last candle closes by setting take profit at the last swing low.

It looks fantastic for the sellers. The price heads towards the target in a hurry. It seems the sellers do not have to wait too long to reach the target. The way it has been going, the price may end up making a breakout at the last swing low too.

It does not. The price finds its support and produces a bullish engulfing candle. It heads towards the trendline’s resistance. The sellers must be disappointed with the entry. They may have to encounter a loss here.

The price finds its resistance as well. It does not go towards the trendline’s resistance, but it makes a bearish move. Look at the last candle. It comes out as a bullish engulfing candle. The entry is running with some profit, and the trendline’s resistance is still intact. What do you think the sellers do with the entry? If we follow ‘set and forget,’ we may leave it like this and wait until the price hits either the stop loss or the take profit. It is an H4 chart. Many traders look after their trades and manage their trade by taking a decision as far as price action is concerned. In this case, they may do two things.

  1. Close the whole trade
  2. Close 50% trade and let rest of the 50% run

We come across three types of trade management here. It is up to you which one you choose. Choose one that suits your trading style and stick with it.

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Forex Price Action

The Beauty of Horizontal Channel Trading

In today’s lesson, we are going to demonstrate an example of a chart where the price gets caught within a horizontal channel. We’ll try to learn how we can trade and make the most of it. Let us get started.

The chart shows that, after being bearish, the price bounces at the drawn level. It produces a bullish engulfing candle and heads towards the North. The chart is bullish-biased. Thus, price-action traders are to look for long entries. Let us see what happens.

The price finds its resistance instead. It produces a bearish inside bar, but it does not make a new higher high. Thus, the buyers do not get an opportunity to go long at the top. The price heads towards the South towards the level of support. Since the level has been working as a level of support, the buyers may wait for the price to produce a bullish reversal candle to go long in the pair.

The chart shows that the price produces a bullish engulfing candle at the support zone. The buyers may trigger a long entry by setting stop loss below the candle’s lowest low and by setting take profit at the level of resistance. The risk-reward looks good.

The price heads towards the North with good bullish momentum. It hits the target in a hurry too. At the moment, the price is right at the level of resistance. Can you guess what traders should do now? Look at the next chart.

The chart shows that the price produces a bearish engulfing candle at the resistance zone. A point is to be noticed here that the chart produces a bullish spinning top. However, it cannot be considered a breakout. It rather produces a bearish engulfing candle. Thus, the traders may go short in the pair by setting take profit at the support zone and by setting stop-loss above the last candle’s highest high.

The price heads towards the South with an average pace. It consolidates for a while and resumes its bearish journey. The price has been roaming around the level of support for quite a while. It means the support gets even stronger. Look at the last candle. It comes out as a bullish engulfing candle. The buyers may trigger another long entry here. Let us find out what happens next.

The price hits the target. The price makes a long bearish correction and tests the buyers’ patience, though. However, in the end, the buyers come out with their pips. Trading is beautiful when the price moves like this, isn’t it?

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Forex Price Action

Trend Line Trading: An Incident That Often Confuses Traders

In today’s lesson, we are going to demonstrate an occurrence that often happens when the price trends with a trendline. A trendline works as a support/resistance. However, there is a little dissimilarity between horizontal support/resistance and trendline support/resistance. To draw a horizontal support/resistance, one bounce or rejection is enough. However, a trendline can be drawn only when the price makes a new higher low/lower high. This is what traders must remember, and we find this out the reason behind it.

The price makes a strong bullish move, as it produces seven consecutive bullish candles. The last candle comes out as a bearish engulfing candle. Considering the trend’s length, the buyers may keep their eyes on the pair to go long upon having a bullish reversal candle at flipped support.

The price consolidates and bounces at the same level twice. The last candle comes out as a bullish reversal candle. The buyers on the minor chart may look to go long in the pair and push the price towards the North.

The price heads towards the North and makes a breakout at the last swing high. It means we can draw an up-trending trend line and wait for the price to come at trendline’s support and to get a bullish reversal candle to go long in the pair. Let us find out what happens next.

The price does not produce a bullish reversal candle. It makes a breakout at trendline’s support and trades below the level for several candles. If the price makes a breakout at the last swing low, the sellers may look to go short in the pair. Let us see what happens next.

The price upon finding its horizontal support heads towards the North and makes a breakout at the last swing high. What does that mean? It means we can draw an up-trending trend line by using the last swing low from where the price makes a bullish breakout. Let us draw it and see how it looks.

