Category: Forex Trading Strategies

This section will present a comprehensive database of publically available strategies.

 

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Forex Daily Topic Forex Price-Action Strategies

Remember the Rule ‘Set and Forget’

In today’s lesson, we are going to demonstrate an example of H1 breakout trading. Usually, in this strategy, the price goes towards the direction with good momentum if things go accordingly. In this example, the breakout candle, breakout confirmation candle are immaculate, but it takes a long pause before it hits the target. It has a lesson to give us. Let us dig into this.

In today’s lesson, we are going to demonstrate an example of H1 breakout trading. Usually, in this strategy, the price goes towards the direction with good momentum if things go accordingly. In this example, the breakout candle, breakout confirmation candle are immaculate, but it takes a long pause before it hits the target. It has a lesson to give us. Let us dig into this.

In today’s lesson, we are going to demonstrate an example of H1 breakout trading. Usually, in this strategy, the price goes towards the direction with good momentum if things go accordingly. In this example, the breakout candle, breakout confirmation candle are immaculate, but it takes a long pause before it hits the target. It has a lesson to give us. Let us dig into this.

The price after being bearish finds its support. It consolidates for a while and produces a bearish pin bar followed by a bearish engulfing candle. Traders are to wait for a breakout at the level of support to get them prepared to go short on the pair.

The last candle breaches the level of support and closes well below the level. The candle is having a tiny lower spike. Ideally, H1 breakout strategy traders wait for such a breakout candle.  They are to wait for the next H1 candle to close below the breakout candle. If that happens, the game is on. Let us proceed to the following chart.

As expected, the next candle closes below the breakout candle. The candle looks very bearish, being an ideal candle to confirm the breakout. The sellers may trigger a short entry right after the last candle closes. Let us have a look at the same chart with some calculations in it.

The sellers may set the level of stop-loss above the level where the trend is initiated. They may set the take-profit level with 1:1 risk-reward. It means

Entry- Stop Loss= Take Profit-Entry.

The price consolidates after the signal candle. It bounces at the level, where it bounced some hours earlier. This is the first sign of a double bottom. It looks the buyers may take over the control, which may make the price hit the stop loss. You may remember, in one of our lessons, it has been recommended that a trader may have to close his entry manually. It was an example of the Friday market. Today’s market is not the Friday market. Thus, we must not close it manually, as it may get us a loss, but we must let it run. Let us wait and see how it ends.

It looks much better now. The price heads towards the South with good bearish momentum. It may not take much time to hit the target.

It does not go according to your calculation. It takes much longer than our expectations. However, it hits the target at last. The lesson that we have learned here is we must let a trade run to do its bit. Once we take entry after measuring the risk-reward, we must be patient. In a word, we must remember the rule ‘set and forget.’

Categories
Forex Basic Strategies

Identifying Accurate Trading Signals Using The Dark Cloud Cover Candlestick Pattern

Introduction

Introduction

Introduction

Dark Cloud Cover is a bearish reversal candlestick pattern. It essentially shows the shift in momentum from the buyers to sellers. This pattern is formed by a bullish candle, which is then followed by a bearish candle. Traders can look for an entry on the next red candle. The Dark Cloud Cover pattern can only be used when it occurs in an uptrend. Because, if the price rises above the Dark Cloud Cover pattern, it becomes less significant to trade. It is essential to know that the bearish engulfing pattern and Dark Cloud Cover pattern are very similar in their appearance. If the second candle of the pattern closes below the previous candle, you have the bearish engulfing pattern; if not, it is a dark cloud pattern.

Criteria to identify the Dark Cloud Cover pattern 

  1. The market must be in an existing uptrend.
  2. The first candle must be bullish candle within that uptrend.
  3. A gap must be on the following day.
  4. The gap up candle must close into a bearish candle.

Dark Cloud Cover Pattern – Trading Strategies

DCC + MACD Indicator

As we always say, do not trade any pattern stand alone in the market. Pairing the pattern with other credible trading tools like indicators or oscillators will dramatically increase the odds of your trades. In this strategy, we have paired the Dark Cloud Cover pattern with the MACD indicator to filter out the low probability trades. MACD indicator stands for Moving Average Convergence and Divergence. It is one of the most popular indicators that has been in use since the late 1970s. It belongs to the oscillator family, and it is designed to measure the magnitude, direction, and rate of change in any underlying currency pair.

STEP 1 – First of all, find the Dark Cloud Cover pattern in an uptrend.

STEP 2 – Wait for a MACD Crossover

Once you have found the Dark Cloud Cover pattern, the next step is to take the sell trade when MACD gives crossover at the oversold area.

As you can see in the below daily chart of the GBPJPY forex pair, the price action turned sideways for some time. After that, it prints the Dark Cloud Cover pattern, and at the same time, we can see the MACD indicator giving a reversal at the overbought area. This is a potential sign for us to go short on this pair.  As mentioned earlier, do not confuse between the Dark Cloud Cover and Engulfing Pattern. In a Bearish engulfing pattern, the red candle completely takes over the preceding green candle, whereas, in the Dark Cloud Cover pattern, the red candle takes over only 50% of the previous green candle.

Step 3 – Take Profit and Stop loss

In this strategy, we have closed our full position at the major support area, and stop-loss was above the Dark Cloud Cover pattern. Price action holds below the support area, but it immediately came back, and prints a brand new higher high. We can also close our positions based on the MACD indicator. When the MACD indicator reversed at the oversold area, it’s a perfect sign to exit our position. Always remember the sure sign of market reversal is when the price action is at the significant support area and the MACD lines crossover at the oversold region.

DCC + Donchain Channel

In this strategy, we have paired the Dark Cloud Cover pattern with the Donchain Channel. Richard Donchain developed the Donchain channel indicator in 1936. He was a fund manager, writer, and also known as the father of trend trading. Once the Donchain channel indicator is plotted on to the price chart, it helps the traders to visualize the price of an asset and if it is relative to the upper and lower bounds of the indicator.

STEP 1 – Find out the Dark Cloud Cover pattern in an uptrend.
STEP 2 – Check if the price action respects the upper Donchain Channel

Once you find the Dark Cloud Cover pattern in an uptrend, the next step is to check if the price action respects the upper Donchain Channel.

The image below represents the EUR/AUD forex pair, and the price action was held at the major resistance area. Before printing the Dark Cloud Cover pattern, the price hits the upper bound of the Donchain channel twice. When price action hits the upper bound of the Donchain channel and if the market prints the Dark Cloud Cover pattern at the same time, it is a clear indication of sellers stepping into the market. After the completion of the pattern, we activate our trade, and for a profit-booking, we aim for the second target.

STEP 3 – Take Profit and Stop loss

In this example, we have two target areas. If you are a short term or intraday trader, then exit your position at first support area, and if you are a positional trader or a swing trader, then go for target two. When you activate your trade and if the market has two major support areas, always try to exit your position at target two, because the end goal of every trader is to make as much money as possible when the market gives them an opportunity & minimize the losses when the trade goes against them. The placement of stop-loss should always be above the Dark Cloud Cover pattern.

Bottom Line

The Dark Cloud Cover is quite a popular trading pattern in the industry, and it can easily be recognized on the price charts. This pattern is only useful or reliable to trade when it appears in an overall uptrend. This pattern identifies the shift in momentum from buyers to sellers. The test of the resistance line or trend line can be used as a confirmation tool to take sell trades. If you are using the Dark Cloud Cover pattern alone, always use it on the higher timeframe. Also, use more significant stop loss because none of the indicators or patterns are capable enough to indicate accurate signals all alone. On a lower timeframe, this pattern often provides some false signals. Still, by pairing it with other trading indicators, we can dramatically filter out the low probability signals.

We hope you find this article useful. Try trading this pattern with the indicators we have mentioned above to maximize your profits, as these combinations have been back-tested by experienced traders. Cheers!

Categories
Forex Basic Strategies

Pairing The Shooting Star With Stochastic & Awesome Oscillators

Introduction

Introduction

Introduction

The Shooting Star is one of the most popular bearish candlestick patterns in the industry. This pattern appears in an uptrend most of the time, and it indicates bearish reversals in the price action of any underlying currency. So basically, when this pattern appears on the charts, it implies that the buyers are exhausted, and its sellers turn to lead the market. Once we have identified the Shooting Star pattern in an uptrend and confirm the trend reversal with any other credible indicator, we should look to open a short position.

This pattern has a unique structure as it consists of a small body and a high upper wick, as shown in the image below. This image accurately represents the trend reversal because we can clearly see the buyers losing momentum and sellers taking over the market.

Trading strategies with the Shooting Star pattern

Shooting Star + Stochastic Indicator

In this strategy, we have paired the Shooting Star pattern with the Stochastic Indicator to identify the trading opportunities. Just like RSI and MACD, the Stochastic Indicator also belongs to the oscillator group. It is developed in the 1950s, and it is still widely used by the traders. The Stochastic indicator oscillates between 0 & 100 levels. When the indicator goes below 20, it means that the currency pair is oversold. Similarly, when the indicator goes above the 100 level, it indicates that the currency pair is overbought.