It is a new trendline. It offers price to makes more bearish correction and more space towards the North to travel. As a matter of fact, its support zone has changed, but the new trendline is valid for the same old chart. It’s an incident that happens in the Forex market so often. Thus, keep an eye on a chart closely and do not make an immediate trading decision. Be sure about the breakout. If the breakout is confirmed, change your trading direction. If the breakout is not confirmed, let the price decide its way. We just have to follow the price and trade with its direction.

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Forex Price Action

Trendline Trading: Major Chart’s Support/Resistance and Take-Profit Target

In today’s lesson, we are going to demonstrate an example of trendline trading where the price trends towards the South by obeying a down-trending trendline. In one of our lessons, we learned the importance of choosing a chart for trendline trading. In today’s example, we find out one more point to go with that. Let us get started.

It is an H4 chart. The chart shows that the price heads towards the South by having a bullish correction. The chart shows that the price produces a double bottom. The buyers may keep their eyes on the chart to go long upon having a breakout at the neckline.

The price makes a breakout at the neckline and heads towards the North. It makes a bearish correction and resumes its bullish journey. The last wave suggests that the buyers may push the price towards the level, where the price made its bearish move earlier.

It does not. The price finds its resistance and makes a strong bearish move. It makes a breakout at the last swing low. What does that mean? It means we have two swing highs. With those, we can draw a down-trending trend line and wait for the price to go towards the trendline’s resistance to go short in the pair.

The price attempts to go towards the trendline’s resistance several times. However, it comes back to its horizontal support again. If we look at the horizontal support, the price bounces at the level three times. It becomes daily support, considering the number of H4 candles. On the other hand, the trendline’s resistance is an H4 resistance. The question is whether the H4 trendline traders should wait to go short from the trendline’s resistance or not? Let us proceed to the next chart and find more about it.

The chart produces a bearish engulfing candle. The price trends towards the South from the same trendline’s resistance. It produces another bearish reversal candle in the same chart.  Ideally, trendline traders should trigger a short entry right after the last candle closes by setting their take profit at the horizontal support. This is how the daily support is respected as well as the H4 sellers go short in the pair by using the trendline trading strategy. Let us see how the trade goes.

Wow! The price heads towards the South with good bearish momentum. It hits the target and makes a breakout at the horizontal support. It means the trendline is still active. The sellers may wait again for the price to go towards the trendline’s resistance and to get a bearish reversal candle to go short in the pair.

We must choose the right chart for trendline trading to take entry and we must remember the bigger time frame’s support/resistance to set take profit. If the risk-reward ratio is at least 1:1, we may take entry. If it is less than 1:1, we may skip taking entry and concentrate on some other charts.

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Forex Price Action

Strong Reversal Pattern in the Daily Chart? Make Full Use of It

In today’s lesson, we are going to demonstrate an example of a daily chart, which ends up offering an H4 entry by producing a Morning Star in the daily chart. The Morning Star is one of the strongest bullish reversal patterns. The combination traders may make full use of it too. This is what we are going to demonstrate in today’s lesson. Let us get started.

It is a daily chart. The chart shows that the price makes a bearish move. The last candle closes within a level, where the price had a bounce earlier. The buyers may keep their eyes on the chart to get a bullish reversal to go long in the pair. Let us proceed to the next chart to find out what happens next.

The chart produces a Doji candle. It means neither the buyers nor the sellers are confident. The next candle is going to be very crucial. A bearish candle may drive the price towards the South. On the other hand, a bullish reversal candle may push the price towards the North.

The candle comes out as a bullish engulfing candle closing well above the Doji candle’s upper wick. It is a sign that the buyers may take over. Do not forget that the chart produces a Morning Star. It is one of the strongest bullish reversal patterns. The buyers on the daily chart may keep their eyes on the pair to go long with their different strategies. What do the daily-H4 combination traders do? They are to flip over to the H4 chart to find out long entry. Let us flip over to the H4 chart.

The H4 chart shows that the price heads towards the North with good bullish momentum. The price has not produced any bearish candles yet. The combination traders are to wait for the price to consolidate and produce a bullish reversal candle to go long in the pair.

The chart produces a bearish candle. The candle length suggests that the bull may show its strength in the next candle. If that happens, the buyers may find the opportunity to trigger a long entry.

The chart produces a bullish engulfing candle closing well above consolidation resistance. The buyers may trigger a long entry right after the last candle closes. Let us proceed to the next chart to find out how the entry goes.

The price heads towards the North further. Do not forget to notice the upper wick’s length. It means buyers on the minor charts have had a feast here. Most probably, it is because of the Morning Star in the daily chart. When a daily chart produces a Morning Star, it usually attracts buyers in the minor charts and vice versa. Thus, keep your eyes on the daily chart and make full use of it when it produces such a strong reversal pattern.

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Forex Price Action

Trend Line Trading: Establishment and Choosing the Chart Timeframe

In today’s lesson, we are going to learn how a trend line is established and how to choose the chart to trigger entry as far as trend line trading is concerned. Traders at the beginning often are carried away and select a wrong chart to trade with a trend line. The point is, we must choose the right time frame to make the best use of a trend line. Let us now find out how we can do that.

It is a daily chart. The chart shows that the price after making a bullish correction heads towards the South and makes new lower lows. We see four significant swing highs from where the price makes four swing low. If you are a trendline trader, you know from where you have to keep an eye on this chart, don’t you? Then again, let us explore it.

The price produces a spinning top followed by a bearish engulfing candle. It makes a bullish correction and finds its resistance at point B. The price makes a breakout at the last swing low and heads towards the South further. By joining two swing highs, we can draw a down-trending trend line.

The chart shows that the price is down-trending by obeying the drawn trend line with the first two points. Concentrate on the point C. This is where traders keep their eyes to get a bearish reversal candle to go short in the pair. The chart shows that the price produces an inverted hammer. The trend line sellers may go short below the last candle’s lowest low.

As expected, the price heads towards the South with good bearish momentum. The chart produces two consecutive bearish candles. Moreover, the chart makes a new lower low as well. This means the game is not over yet for the trend line sellers. They may wait to go short again from the resistance of the trendline upon getting a bearish reversal candle.

The chart produces a bearish inside bar. The sellers may go short again below the last candle’s lowest low. It seems that the sellers are having a feast here. This is the beauty of trend line trading.

The sellers again make a handful of pips. In fact, the price makes a breakout again at the last swing low. They may wait for the price to go towards the trendline and produce a bearish reversal candle at point E to go short again. Now, let’s flip over to the H4 chart and find out how it looks.

The chart shows that the price is down trending. However, it is tough to find out the signal candle. We get more than one bearish reversal candle at point B and C. At point D, it is extremely confusing were to trigger an entry. With the Daily chart, it is very explicit, though. To be able to choose the right chart that obeys a trend line, we may always concentrate on point B (2nd point) and calculate with which chart it responds more. We then keep our eyes on that particular chart to be able to take entry with precision.

 

Categories
Forex Daily Topic Forex Price Action

Trend Line Trading: It Takes at Least ‘two’ to Draw a Trend Line

In today’s lesson, we are going to demonstrate an example of trendline trading. We try to learn what steps traders need to take to trade using a trendline strategy. We are going to demonstrate a chart, which heads towards the North by obeying an up-trending trend line. With the trend line trading strategy, we must remember, “It takes at least ‘two’ lows to draw a trend line.” Let us proceed and find out how it works.

The chart shows that the price produces a double bottom and heads towards the North. The buyers may wait for the price to make a bearish correction and create a bullish reversal candle to go long in the pair. The last candle comes out as a bearish pin bar. The price may make a bearish correction from here.

The price makes a long bearish correction. It produces several Doji candles. However, it does not create any bullish momentum. It is an H4 chart. The correction takes more than six candles. The level of resistance becomes a daily resistance. Some buyers may skip eyeing on the chart to go long in the pair. Let us see what happens next.

The chart produces a bullish engulfing candle and heads towards the North by making a new higher high. Do you notice anything here? Yes, we can draw an up-trending trend line. Let us draw it.

Over here, we have two swing lows. At the second swing low, the price makes a breakout at the last swing high. It means as far as fundamentals of drawing a trend line is concerned, the chart offers the buyers to draw an up-trending trend line. We must remember that it takes at least two swing lows (price trending higher from those points) to draw a trend line. The buyers are to wait for the price to come at the level of support and produce a bullish reversal candle to go long in the pair.