STEP 1 – First of all, find the Shooting Star pattern in an uptrend.

STEP 2 – Check the Stochastic indicator

Once you find the Shooting Star pattern, the next step is to check the Stochastic Indicator. If the indicator is giving a reversal at the oversold area, it indicates the overbought market conditions.

The image below represents the EUR/USD weekly Forex chart. In this pair, price action was held at a significant resistance area, and it prints the Shooting Star pattern. Also, the Stochastic indicates the overbought conditions. These three clues clearly say that this pair is all set to change its direction. The Stochastic pattern on a higher timeframe has very higher chances to perform. So whenever you find this pattern, and if it supports the rules of this strategy, always trade big.

Step 3 – Stop-loss and Take Profit

A stop loss is specially designed to limit the loss of the trader. So before activating your trade, it is essential to decide where you are going to place the stop loss. In the example above, we put the stop loss just above the Shooting Star candle.

Shooting Star pattern indicates the reversal in price action. This means that we are catching the top of the trend. As the end goal of every trader is to maximize their profits and minimize losses, always try to hold the positions for more extended targets.

In the example, we have closed our position at a higher timeframe support area. We can use the higher timeframe support or look for the Stochastic Indicator to reach the oversold area. Another way to close the position is when the market reaches the major support area while the Stochastic is in the oversold area.

As we can see in the image below, we closed our full position at a significant support area. You can use the Stochastic or any other trading tool to exit your position, but we always suggest to use the considerable support/resistance area to book profits.

Shooting Star Pattern + Awesome Oscillator

In this strategy, we have paired the Shooting Star pattern with the Awesome Oscillator to identify the trading opportunities. The Awesome Oscillator is a boundless indicator. When the Awesome Oscillator reverses below the zero-level, it indicates the buying pressure. When it reverses above the zero-level, it means sellers are ready to lead the market. Furthermore, some traders use this indicator to confirm the strength of the trend. When the indicator goes above zero-level, it means the buying trend is quite strong, and when it goes below the zero-level, it shows the sellers dominating the market.

Step 1 – First of all, find the Shooting Star pattern in an uptrend.

Step 2 – Look for the Awesome oscillator reversal

Once we find the Shooting Star pattern, the next step is to take a sell-entry when the Awesome Oscillator reverses at overbought market conditions.

The image below is the EURUSD 240 chart. On this pair, at first, the buyers were quite weak, and they started holding at the resistance area. Furthermore, in that small range, price action turned sideways, and it printed the Shooting Star pattern. The Awesome Oscillator even reversed at the overbought conditions. Both of the trading tools are indicating the exhaustion of the buyers. And sellers are ready to take over the market.

Step 3 – Take Profit and Stop loss

Every trader has different expectations from the market, some like to trade short term trends, and some like to trade longer-term moves. If you are an intraday trader, then we suggest you close your position when the Awesome Oscillator reverses at the oversold area. But, if you are a swing trader or investor, wait for the opposite pattern (Hammer Pattern) to appear to close all of your positions. We can even use the higher timeframe support/resistance area to close our positions.

We advise you to place the stop-loss order above the Shooting Star pattern. As you can see in the image below, we booked full profits at the major support area. After that, the price action dropped a bit more but reversed immediately to follow the buy direction. It is important not to ignore the higher timeframe support/resistance areas.

The psychology behind the Shooting Star Pattern

At first, we see the buyers enjoying the uptrend as the price of the currency keeps printing brand new higher high. As this euphoric moment begins to set in, the sellers start to sell their positions at higher prices. Now the buyers get panicked, and even they start to sell their positions. Now that the buyers and sellers are both selling their positions, panic is created in the market, which leads to a sharp reversal in price action. Thus a long wicked small body candle appears on the trading charts.

Keep in mind that the Shooting Star pattern is more reliable when it is formed after the three consecutive bullish candles. It creates strong bullish pressure on the price chart, and in such cases, the upper wick of Shooting Star is even longer. It indicates that the price is about to reverse with even more strength.

Bottom line

The Shooting Star is a single candle pattern, and it is the most popular trend reversal pattern in the industry. There is a strong psychological pattern that exists beyond the Shooting Star pattern. When the market is in an uptrend, and when buyers gain exponential strength, most of the traders book the profit, and as a result, the bullish trend loses its strength. This results in sellers sending the price down. Most of the time, the Shooting Star pattern provides the 3:1 risk-reward ratio trades.

We hope you find this article informative. Please let us know if you have any questions regarding the same in the comments below. Cheers!

Categories
Forex Price-Action Strategies

When Things Go Like This

In today’s lesson, we are going to demonstrate an example of H1 breakout trading. We have come to know that it is an excellent trading strategy. It offers 1:1 risk-reward but maintains a tremendous winning consistency. However, the H1 chart is to maintain some attributes to offer us entry with the strategy. Today’s example is […]

In today’s lesson, we are going to demonstrate an example of H1 breakout trading. We have come to know that it is an excellent trading strategy. It offers 1:1 risk-reward but maintains a tremendous winning consistency. However, the H1 chart is to maintain some attributes to offer us entry with the strategy. Today’s example is […]

In today’s lesson, we are going to demonstrate an example of H1 breakout trading. We have come to know that it is an excellent trading strategy. It offers 1:1 risk-reward but maintains a tremendous winning consistency. However, the H1 chart is to maintain some attributes to offer us entry with the strategy. Today’s example is one of the ideal charts with those attributes. Let us have a look.

The chart shows that the price gets caught within two horizontal lines. The last candle comes out as a bearish Marubozu candle. Thus, It may be the beginning of a new bearish trend. Traders must wait for the price to continue its bearish move and make a breakout at the level of support.

The price continues its bearish move. The last candle comes out as a strong bearish candle closing below the level of support. It is an explicit breakout. Here comes the trickiest part of this strategy. Traders must wait for the next candle to close below the breakout candle. Let us find out what the price does in the next chart.

Look at the confirmation candle. This is one good-looking bearish candle. Traders shall look for such candle for the breakout and breakout confirmation to trade with H1 breakout trading. A short entry may be triggered right after the last candle closes. Let us find out the level of Stop Loss and Take Profit.

Measure the difference between Stop Loss to Entry and set the Take Profit at the level with the same distance. In a word, it gives us 1:1 risk-reward. It often travels more, but usually, the price consolidates after hitting the target with 1:1 risk-reward. Let us proceed and find out how the trade goes.

The price heads towards the Take Profit level with extreme bearish momentum. The level where we set Take Profit, the price seems to be making another breakout. It looks the sellers still have the controls. However, as far as H1 breakout trading is concerned, the sellers are out with the profit.

You might have noticed that after the breakout confirmation, how the price heads towards the South. It does not take any pauses. We must not be certain about the reasons since it is the Forex market. However, if we consider

  1. The trend initiating candle
  2. The breakout candle
  3. The breakout confirmation candle

We see that three of these candles have all the attributes that the sellers look for in an ideal bearish market. In a bullish market, it is vice versa. If things go like this, H1 breakout trading is one of the most consistent winning strategies. In most cases, the price hits the target as we have demonstrated the example in today’s lesson.

Categories
Forex Basic Strategies

How To Trade The ‘Three Black Crows’ Pattern Like A Professional Forex Trader

Introduction

Introduction

Introduction

Three Black Crows is a bearish candlestick pattern that consists of three consecutive red candles. This is a visual pattern and can be identified easily on the price action charts. The Three Black Crows pattern essentially indicates a shift in control from bulls to bears. In the book known as ‘Candlestick Trading Technique,’ Steve Nison says that this pattern is one of the most useful ones for longer-term trades.

⭐ In an uptrend, this pattern consists of three consecutive bear candles that have large bodies of roughly the same size. The Three Crows pattern confirms the strength of the sellers.

⭐ Each candle should be open and close lower than the previous candle.

⭐ Each candle should mark a successive decline in price action and should not have long shadows or wicks. Using this trading pattern in conjunction with other technical indicators will enhance the probability of winning the trade.

Trading Strategies With Three Black Crows Pattern

TBC Pattern + Bollinger Bands

In this strategy, we have paired the Three Black Crows pattern with the Bollinger Bands to identify accurate trading signals. The Bollinger Bands indicator is developed by the technical trader John Bollinger. It consists of a centerline and two bands above and below the price chart. The bands of the indicator contract and expand according to the different market conditions. In a volatile market, the bands of the indicator expand and in a dying market condition the bands’ contract.

Step 1 – First of all, find the Three Black Crows Pattern in an uptrend.

Step 2 – Take a sell-entry when the Three Black Crows pattern hit the upper band of the Bollinger Bands Indicator.

In the above chart of the NZD/USD forex chart, we can see that the pair was in an overall uptrend. Around the 4th of November, price action prints Three Black Crows, which is an initial clue to go short. Furthermore, price action also respects the Bollinger upper band, which is a sign to go short on this pair.