The price comes at the level of support and produces a bullish pin bar. It is delivered right at the trendline’s support. The buyers may get ready to go long in the pair above the reversal candle’s highest high.

The next candle comes out like a spinning top, which breaks the reversal candle’s highest high. However, the price does not head towards the North according to the buyers’ expectations. Nevertheless, on the next day, the price makes bearish correction at intraday charts and heads towards the North. Let us proceed to the following chart to find out how the trade goes.

The price hits the first target in a hurry. It makes a breakout at the level and creates a new higher high as well. It means the buyers are going to keep their eyes on the chart to go long again from the trendline’s support, and this is the beauty of the trendline trading.

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Forex Price Action

Trend Line Trading: Keep an Eye at New Highs/Lows

In today’s lesson, we are going to demonstrate an example of trendline trading. The trendline trading is one of the most consistent trading strategies. Thus, a trader can make profits by properly dealing with how trends develop. In today’s example, we will demonstrate a chart with an up-trending trendline, where the price goes down trendline’s support. However, it produces a bullish reversal candle and ends up offering a long entry. Let us get started.

The chart shows that the price heads towards the North upon finding its support. It has several higher lows that can be used to draw trendlines. However, before drawing a trendline on a chart, we have to spot out the most significant higher lows to draw an upward trend line and, conversely, the most significant lower highs to draw a downtrend line. Over here, look at the two points with the ‘right’ marks. Let us proceed to the next chart to find out how it looks with a drawn trendline.

We have drawn the trendline by using two right marks. Ideally, traders are to wait for the price to come at the level of support (trendline’s support) and get a bullish reversal candle to go long in the pair. At the last swing low, the price approaches at the level of support. However, the chart does not produce a bullish reversal candle at the level of support. They may wait for the price to come right at the drawn trendline’s support.

The price comes down. One of the bearish reversal candles closes below the level of support. The sellers may become interested here that the price may end up making a bearish breakout. If the next candle closes below the trendline, the sellers may consider having a breakout. Let us find out what happens.

The next candle does not close below the trendline. It comes back in. It means that the price obeys the trendline’s support. The last candle comes out as a bullish Marubozu candle forming by testing the trendline support. The buyers may go long in the pair again and push the price towards the last swing high.

The price heads towards the North at a moderate pace. As far as the bullish reversal candle is concerned, it is supposed to create more buying pressure. Anyway, the price hits buyers’ first take profit target. It may continue its bullish journey if it makes a bullish breakout at the last swing high. If it does not make a new higher high but comes back at the trendline’s support, the price may get choppy. If it makes a new higher high, the trendline becomes active, and the buyers may wait to go long from the trendline’s support again.

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Forex Price Action

Equidistant Channel: An Excellent Price Action Trading Tool

In today’s lesson, we are going to demonstrate a trade setup with Equidistant Channel. Price action traders rely on Equidistant Channel a lot. It is one of the best price action trading tools. However, Forex traders’ life is not as easy as it seems. Like other trading tools, Equidistant Channel needs adjustment. To be able to do that traders need enough knowledge and experience. Let us now proceed to find out what a trader may need to do to make it work for him.

To draw the equidistant channel, we need to find out at least four points. Two swing highs and two swing lows are the best combinations. It works with three swing highs and one swing low or vice versa. In the chart above, we have two swing highs and two swing lows. In naked eyes, it seems that we will be able to draw an equidistant channel here.

We have drawn an equidistant channel. The price is now at the resistance. Some traders go long from here. Ideally, to get a good risk-reward, traders should wait for the price to go at the level of resistance and produce a bearish reversal candle to go short in the pair. Let us find out what happens next.

The chart does not produce a bearish reversal candle. It breaches the level instead. It means this is not a valid equidistant channel anymore. The sellers must be disappointed. What do you think is there any twist in the tail?

The chart makes the new lowest low. It gives three swing highs and one swing low. It means we can draw another equidistant channel. Look at the above chart where the price getting a bounce at the level of support. The price again heads towards the North. Traders may wait for the price to get a rejection at the level of resistance and produce a bearish reversal candle to go short in the pair again.

Here it comes. The level of resistance produces a bearish engulfing candle right at the level of resistance. Traders may trigger a short entry right after the last candle closes. To set take profit, they may use the level of equidistant support. The price often keeps going down with a down-trending equidistant channel. However, the best practice is closing down the trade at the first bounce in case of down-trending equidistant channel trading. Let us find out how the trade goes.