Step 3 – Stop-loss & Take Profit

Placing accurate Stop loss is one of the most critical aspects of successful trading. Some of the novice traders never use stop loss, and it is the biggest mistake they do. We always suggest the traders use the stop-loss order in every trade they take. If you have the fear that your trade might hit the stop loss, then use a deeper stop loss and expect only 1R trades. If you are an aggressive trader, then stop loss above the Bollinger bands is the safest idea.

The basic idea most of the traders have is to exit their positions when price action hits the lower band of the Bollinger band indicator. If you follow this strategy, there will be fewer chances of you making money. Because price action moves in cycles, and prices often hit the upper and lower bands. We suggest you always use the higher timeframe major support area for booking your profits. You can also close your position when the market prints the Three White Soldiers pattern, which is quite the opposite of the Three Black Crows pattern.

In the above example, we have closed our full position when the market reached a previous major support area. Most of the time, price action always reacts from a significant support area. In our case, when we closed our position (yellow dotted line), price action immediately changed its direction.

TBC Pattern + MACD Indicator

In this strategy, let’s learn how to trade the Three Black Crows pattern by combining it with the MACD indicator to identify reliable trading signals. MACD is a trend following indicator, and it stands for Moving Average Convergence and Divergence. This indicator consists of a histogram, moving averages, and a centerline. Traders use the MACD moving average crossovers to identify the trading signals. When the moving averages of the indicator go above the zero-line, it indicates a buy signal. Likewise, when it goes below the zero-line, it indicates the sell signal.

Step 1 – First of all, find the Three Black Crows Pattern in an uptrend.

Step 2 – The strategy is this – when market prints the Three Black Crows pattern, see if there is a crossover happening on the MACD indicator at the overbought area. If there is a crossover, it is a clear sign to go short in any underlying currency pair and vice-versa to go long.

In the image below, GBP/CAD was in an overall uptrend. When price action prints the Three Black Crows pattern, it indicates the ongoing trend reversal in the near future. Furthermore, when crossover happened on MACD, it’s a clear signal that the GBP/CAD is ready to start a downtrend afresh. After our entry, price held for a bit at the support area and dropped to print a brand new lower low.

Step 3 – Stop-loss & Take Profit

Put the stop loss above the first candle of the Three Black Crows pattern and close your whole position when price action reached a significant support area.

As you can see in the image below, we closed our full position at the major support area. Overall it was not a smooth ride, but our position didn’t go into loss even for a single time. Traders can also close their positions according to market situations, or according to their trading style.

Bottom Line

Three Black Crows pattern is one of the most famous and popular trading patterns out there. This pattern can be used to identify the trend reversals in an upward market. Whenever you find a Three Black Crows pattern on the price chart, we suggest you sit up straight and understand if this pattern has the potential to reverse the market or not. It is always advisable to pair this pattern with other trading tools to confirm the indication. Traders can also use this pattern to enter or exit a trade. Some traders use this pattern with the combination of other trading tools in order to close their full position. The end goal is to use this pattern to identify trading opportunities and trend reversals more accurately. Cheers!

Categories
Forex Daily Topic Forex Price-Action Strategies

Friday Trading May Need More Attention

The Forex market is open from Monday to Friday. Since Friday is the last day of the week, traders may need to look after their trade more. To be precise, they may need to close their intraday trades manually. In today’s lesson, we are going to demonstrate an example of this.

The Forex market is open from Monday to Friday. Since Friday is the last day of the week, traders may need to look after their trade more. To be precise, they may need to close their intraday trades manually. In today’s lesson, we are going to demonstrate an example of this.

The Forex market is open from Monday to Friday. Since Friday is the last day of the week, traders may need to look after their trade more. To be precise, they may need to close their intraday trades manually. In today’s lesson, we are going to demonstrate an example of this.

This is an H1 chart. The price after being bearish has been trapped within a rectangle. It could make a breakout either side. However, the last candle suggests that the price is bearish biased. It closes within the level of previous swing low. If the price makes a bearish breakout, the sellers may trigger a short entry upon the breakout confirmation. Let us proceed to the next chart.

The price action produces an inside bar. As we know, an inside bar is a relatively weak reversal candle. It may push the price towards the North; however, if a bearish candle breaches the level of support, the sellers may get ready to go short on the pair.

The last candle breaches the level of support. It is not an explicit breakout. Nevertheless, the candle closes below the level. If the next candle closes well below the breakout candle, the sellers may trigger a short entry by setting the Stop Loss above the trend-initiating candle.

Yes, the next candle closes well below the breakout candle. The sellers may trigger a short entry right after the last candle closes. Usually, the take profit level is to be set with a 1:1 risk-reward ratio on the H1 breakout strategy. Do not forget that it is Friday. It is an essential factor to remember while trading in the H1 breakout trading strategy.

The last candle gets us some green pips. It looks good now. Most probably, it is going to get us the reward, which it usually does. We must wait and hold the position.

We have been waiting for long. The price has been on strong consolidation. It is still to travel more to hit the Take Profit. As mentioned, it is Friday. The market is about to close (within 2 hours). Usually, most of the pairs get sluggish before the market closes on Friday. On Monday, many pairs start trading with a gap. There is no point holding H1 breakout positions during the weekend. Thus, we may close the trade manually and be happy with half the profit of our expectations.

Categories
Forex Price-Action Strategies

Does the ABC Pattern Give Any Clue about the C Point?

We have learned about the ABC pattern in some of our previous lessons. The C point is the most crucial factor to trade on the ABC pattern. Traders use Fibonacci retracement, flipped support/resistance to spot out the C point. Fibonacci retracement works like magic, which we will learn soon. In today’s article, we will demonstrate […]

We have learned about the ABC pattern in some of our previous lessons. The C point is the most crucial factor to trade on the ABC pattern. Traders use Fibonacci retracement, flipped support/resistance to spot out the C point. Fibonacci retracement works like magic, which we will learn soon. In today’s article, we will demonstrate […]

We have learned about the ABC pattern in some of our previous lessons. The C point is the most crucial factor to trade on the ABC pattern. Traders use Fibonacci retracement, flipped support/resistance to spot out the C point. Fibonacci retracement works like magic, which we will learn soon. In today’s article, we will demonstrate an example of an ABC pattern and try to find out whether it gives us any clue about the level before it produces the C point.

This is a daily chart. The price after being very bearish makes a bullish move. The price produces a bearish reversal candle. It is an inside bar not being a strong bearish reversal candle. However, we must notice where it is produced. Let us have a look at the same chart with some horizontal lines.

Look at the chart now. The price reacted at the level earlier. The level worked as a strong level of resistance and drove the price towards the downside. This time, the level produces a bearish reversal candle. The ABC pattern traders usually wait for such price action around such levels. To take an entry, the daily-H4 chart combination traders are to flip over to the H4 chart.

The price produces a reversal candle. It may consolidate now. The sellers are to get a bearish reversal candle and to find out a level of resistance to set their Stop Loss above it. A breakout at the level of support is the signal to trigger a short entry.

The price consolidates. Upon getting its resistance, it makes a breakout. A short entry may be triggered right after the last candle closes. The price may find its next support at the red-marked level (point B). Let us find out how the trade goes.

The trade goes well. The price heads towards the Take Profit with extreme bearish pressure. Since this is an ABC pattern’s daily-H4 chart combination, the price may travel towards the South further. The sellers may consider taking partial profit here. Taking Partial Profit usually increases our chance of getting more pips. When we can find out an ABC pattern, and we are trading on the C point, it often gets us more profit in the end. To be able to spot out the C point, we must practice a lot with Fibonacci retracement, eyeing on flipped levels, and previous levels of support/resistance.

Categories
Forex Basic Strategies

Trading The ‘Three White Soldiers’ Candlestick Pattern (With RSI & EMA)

Introduction

Introduction

Introduction

The Three White Soldiers is a bullish candlestick pattern. This pattern is highly reliable and quite potent when it is found at a significant support area in a downtrend, which indicates sharp price reversals from a bear market to a bull market.

  1. Three White Soldiers pattern consists of three consecutive bullish candles; typically, this pattern should be traded when found at the end of a downtrend.
  2. Each candle should open and close higher than the previous candle.
  3. The candles must have small or no wicks. Because that indicates, the buyers managed to close the price of the currency pair at the high of a candle. If the third candle is smaller than the preceding two candles, it indicates that the buyers do not have much strength, and the market can easily print a new lower low.

Candles get printed on every trading chart in all the timeframe. But only the candlestick patterns in the right context of the market will be rewarded. The Three White Soldiers pattern that we are going to discuss is one of the most credible and reliable patterns we have come across. Trading legend Gregory L. Morris, in his book ‘Candlestick Charting Explained,’ said that the Three White Soldiers is extremely rewarding if traded correctly and it should never be ignored.

Trading Strategies

Three White Soldiers + RSI indicator

In this strategy, we have paired the Three White Soldiers pattern with the RSI indicator to identify good trading signals. RSI is a well-known oscillator, and it stands for the Relative Strength Index. The RSI indicator has a reading from 0 to 100. When the indicator line goes above the 70, it indicates the overbought conditions. When the indicator lines go below the 30 levels, it means the market is in an oversold condition.

Step 1 – First of all, find the Three White Soldiers pattern in a downtrend.

Step 2 – When market prints the Three White Soldiers, our next step is to check the RSI indicator. If the RSI indicator is at the oversold area and gives a sharp reversal, it means that both of the trading tools support the buying entry in any underlying currency pair.

In the example below, GBPNZD was in an overall downtrend. At first, market prints the Three White Soldiers pattern, and the RSI was at the oversold area. This condition indicates a potential trend reversal. We can see that the pattern candles are quite strong, and the RSI indicator also supported our strategy. This aspect creates an illusion for novice traders to take the trade immediately. However, it is not a good way to enter the trade. We suggest you always wait for 2-3 candles to confirm the stability of the pattern.

Step 3 – Step Loss & Take Profit

In this example, we have put the stop loss just below the low of the first candle of three green candles. When two leading trading tools indicate the same signal, always use smaller stops so that you can maximize your profits.

For this strategy, there are several ways to book the profit. We can close our position at a significant resistance area or when the RSI indicator reaches the overbought area. If your plan is to ride the longer moves, we suggest you closing your position when the market prints the Three Black Crows patterns. This pattern is the complete opposite of the Three White Soldiers pattern.

The example below belongs to the daily chart. Keep in mind that stronger the support/resistance area on the higher timeframe, more chances the market has to respect that area. In our example, the last time price respects the resistance line, so we decided to close our full position at a resistance area. Overall it was 1500+ pip move on the daily chart. These kinds of higher timeframe trades are suitable only for big investors.

Three White Soldiers + EMA

In this strategy, we have paired the Three White Soldiers pattern with the EMA to filter out the bad trading signals. EMA stands for Exponential Moving Average. The EMA is used to highlight the current trend and to spot the trend reversals. Trading signals can also be generated when the EMAs are read correctly. Generally, when the EMA goes above the price action, it indicates a sell signal, and when it goes below the price action, it indicates a buying signal.

Step 1 – Of course, the first step here is to identify the Three White Soldiers pattern on the charts.

Step 2 – When market prints, the Three White Soldiers, and EMA go below the price action, it indicates the buying signal.

In the below EURAUD weekly Forex chart, when the market prints the Three White Soldiers pattern, EMA was also below the price action. This indicates a potential price reversal of this currency pair. Even when both the pattern and EMA indicates the signal, we decided to wait for 3 to 4 candles to confirm the strength of the pattern. We can see that the market holds there for a couple of candles, which is a clear cut sign to go long on this pair.

Initially, the market goes higher for some candles, but it didn’t reach our major target. Our position goes into the loss a couple of times. Do not panic and lose trust in your strategy because the price didn’t hit the stop loss yet. Trading is a game of patience and only close your position when the market hit the stop loss or take profit. In this case, waiting patiently led to fruitful results as our trade hits the take profit.

Step 3 – Stop Loss & Take Profit

In the above chart, we have placed the stop loss above the exponential moving average because it works as a dynamic support/resistance to price action. We closed our full position when EMA goes above the price action.

Conclusion

Most of the times, Three White Soldiers pattern appears at the end of a downtrend. Sometimes it also prints after a lengthy consolidation phase. Although it is not a strong bullish sign if you want to trade the consolidation phase, always pair this pattern with other technical tools to filter out the negative signals. The volume is the most critical thing to enhance the reliability of the pattern when the market is in a consolidation phase.

Categories
Forex Price-Action Strategies

The Daily-H4 Chart Combination May Have More to Offer

We have been learning the daily-H4 chart combination trading, where we flip over to the H4 chart once we get a daily reversal candle. In today’s lesson, we are going to demonstrate the strategy, which offers entry in a different way. This strategy is quite handy. We find out the reason in a minute. This […]

We have been learning the daily-H4 chart combination trading, where we flip over to the H4 chart once we get a daily reversal candle. In today’s lesson, we are going to demonstrate the strategy, which offers entry in a different way. This strategy is quite handy. We find out the reason in a minute. This […]

We have been learning the daily-H4 chart combination trading, where we flip over to the H4 chart once we get a daily reversal candle. In today’s lesson, we are going to demonstrate the strategy, which offers entry in a different way. This strategy is quite handy. We find out the reason in a minute.

This is a daily chart. The chart produces a bullish engulfing candle, with its the swing high far enough. This allows that daily-H4 chart combination traders enough space to hunt for pips. This is time for the traders to flip over to the H4 chart.

The H4 chart shows that the price heads towards the North with good bullish momentum. The last candle comes out as a bullish candle. However, it closes within the last H4 candle’s resistance. Traders are to wait for consolidation and bullish H4 reversal candle to go long on the pair.

The price consolidates and produces a bullish reversal candle. However, the price does not breach the consolidation resistance yet. Moreover, you may have noticed that there have been six H4 candles. It means the whole trading is passed, but the price does not make any breakout. Please note that if the H4 chart does not produce a reversal candle followed by a breakout at the highest high or lowest low within the next day, the daily-H4 chart trade setup is not valid anymore. This means we have wasted our time. It is a part of trading. We must take it professionally. However, we may have good news here. Let us flip over to the daily chart again.

The last daily candle comes out as an Inside bar. As far as the candlestick pattern is concerned, the price is bullish biased. If we get a bullish engulfing candle closing above the last two candles, the price may head towards the red marked level.

Here it comes. A bullish engulfing candle with a long lower shadow closes above the last two candles. This is a buy signal to go long for the daily traders (it is a daily chart). Daily traders may trigger a long entry right after the candle closes. Take Profit level is to be set at the red marked level, and Stop Loss is to be placed below the signal candle’s lower low. Make sure that it offers a 1:1 risk-reward ratio, at least. Let us find out how the trade goes.

It goes well. It may go towards the North further. Nevertheless, traders may either close the whole trade or take partial profit, at least. The bottom line is we may be eying on a pair to take an entry on a daily-H4 chart combination. The H4 timeframe may not offer an entry. However, the daily chart may do. This is how our effort, time never go in vain, but we make most of our invested time and effort.

Categories
Forex Daily Topic Forex Price-Action Strategies

The Trend on the Daily Chart Means a Lot

Most of the Forex trading platforms have charts from 1M to Month. It is a debatable issue to determine the best chart among them. All these charts have merits as well as demerits. However, the Daily Chart plays an important role as far as determining the trend is concerned in the Forex market. In today’s lesson, we are going to demonstrate an example of how long term trend on the daily chart may help us guess the price’s next direction.

Most of the Forex trading platforms have charts from 1M to Month. It is a debatable issue to determine the best chart among them. All these charts have merits as well as demerits. However, the Daily Chart plays an important role as far as determining the trend is concerned in the Forex market. In today’s lesson, we are going to demonstrate an example of how long term trend on the daily chart may help us guess the price’s next direction.

Most of the Forex trading platforms have charts from 1M to Month. It is a debatable issue to determine the best chart among them. All these charts have merits as well as demerits. However, the Daily Chart plays an important role as far as determining the trend is concerned in the Forex market. In today’s lesson, we are going to demonstrate an example of how long term trend on the daily chart may help us guess the price’s next direction.

This is a daily chart. The price after being very bearish gets choppy. A bullish breakout may make the price go towards the North. On the other hand, a bearish breakout keeps the price being bearish. It could go either way. However, the long-term trend on this chart is bearish biased. Moreover, the last candle comes out as a bearish engulfing candle. Thus, the pair may get bearish again. Let us flip over to the H4 chart and find out how it looks.

The chart shows that the price has been bearish on the H4 chart. However, the price finds its support at the same level, where it had a bounce earlier. If we consider only the H4 chart, the price may get bullish. Do not forget that the daily chart’s long-term trend is bearish. Let us proceed to the next H4 chart.

The last candle comes out as a bearish engulfing candle closing below the level of support. It may get tough to guess what happens here. Have a look at the same chart with two horizontal lines to make things simpler.

The price produces that bearish engulfing candle after a bullish corrective candle. The Stop Loss level is explicit, so it is entry-level. The sellers may trigger a short entry right after the last candle closes. Since there is no support nearby, the sellers may hold their entry until it produces a bullish reversal candle.

The short entry goes well — the price heads towards the South with good bearish momentum. The last candle comes out as a bullish engulfing candle. It is a strong bullish reversal candle. It is time for the sellers to close the entry.

As mentioned, the price in such a case can make a bullish breakout too. Traders must look for long entries then. However, in such price action on the daily chart, we may concentrate more on the chart when it produces a reversal candle in favor of the long-term trend. This is how we give ourselves more chances of getting an entry.