The price hits take profit level like a rocket. Some may regret that they should hold the position and close it manually. Do not forget the rule of sticking with the rule in forex trading. We have seen that the chart does not produce a signal on the first occasion. It rather breaches and lets traders draw another equidistant channel. Yes, it does offer an excellent entry for the sellers too.

Categories
Forex Daily Topic Forex Price Action

Pay Attention to the Signal Candle Along with Reversal Candle

In today’s lesson, we are going to demonstrate an example of a combination of an H1-15M chart trading strategy. The price makes a strong bullish move and makes a long bearish correction. It produces several bullish reversal candles, but the price does not react to all of them. It makes its bullish move at last. We try to find out why it reacts to that particular bullish reversal candle. Let us get started.

This is an H1 chart. The chart shows that the price produces a bullish engulfing candle and heads towards the North. The buyers are to wait for the price to make a bearish correction and produce a bullish reversal candle to go long again in the pair. The last candle comes out as a hanging man. It may make the pair make a bearish correction. Let us proceed to the next chart to find out what happens next.

The price makes a long bearish correction. It produces several bullish reversal candles. However, it does not make its bullish move. If we spot out, we find that there have been three significant bullish reversal candles. To make things clearer, have a look at the chart below.

Here are the three most significant bullish reversal candles that the chart produces. On the first two occasions, the price does not head towards the North. Let’s try to dig out what happens on the first occasion. On the first occasion, the chart produces a bullish engulfing candle. This is one of the strongest bullish reversal candles. The buyers are to flip over to the 15M chart. If the 15M chart produces a bullish continuation candle, they may trigger a long entry. Over here, the 15M chart does not produce a bullish continuation candle. Thus, the price does not head towards the North. On the second occasion, the 15M chart produces a bullish continuation candle. You can assume by the look of the next H1 candle. However, the price does not continue its move or makes a breakout at the highest high. The reason behind that is the reversal candle comes out as an Inside bar. On the third occasion, the reversal candle comes out as a bullish engulfing candle. Let us flip over to the 15M chart.

Look at the arrowed candle. This is what comes out after the bullish engulfing candle. The buyers have been waiting to get a candle like this after a strong H1 bullish reversal candle. They may trigger a long entry right after the candle closes (15M). Let us find out how the price moves now.

It moves towards the North with good bullish momentum. We must notice that when two factors come together, the price reacts vigorously. We may find that sometimes the price moves on the case of the second occasion as well. However, when it meets two of them together (H1 bullish engulfing and 15M bullish continuation and vice versa), most likely, it goes towards the trend and helps traders make money.

Categories
Forex Daily Topic Forex Price Action

It Often Makes You Wait Longer Than You Want

In today’s lesson, we are going to demonstrate an example of a daily-H4 chart combination entry. The daily char produces a bearish engulfing candle at a significant level of resistance. It makes the daily-H4 chart combination traders flip over to the H4 chart to look for a potential entry. The H4 chart shows that the chart creates a double top. Simply, an ideal combination for the traders to go short on that chart. However, things do not go as smoothly as traders expect it to go in the Forex market. Let us find out what happens.

This is the daily chart. The chart shows that the price, after being bullish, has a rejection at the level of resistance marked with the red line. The price comes down and makes a bullish move again. If it makes a breakout, the buyers may push the price further up. On the other hand, sellers are to wait for the price to produce a bearish reversal candle to consider short opportunities. Let us find out what happens next.

The chart produces a bearish engulfing candle. Since it shows in the daily chart, the combination traders may flip over to the H4 chart to look for a short opportunity. A double top resistance and a bearish engulfing candle suggest the sellers may jump in here to drive the price towards the South further.

It is the H4 chart. The chart produces a double top and makes a breakout at the neckline. The combination traders are to wait for the price to consolidate and produce a bearish reversal candle to go short below consolidation support. The price consolidates here. However, considering consolidation length, it is better to skip such entry.

The price heads towards the South with extreme bearish pressure. It travels a long way to produce a bullish reversal candle. The sellers would love to get the reversal candle earlier though. Anyway, it is better late than never.

The chart produces a bearish engulfing candle closing well below consolidation support. The sellers may trigger a short entry right after the last candle closes by setting stop-loss above consolidation resistance with 1R.