 

Categories
Forex Price-Action Strategies

The Better the Risk-Reward, the More the Opportunities

Risk-Reward is an extremely important factor in price action trading. The price action of a chart is related to risk-reward to some extent. In today’s lesson, we are going to reveal an example of that. Despite the daily chart producing a bearish reversal candle, the H4 traders do not get the opportunity to take an […]

Risk-Reward is an extremely important factor in price action trading. The price action of a chart is related to risk-reward to some extent. In today’s lesson, we are going to reveal an example of that. Despite the daily chart producing a bearish reversal candle, the H4 traders do not get the opportunity to take an […]

Risk-Reward is an extremely important factor in price action trading. The price action of a chart is related to risk-reward to some extent. In today’s lesson, we are going to reveal an example of that. Despite the daily chart producing a bearish reversal candle, the H4 traders do not get the opportunity to take an entry. However, something interesting happens afterwards. We find that out in a minute.

This is the daily chart. The chart shows that it produces a bearish inside bar, which is a not a strong bearish reversal candle. Nevertheless, a good consolidation and a bearish engulfing candle on the H4 chart may attract the sellers to go short on the pair. The nearest support is not too far. However, if we flip over to the H4 chart, we will be able to find out whether it offers a 1:1 risk-reward or not.

This is the H4 chart. The chart shows that if it starts consolidating now, it may offer 1:1 risk-reward (depending on the breakout candle). Thus, sellers may wait for a consolidation and an H4 bearish engulfing candle to make some green pips.

It does not consolidate but keeps going towards the South. The sellers on the minor charts may have found some short entries earlier. Since we are dealing with the daily-H4 combination, we may not shift our concentration on the minor charts of this pair. Do you notice one thing? Concentrate and try to find an interesting thing about the chart. The interesting fact about the chart is it has made a breakout on the H4 support. It consolidates and seems to have obeyed the breakout level. A bearish engulfing candle may attract the price action sellers to go short. Have a look at the chart below.

Here it is. A bearish engulfing candle breaches the consolidation support. Look at the red marked take profit level. In naked eyes, it offers an excellent risk-reward. As far as the daily-H4 chart combination trading is concerned, the pair may head towards the take profit level with good bearish momentum. Let us find out how the trade goes.

As expected, the price heads towards the downside and hits the take profit with ease.

On the first occasion, the price neither consolidates nor offers an entry. On the second occasion, it consolidates nicely and produces an ideal bearish engulfing candle to offer a short entry with an excellent risk-reward. I am not saying that it never offers an entry on such occasions (first occasion). Risk-reward attracts more traders. Thus, if there is a better risk-reward, most likely, there is more opportunity for traders.

Categories
Forex Price-Action Strategies

The Lesson We Learn from Such Price Action

In today’s article, we are going to demonstrate an example of a trade, which does not go according to the price action traders’ expectations. We try to dig out what goes wrong with the trade. Let us get started.

In today’s article, we are going to demonstrate an example of a trade, which does not go according to the price action traders’ expectations. We try to dig out what goes wrong with the trade. Let us get started.

In today’s article, we are going to demonstrate an example of a trade, which does not go according to the price action traders’ expectations. We try to dig out what goes wrong with the trade. Let us get started.

This is a daily chart. The chart produces an inside bar right at the level where the price had a rejection earlier. The buyers, according to price action trading, usually wait for the price to produce a bullish reversal candle around such levels. However, the buyers may remember an important point here that the bullish reversal candle is an inside bar. An inside bar is not known as a strong reversal candle. Nevertheless, it is a daily bullish reversal candle producing right at the level of support, so they daily-H4 buyers are to flip over to the H4 chart.

The H4 chart’s price action is bullish. The last candle comes out as a bearish pinbar. The price may consolidate soon. If that happens, followed by an H4 bullish breakout, buyers may go long on the pair. The next significant swing high is far, offering a tremendous risk-reward.

The price consolidates and produces a bullish engulfing candle breaching the level of resistance. The consolidation does not look an ideal one. Ideally, the buyers may trigger a long entry here. This is what we have been learning on daily-H4 chart trading lessons. Let us assume that we take a long entry here. Let us find out how the trade goes.

The next candle comes out as a bearish candle. It does not hit the stop loss, but it looks ominous. Since taking a loss is an unavoidable thing in trading, so we may let it go. This is what we have been learning, as well. Let us find out what happens next.

It hits the stop loss. As far as trading psychology is concerned, we must not let it take over us. However, with this trade, two things may hold many price action buyers back taking the entry.

  • An inside bar bullish daily reversal candle
  • Ugly looking consolidation

We have demonstrated on many occasions, an inside bar daily reversal candle with good-looking consolidation ends up offering a winning entry. On some lessons, an unusual consolidation but with a daily bullish reversal candle does the same. Over here, a combination of both ends up offering a losing entry. On some occasions, such price action (inside bar daily reversal candle and unusual consolidation) may end up offering a winning entry. However, to have better winning consistency, we may skip taking entry on such price action.

 

Categories
Forex Price-Action Strategies

An H1 Trading Strategy, A New Arrow in the Quiver

The H1 chart is one of the most traded charts in the Forex market. This is a very consistent chart considering other intraday charts. In today’s article, we are going to learn a strategy to trade on the H1 chart in the Forex market. This is an H1 chart. The price after making a bearish […]

The H1 chart is one of the most traded charts in the Forex market. This is a very consistent chart considering other intraday charts. In today’s article, we are going to learn a strategy to trade on the H1 chart in the Forex market. This is an H1 chart. The price after making a bearish […]

The H1 chart is one of the most traded charts in the Forex market. This is a very consistent chart considering other intraday charts. In today’s article, we are going to learn a strategy to trade on the H1 chart in the Forex market.

This is an H1 chart. The price after making a bearish move seems to have found its support. It produces two consecutive bullish candles. The buyers are to wait for the price to consolidate and create a bullish breakout to go long. On the other hand, the sellers are to wait for a bearish reversal candle and make a bearish breakout to go short on the pair. Let us find out what the price does next.

The chart produces a bearish engulfing candle, which is the strongest bearish reversal candle. The sellers have the upper hand here. A breakout at the level of support is the next thing to take a short entry here.

The price consolidates around the level of support. The level of support becomes double bottom support. A strong battle is going on between the buyers and the sellers. Traders must wait to find the next direction.

It makes an explicit bearish breakout. Admittedly, the sellers have outplayed the buyers. Traders shall get themselves ready to go short on the pair. The question is why they have to get themselves ready. Should not they trigger any entry right after the last candle closes? The answer is no. They must wait for the next candle to close below the breakout candle. This is the trickiest part of this strategy. Traders must wait for one more candle to make a new lower low (in a bearish market).

Here it comes. The next candle comes out as a bearish candle closing well below the breakout candle. An entry may be triggered right after the last candle closes. The stop loss level is easy to be found out. It is above the level where the trend initiates. We see that a red marked take profit level as well. However, the chart does not show that it is a significant level. How do we find this out then? We may set our take profit exactly with a 1:1 risk-reward ratio. It means the length of entry to stop loss equals to the length of entry to take profit in this strategy. Let us find out how the trade goes.

The trade goes well. We will demonstrate more examples of this strategy soon. Meanwhile, let us concentrate on the things to remember.

  1. The trend initiation candle is to be a strong reversal candle.
  2. The breakout is to be very explicit.
  3. The very next candle is to close below (in a bearish market) or close above (in a bullish market).
  4. Take Profit is to be set with no more than 1:1 risk-reward.
Categories
Forex Price-Action Strategies

Trading the ABC Pattern

In today’s lesson, we are going to demonstrate an example of an ABC pattern trading on a daily chart. The ABC pattern is one of the most consistent trading patterns in the financial market. It offers an excellent risk-reward as well as a high winning percentage. Let us get started.

In today’s lesson, we are going to demonstrate an example of an ABC pattern trading on a daily chart. The ABC pattern is one of the most consistent trading patterns in the financial market. It offers an excellent risk-reward as well as a high winning percentage. Let us get started.

In today’s lesson, we are going to demonstrate an example of an ABC pattern trading on a daily chart. The ABC pattern is one of the most consistent trading patterns in the financial market. It offers an excellent risk-reward as well as a high winning percentage. Let us get started.

This is a daily chart. The price after being bullish makes a bearish move. The last candle comes out as a doji candle. This is a bullish reversal candle, which is not a strong one. However, look at the level where the price produces the doji candle.

It is a flipped level of support. Technically, the buyers are to wait for a bullish reversal candle to go long around this level. Since this is not a strong bullish reversal candle, the buyers might as well wait for a bullish engulfing candle to go long from here.

Here it comes. This is a bullish engulfing candle closing above the last bearish candle. This means it produces a morning star. The buyers may trigger a long entry right after the last candle closes. This point is known as point C in the ABC chart pattern. Traders shall set their stop loss below the level of support. With take profit, they are to be tricky. The last swing high (or low) often becomes a big factor. Thus, buyers may consider taking a partial profit. Have a look at the chart below.

The price often roams around and even makes a reversal at this point. This point is known as point B. If we take out the 50% profit around this level and let the rest of it run, we give ourselves a chance to win more pips without any risk. If the price produces an ABC pattern, in 70% cases, it makes a new higher high or lower low. Let us find out what happens here.

The price makes a breakout. We have taken out some of our profits. Now, we may consider using a trailing stop setting below the last candle (breakout candle). We must be patient and hold the trade until the price produces a strong bearish reversal candle.

The price heads towards the North with good bullish momentum, and then it produces a bearish reversal candle. It may still head towards the North if it makes a bullish breakout after consolidation. Meanwhile, we may come out with the rest of the trade.

The price pattern is produced in almost all the pairs and in all time frames. It is one of the most common price patterns, which is favorite among the financial traders. To be able to trade and make money out of it, we need to have a lot of back-testing and practice.

Categories
Forex Price-Action Strategies

Edged Breakout Lessens Momentum and Chance of Winning

In today’s lesson, we are going to demonstrate an example of the daily-H4 combination trade, where the price produces a reversal candle, but it does not make an explicit breakout. The price heads towards the breakout direction after having more consolidation. It often happens. Thus, we need to get familiar with such price action. Let us get started.

In today’s lesson, we are going to demonstrate an example of the daily-H4 combination trade, where the price produces a reversal candle, but it does not make an explicit breakout. The price heads towards the breakout direction after having more consolidation. It often happens. Thus, we need to get familiar with such price action. Let us get started.

In today’s lesson, we are going to demonstrate an example of the daily-H4 combination trade, where the price produces a reversal candle, but it does not make an explicit breakout. The price heads towards the breakout direction after having more consolidation. It often happens. Thus, we need to get familiar with such price action. Let us get started.

Above, we can observe a daily chart. The last daily candle closes well below the last swing low. This is an explicit breakout. Let us now determine the level where the price may find its next support. The chart shows that the price closes within a swing low. However, the swing low one below may come as the next level of support. Have a look at the chart below.

The price may head towards the South and find its support at the red-marked level as far as the daily chart is concerned. The daily-H4 chart combination traders are to flip over to the H4 chart for the price consolidation and bearish breakout to go short on the pair.

The image above corresponds to the H4 chart. The chart produces a bullish corrective candle. If it produces a bearish candle closing below the last swing low, the sellers may trigger a short entry. Let us proceed to the next chart.

The chart produces a bearish engulfing candle. However, look at the breakout. It is not an explicit breakout. If the candle closed below the level of support with a 15%-25% extra red body, it would be an excellent entry. Nevertheless, it is a strong bearish reversal candle (bearish engulfing). A bearish engulfing candle in a bearish market makes a very strong statement that the sellers are in control on the minor charts. Let us find out what happens next.

The chart produces another bearish candle. Look at the last candle. It comes out as a bullish candle with a long upper shadow. The pair still looks bearish, but the bullish corrective candle goes too far up. It may be because of the bearish reversal candle that we have after the first consolidation. If it closed well below the level of support, it would have been bearish with more momentum. Often the price goes towards the opposite direction and hits the stop loss too in such breakout. Let us find out what happens here.

It goes according to the sellers’ expectations and hits the Take Profit. Here is a question. Would you take such entry next time? I would not blame if you say ‘yes.’ Because such trade may have a 55% chance of winning, however, to be very consistent and keep our confidence at the top level, it is better if we skip such entry.

Categories
Forex Price-Action Strategies

It is Better to be Safe than Sorry.

Using Stop Loss is an essential component of trade management. The Forex market gets volatile from time to time. Taking an entry without using Stop Loss may make an account empty. Thus, under no circumstances, we shall take any entry without using Stop Loss. We need to make sure that we set our Stop Loss accordingly, which is neither too tight nor too saggy. In today’s lesson, we are going to demonstrate an example of that.

Using Stop Loss is an essential component of trade management. The Forex market gets volatile from time to time. Taking an entry without using Stop Loss may make an account empty. Thus, under no circumstances, we shall take any entry without using Stop Loss. We need to make sure that we set our Stop Loss accordingly, which is neither too tight nor too saggy. In today’s lesson, we are going to demonstrate an example of that.

Using Stop Loss is an essential component of trade management. The Forex market gets volatile from time to time. Taking an entry without using Stop Loss may make an account empty. Thus, under no circumstances, we shall take any entry without using Stop Loss. We need to make sure that we set our Stop Loss accordingly, which is neither too tight nor too saggy. In today’s lesson, we are going to demonstrate an example of that.

The above chart is a daily chart. We see that the price finds its support and produces a bullish engulfing candle. The candle closes within the last swing high. The daily-H4 combination traders are to flip over to the H4 chart to take a long entry upon consolidation and bullish breakout. Let us have a look at the H4 chart.

The H4 chart looks extremely bullish. The chart produces a morning star right at the support zone and heads towards the North for one more candle. Traders are to keep an eye on the chart for the price consolidation.

The chart produces one more bullish candle. It then consolidates and creates a bullish engulfing candle breaching the last highest high on the chart. This is an ideal price action opportunity to trigger a long entry right after the last candle closes. Traders shall set the stop loss below the level of support, where the engulfing candle bounces.

The next candle comes out as a bearish candle approaching the Stop Loss level. However, if we set the Stop Loss below the support level, we would be safe here. Things do not look as good as we expected. Let us proceed to the next chart.

The next candle comes out as a bullish engulfing candle. Things look much better now. However, we must not miss the fact that the bullish engulfing candle has a bounce right at the Stop Loss level. If we set too tight Stop Loss, we would have to encounter a losing trade here. Instead of making the profit, we would lose money.

It is a debatable issue how far we shall set our Stop Loss. It is not recommended that we should set our Stop Loss too far. However, we shall set our Stop Loss below the level of support/resistance and add some extra pips. For intraday trading on the 5M, 15M, 30M, H1, and H4 chart, to measure the number of extra pips, we may use the spread of that particular pair. Let us assume we are taking a long entry on EURUSD. If the spread is three pips, we may add three extra pips to set our Stop Loss. We must do a lot of back-testing with our favorite pairs to find out the perfect measure for this to be safe with our entries. As they say, “it is better to be safe than sorry.”

 

Categories
Forex Price-Action Strategies

Breakout Confirmation Means a Lot

Breakout Confirmation Means a Lot

Breakout Confirmation Means a Lot

Breakout Confirmation Means a Lot

 

Price action traders count the breakout as one of their most essential trading components. There is another factor, which is directly related to a breakout: It is called Breakout Confirmation. A breakout is not considered as a perfect breakout on a particular chart if the breakout level does not hold the next candle. In today’s lesson, we are going to demonstrate an example of that.

Thie chart above is a daily chart. The chart shows that the price breaches the level of resistance. The candle closes above the level as well. Many traders consider it as a breakout. It is not a breakout yet on the daily chart. The price may have made a breakout on other minor charts such as the H4, H1, 15M, etc. However, to consider it as a daily breakout, traders must wait for the next daily candle to close above or within the breakout level. Let us have a look at the following daily chart.

The next daily candle comes out as a bullish pin bar and closes within the breakout level. It means that the breakout level holds the price and confirms the breakout. The price may head towards the North because of the breakout and breakout confirmation. The daily-H4 chart traders may flip over to the H4 chart for the price to consolidate and upside breakout.

The H4 chart shows that the price produces a bullish engulfing candle having a long upper shadow. However, the candle closes within the last swing high. The buyers shall wait for the price to consolidate and upside breakout.

The price keeps heading towards the North with an average bullish momentum. The last candle comes out like a spinning top, which is a sign of price consolidation. Let us proceed to the next chart to find out whether it consolidates more or makes an upside breakout.

It produces a bullish engulfing candle closing above the last swing high. The buyers may trigger a long entry right after the candle closes by setting stop loss below the consolidation support. Let us find out how the entry goes.

It goes well. It goes towards the North further even after producing a little bearish candle. Ideally, some buyers may come out with their whole trade there, and some traders may take partial profit. This is another issue. We shall concentrate on the breakout and the breakout confirmation. Since the daily pin bar candle’s body closes within the breakout level, it suggests that the trend is still with the bull. If it closes below the breakout level, things would have been different. Such things matter a lot in the Forex market and traders must consider those.

Categories
Forex Daily Topic Forex Price-Action Strategies

Don’t Only Rely on Your Initial Assumption, Dig into It

In today’s article, we are going to demonstrate an example of an entry, which is derived from the daily-H4 chart combination. It is a typical entry once we flip over to the H4 chart. Before flipping over to the H4 chart, there is a good lesson, which may help us in the future. Let us get started.

In today’s article, we are going to demonstrate an example of an entry, which is derived from the daily-H4 chart combination. It is a typical entry once we flip over to the H4 chart. Before flipping over to the H4 chart, there is a good lesson, which may help us in the future. Let us get started.

In today’s article, we are going to demonstrate an example of an entry, which is derived from the daily-H4 chart combination. It is a typical entry once we flip over to the H4 chart. Before flipping over to the H4 chart, there is a good lesson, which may help us in the future. Let us get started.