The price heads towards the South with good bearish momentum and hits the target. It seems that the price may travel towards the South further. The point to be noticed here is that the chart consolidates after traveling a long way. It would give a better reward if it consolidated and produced the signal candle earlier. It makes the sellers wait for more as well. In the end, the sellers make a profit out of it but think how hard they are to concentrate on it to make it work for them.Traders’ life is not as easy as some people may think.

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Forex Daily Topic Forex Price Action

Even a Fragile Breakout Makes the Price Move

In today’s lesson, we are going to demonstrate an example of a chart producing a double top and offering entry. The breakout does not look that promising though. However, the price heads towards the breakout direction and makes a long bearish move. Let us get started.

The chart shows that the price has a rejection at a level and makes a bearish move. Upon finding its support, it produces a bullish engulfing candle and heads towards the North. The chart produces a bearish inside bar around the level of double top resistance. It may attract the sellers to keep their eyes on the chart to go short upon a neckline breakout.

The price heads towards the South with good bearish momentum. The last candle comes out as a bullish inside bar. It is a sign that the chart may get choppy instead of making a breakout at the neckline. However, we never know. The sellers may keep patience and wait for a bearish breakout.

The price consolidates for a while and makes a bearish move. The last candle closes below the neckline. It is a kind of breakout that the sellers are waiting for, but it is a breakout. Let us wait and see what the price does here.

The chart produces a spinning top. The candle closes within the breakout level. Thus, it is a valid breakout. The sellers may wait for the chart to produce a bearish engulfing candle closing well below the last swing low. Let us proceed to the next chart.

Look at the last candle. The candle comes out as a bearish engulfing candle closing well below the last swing low. The sellers may trigger a short entry right after the last candle closes by setting stop-loss above the breakout level and take profit with 1R.

The price heads towards the South with excellent bearish momentum. It hits the target of 1R in a hurry too. This means the trade setup has worked for the sellers nicely. Considering the breakout factor, the trade setup is not an A+ trade setup. However, we may consider two important factors here.

  1. Double Top
  2. The signal candle.

These two factors are significant to make the price move. Yes, when an A+ momentum breakout goes with two of them, it gives us more chances to make a profit out of the trade. Today’s example shows that as long as it’s a breakout, upon the breakout confirmation, the price may head towards the trend direction with good momentum if the mentioned two factors meet all the requirements.

 

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Forex Daily Topic Forex Price Action

To Hold It or Not?

In today’s lesson, we are going to demonstrate an example of an H4 chart offering entry after consolidation. The price does not head towards the breakout direction after triggering the entry as expected. It is Friday and the market is going to close. The question is whether we hold the position during the weekend or close the position. Let us find this out.

This is an H4 chart. The chart shows that the price heads towards the North with good bullish momentum. The last candle comes out as a bearish inside bar. The chart belongs to the buyers. The price may make a bearish reversal from here. The sellers must wait to get a strong bearish reversal pattern to go short in the pair.

The chart produces another bearish candle followed by a doji candle. The buyers may wait for the price to make a breakout at the wave’s highest high to go long in the pair.

The price heads towards the North but does not make a bullish breakout. If the chart produces a bearish reversal candle around the level, it may get bearish. On the other hand, the buyers may still be hopeful that they get a bullish breakout to push the price towards the North further.

The chart produces a bearish engulfing candle right at the double top resistance. It makes a breakout at the neckline as well. Thus, the sellers may keep their eyes on the chart to go short and drive the price towards the South.

The price consolidates for a while. It produces a bearish reversal candle, but it does not make a bearish breakout to offer a short entry. The last candle comes out as a bullish candle. Both the buyers and the sellers must wait and let the price decide to give them a direction.

The chart produces a bearish engulfing candle closing well below consolidation support. The sellers may trigger a short entry right after the last candle closes by setting take profit with 1R. Let us proceed to the next chart to find out how the trade goes.

The price consolidates again. The chart upon producing a bearish engulfing candle at a double top resistance and getting consolidation, it does not move towards the trend’s direction. The sellers do not expect that. However, this is how the market goes. The market is going to close within three hours. Do the sellers close the position?

It is an H4 chart. If it were other intraday charts such as the H1, 15 M, 5M, we may close the position. In this case, the reversal candle is an engulfing candle; the reversal pattern is a double top; the price consolidates accordingly, and the signal candle comes out as a bearish engulfing candle as well. Thus, considering these factors the sellers may hold the position.