This is a daily chart. It shows that the price, after having a bounce, heads towards the upside. It finds its resistance and produces a bearish marubozu candle. The combination of the last two candles is also known as track rail. It is a strong bearish signal. Usually, the daily-H4 combination traders may want to flip over to the H4 chart to hunt an entry. However, the level of support seems too adjacent to offer a short entry. In naked eyes, the daily chart shows that there is very little space for the price to travel towards the South. Is it? Let us flip over to the H4 chart and reveal the truth.

This is the H4 chart. It shows that the price is on consolidation, searching for its resistance already. The level of support is far enough to offer some handful of pips to the sellers.

The chart produces a bearish engulfing candle closing below the last swing low. The sellers may trigger a short entry right after the candle closes. Let us not just guess it. Let us measure it by drawing two horizontal lines.

These two lines determine the stop loss and entry-level. The drawn support is far enough to offer excellent risk-reward. If you are not sure, measure it with the tool on the trading platform. The risk-reward is 1:1.5 here. Let us now find out the result.

The price heads towards the level of support and produces a bullish reversal candle as well. The sellers have grabbed some green pips. The consolidation, the signal candle, and the risk-reward are perfect here. Do you remember how it begins, though? The daily chart does not look that appealing at the very outset despite producing an excellent daily bearish reversal candle. In naked eyes, it looks bad. However, once we have flipped over to the H4 chart, it is a different story. It looks very appealing, and in the end, it offers an excellent entry. In the beginning, do not just skip a chart by its outlook. Dig into it. The habit of digging may get you more entries.

Categories
Forex Daily Topic Forex Price-Action Strategies

Significant Levels Must be Counted

Price action traders are to take entry and exit by determining support and resistance on the naked chart. Significant highs and lows are considered to draw support and resistance, which help traders find out stop loss, take profit as well as risk-reward. In today’s article, we are going to demonstrate an example of a level holding the price as support, where the price had a rejection earlier. Let us find out how we are to deal with such levels.

Price action traders are to take entry and exit by determining support and resistance on the naked chart. Significant highs and lows are considered to draw support and resistance, which help traders find out stop loss, take profit as well as risk-reward. In today’s article, we are going to demonstrate an example of a level holding the price as support, where the price had a rejection earlier. Let us find out how we are to deal with such levels.

Price action traders are to take entry and exit by determining support and resistance on the naked chart. Significant highs and lows are considered to draw support and resistance, which help traders find out stop loss, take profit as well as risk-reward. In today’s article, we are going to demonstrate an example of a level holding the price as support, where the price had a rejection earlier. Let us find out how we are to deal with such levels.

This is the daily chart. The price heads towards the North with good bullish momentum. Look at the last candle. It is a strong bearish candle with a long solid bearish body. The daily-H4 chart combination traders may want to flip over to the H4 chart to find short entries.

This is how the H4 chart looks. The price has been bearish. The last candle comes out as an inside bar. If the price consolidates and produces a bearish candle breaching the lowest low, the sellers may go short on the pair. The question is, where do they set their take profit level? Look at the red line, which is drawn right at the point where the price had a rejection earlier. The level of support is further down, but the red-lined level is a significant level, which the sellers must consider before making any selling decision on this chart.

The price produces a bearish engulfing candle breaching the lowest low. It means that the price has found its resistance. The sellers may draw two lines here to identify their stop loss and entry point.

This is how it looks with two drawn lines. The live above is the stop loss level. The price breaches the line and closes below it. Thus, the sellers may trigger a short entry right after the candle closes. Let us proceed to the next chart to find out how the trade goes.

The price heads towards the South with good bearish momentum. Look at the last candle, which comes out as an inside bar. It produces right at the flipped support. This is where the price had a strong rejection earlier. The sellers shall set the take profit right here. Some traders may take out partial profit and use trailing stop loss by making sure that they do not lose even a single penny. Both have pros and cons. However, the matter of fact is they must count such level before making any trading decision. It helps them determine the take profit level, risk-reward, and trade with more winning chances.

Categories
Forex Daily Topic Forex Price-Action Strategies

An Entry Derived From an Unusual Consolidation

Price action traders love to see the price consolidates and makes a breakout towards the trend direction. Consolidation offers better risk-reward as well as a better chance of winning a trade. In today’s lesson, we are going to demonstrate an example of a consolidation, which is rather unusual. Let us proceed.

Price action traders love to see the price consolidates and makes a breakout towards the trend direction. Consolidation offers better risk-reward as well as a better chance of winning a trade. In today’s lesson, we are going to demonstrate an example of a consolidation, which is rather unusual. Let us proceed.

Price action traders love to see the price consolidates and makes a breakout towards the trend direction. Consolidation offers better risk-reward as well as a better chance of winning a trade. In today’s lesson, we are going to demonstrate an example of a consolidation, which is rather unusual. Let us proceed.

This is a daily chart. The chart shows that the price produces a bullish engulfing candle at a flipped level of support. The daily-H4 chart combination traders may flip over to the H4 chart for the price to consolidate and a bullish breakout to go long on the pair. Let us flip over to the H4 chart.

The H4 chart shows that the price heads towards the North by producing bullish candles consecutively. The buyers shall wait for the price to find its support, consolidates, and makes a bullish breakout. Let us proceed to the next chart.

The chart produces another candle, which has a bullish body. In naked eyes, it is a bullish candle, but it is not. It is an Inside bar, which closes within the level of resistance. Let us have a look at the next chart.

The next candle has a little bullish body as well. Many traders may think that the price is still with the bull. Do not get trapped here. The candle closes within the level of resistance again. The price has not found its support yet. However, it has been on a tricky consolidation.

Look at the last candle, which closes above the level of resistance. The price bounces at the level where the first candle (Inside Bar) bounced. Since a bullish engulfing candle breaks the level of resistance, technically traders may trigger a long entry right after the candle closes. Let us proceed to the next chart to find out how the trade goes.

The price keeps heading towards the North for two more candles. As it seems, it may go towards the North further. An unusual consolidation and an explicit breakout seem to work wonderfully well for the buyers here. We usually see that price consolidates by producing bearish candles on a bullish market and vice versa. In this example, we have seen that the price may consolidate by producing inside bars as well. An Inside bar/s may confuse us. It may make us think the price is not on consolidation. Now we know consolidation sometimes may look different. However, it works as well as usual consolidation.

Categories
Forex Daily Topic Forex Price-Action Strategies

Need the patience to Manage Trade by Taking Partial Profit

Partial profit taking is a handy feature that Forex traders often use. Since the Forex market is very volatile, traders take out a portion of profit and let the rest of the trade run to get them more pips. Traders need to have patience, though, if they want to manage the trade by taking a partial profit. In today’s lesson, we are going to demonstrate an example of partial profit-taking and find out the importance of having patience.

Partial profit taking is a handy feature that Forex traders often use. Since the Forex market is very volatile, traders take out a portion of profit and let the rest of the trade run to get them more pips. Traders need to have patience, though, if they want to manage the trade by taking a partial profit. In today’s lesson, we are going to demonstrate an example of partial profit-taking and find out the importance of having patience.

Partial profit taking is a handy feature that Forex traders often use. Since the Forex market is very volatile, traders take out a portion of profit and let the rest of the trade run to get them more pips. Traders need to have patience, though, if they want to manage the trade by taking a partial profit. In today’s lesson, we are going to demonstrate an example of partial profit-taking and find out the importance of having patience.

This is a daily chart. The price produces a bullish harami right at the level where it bounces earlier. The daily-H4 combination traders are to flip over to the H4 chart to find out long opportunities. Let us flip over to the H4 chart.

The H4 chart looks fantastic for the buyers. The first candle comes out as a bullish engulfing candle followed by another bullish one. The price consolidates and produces a bullish reversal candle as well. The buyers are to wait for an H4 breakout at the resistance to trigger a long entry.

The price comes down to find its support and heads towards the North to make the breakout. Look at the breakout candle, which is a good-looking bullish candle with long lower shadow. The buyers have been waiting for this. It is time to trigger a long entry.

The price keeps heading towards the North after triggering the entry. The last candle comes out as a strong bullish candle, so the buyers let their trade to go along. Let us proceed to the next chart.

The chart produces a bearish reversal candle. The price may go up to the black marked level. It means that the price has enough space to travel and offer a handful of pips. The price may make a bearish move from here as well. What do the buyers do here? They may take out a portion of the profit. They may take out a 50% profit and leave the stop loss where it is. It will allow them grabbing more pips if it keeps going towards the North. If it does not, they will not lose a dime.

The price gets caught within a bullish rectangle. Do not forget that it has been a long time that the buyers were sticking with their trade. They have been very patient. The price still does not make an upside breakout. It might go either way. Let us proceed to the next chart.

At last, it makes a breakout at the first rectangle. It consolidates again with several candles and makes another bullish breakout. Eventually, it hits the level. Traders have grabbed more pips by taking a partial profit. However, we must not miss the part that they are to be extremely patient. Taking a partial profit may help us be more consistent in making a profit, but we now know what we have to put in to do it accordingly.

 

Categories
Forex Daily Topic Forex Price-Action Strategies

Do not Mix up, Stick with the Rules

In today’s lesson, we are going to demonstrate an example of an H4 chart offering an entry. The daily-H4 chart combination traders are to keep an eye on the daily chart first. Once the daily chart produces a daily reversal candle from the support/resistance zone, they are to flip over to the H4 chart to take an entry. Today, we are going to do it in another way for a reason. We are going to start monitoring from the H4 chart. Let us start. Soon you will know why I am doing it so.

In today’s lesson, we are going to demonstrate an example of an H4 chart offering an entry. The daily-H4 chart combination traders are to keep an eye on the daily chart first. Once the daily chart produces a daily reversal candle from the support/resistance zone, they are to flip over to the H4 chart to take an entry. Today, we are going to do it in another way for a reason. We are going to start monitoring from the H4 chart. Let us start. Soon you will know why I am doing it so.

In today’s lesson, we are going to demonstrate an example of an H4 chart offering an entry. The daily-H4 chart combination traders are to keep an eye on the daily chart first. Once the daily chart produces a daily reversal candle from the support/resistance zone, they are to flip over to the H4 chart to take an entry. Today, we are going to do it in another way for a reason. We are going to start monitoring from the H4 chart. Let us start. Soon you will know why I am doing it so.

This is the H4 chart, and the red-marked level is daily support. It shows that the price is at the level of support. The last candle comes out as a bearish candle with a long lower shadow. It suggests that the level may produce a bullish reversal soon.

As expected, the chart produces a bullish engulfing candle right at the level of support. A bullish engulfing candle at a support zone has a strong message to send to the buyers that it is their territory.

The price goes towards the North for one more candle. It then has a correction and produces another bullish engulfing candle closing above the resistance. This is an ideal sequence for the price action traders to take a long entry. Let us assume that we do not trigger an entry here and have a look at the next chart.

The price keeps heading towards the North. It means that we have missed an opportunity to make some green pips here. Everything seems perfect, but why we skip taking the entry. Is it a mistake? Is not it? No, it is not a mistake. We shall not take the entry as far as the daily-H4 chart combination chart is concerned. We have started monitoring the chart from the H4 chart today. The daily-H4 chart combination traders are to monitor from the daily chart. Let us have a look at the Daily chart how it looks before flipping over to the first H4 chart here.

You see that the last daily candle comes out as a bearish one. It closes within a level, which has the potential to hold the price as a level of support. However, it has not produced a bullish reversal candle yet. Thus, they shall not flip over to the H4 chart. This is the reason that the daily-H4 chart combination traders may not take the above entry. The H4-H1 chart combination traders may not get an entry here as well since the level of support is not H4 support. The price does not react to the level on the H4 chart in recent times.  It moves towards the North by obeying other trading methods but not according to the price action chart combination trading.

We must be disciplined and must not mix up one strategy with others but stick with the rules. Sticking with the rules is one of the most important factors to be consistent in trading.

Categories
Forex Daily Topic Forex Price-Action Strategies

Consolidation and Breakout: The Two Key Movements in Price Action Trading

Price action trading mainly relies on consolidation, trend, and breakout. Reversal candle is another feature that traders keep an eye at. Typically, double top/bottom, morning star/evening star, and engulfing candle are considered the strongest reversal signal. However, even an inside bar may create an excellent bullish/bearish momentum if the price consolidates and makes a perfect breakout. In today’s lesson, we are going to demonstrate an example of this.

Price action trading mainly relies on consolidation, trend, and breakout. Reversal candle is another feature that traders keep an eye at. Typically, double top/bottom, morning star/evening star, and engulfing candle are considered the strongest reversal signal. However, even an inside bar may create an excellent bullish/bearish momentum if the price consolidates and makes a perfect breakout. In today’s lesson, we are going to demonstrate an example of this.

Price action trading mainly relies on consolidation, trend, and breakout. Reversal candle is another feature that traders keep an eye at. Typically, double top/bottom, morning star/evening star, and engulfing candle are considered the strongest reversal signal. However, even an inside bar may create an excellent bullish/bearish momentum if the price consolidates and makes a perfect breakout. In today’s lesson, we are going to demonstrate an example of this.

We are looking at an H4 chart. It shows that the price heads towards the North with extreme bullish momentum. A bearish inside bar followed by another bearish candle makes a reversal. The price after being bearish may have found its support. The buyers are to wait for the price to make a bullish breakout at the level of resistance. The sellers are to wait for consolidation and a bearish breakout at the level of support.

The price starts having a correction. If it keeps going towards the North further, it may get choppy. If it finds its resistance nearby, the sellers may find an opportunity to go short on the pair.

The chart produces a bearish engulfing candle. It means the price finds its resistance. If it makes an H1 breakout at the level of support, the sellers may want to trigger a short entry. Let us now have a look at the same chart with those two levels.

The equation gets much simpler with those two levels. Since this is an H4 chart, the sellers are to flip over to the H1 chart to get a breakout and trigger a short entry. The reversal candle looks strong enough to make the sellers keep an eye on the pair to take a short entry upon a breakout.

This is how the H1 chart looks. The price seems to have found two levels of support here. However, the H4 chart looks very bearish, which may keep driving the price to make a breakout at the level of red marked support.

Here comes the breakout. The candle closes well below the level of support. It has a long lower shadow, but it has a thick bearish body as well. The sellers may trigger a short entry right after the candle closes by setting stop loss above the resistance. Take profit may be set at the last swing low on the H4 chart. Let us proceed to the next chart to find out how the entry goes.

The price heads towards the South with good bearish momentum. It makes another bearish breakout at the last swing low as well. Concisely, the sellers grab some green pips from the entry.

If we concentrate on the first candle of the trend, we see that the candle is a bearish inside bar. An inside bar is considered the weakest reversal signal. However, it produces an excellent short signal here because of perfect consolidation and the breakout. The above example signifies the importance of consolidation and breakout in price action trading.

Categories
Forex Price-Action Strategies

Choppy Daily Chart, H4 Chart Still Offering an Entry

In today’s price-action lesson, I am going to divulge an example of the daily-H4 chart combination offering an entry. Usually, it is best to trade on the daily-H4 chart combination when the price is having a solid trend on the daily chart. However, not all the time the price is going to have a strong trend on the daily chart. The price action may be trapped within zones and still offer an entry.

In today’s price-action lesson, I am going to divulge an example of the daily-H4 chart combination offering an entry. Usually, it is best to trade on the daily-H4 chart combination when the price is having a solid trend on the daily chart. However, not all the time the price is going to have a strong trend on the daily chart. The price action may be trapped within zones and still offer an entry.

In today’s price-action lesson, I am going to divulge an example of the daily-H4 chart combination offering an entry. Usually, it is best to trade on the daily-H4 chart combination when the price is having a solid trend on the daily chart. However, not all the time the price is going to have a strong trend on the daily chart. The price action may be trapped within zones and still offer an entry.

The daily chart shows that the price has been roaming around within two levels. The last candle comes out as a bearish engulfing candle. The candle forms at the resistance zone. The level of support is not too far away. Let us have a look at the same chart with those two levels.

The chart shows that the price may find its next support at the red marked line. The price had a bounce at the level earlier. As far as the daily chart is concerned, the price does not have enough space to travel towards the South. However, the daily-H4 chart combination traders may have another equation to play with. Let us flip over to the H4 chart and find that out.

The H4 chart shows that the price heads towards the South with extreme bearish pressure. Traders are to wait for consolidation and bearish breakout to go short on the pair. The selling pressure is too high to consolidate though. Then again, the sellers must not give up. Let us find out what happens next.

The price starts having the correction. It may find its resistance nearby and offer a short entry upon a bearish breakout. On the other hand, if the price goes too far towards the North, the risk-reward factor may hold the sellers back to go short.

The price goes towards the North for one more candle and produces an H4 bearish engulfing candle closing below the level of consolidation support. The last candle looks to be a fantastic signal candle and the price still has some room to travel towards the South. Let us have a look at the same chart with consolidation support and resistance.

The equation gets much simpler with those two lines. A short entry may be triggered right after the last candle closes by setting Stop Loss above consolidation resistance. Take Profit may be set at the last swing low or wait until a bullish reversal candle on the H4 chart. Let us find out what the price does after triggering the entry.

The price heads towards the downside with good bearish pressure. The last H4 candle comes out as a bullish Inside Bar. The sellers may want to close the entry here.

We have seen that as long as the daily chart’s support/resistance offers a lucrative risk-reward for the H4 traders, they may be able to find entry occasionally even though the price is not having a strong trend on the daily chart.

Categories
Forex Price-Action Strategies

The H4-H1 Chart Combination Keeps You Busy Even in a sluggish Market

Usually, the Forex market gets sluggish in December. It gets tough for traders to find out a good entry on major charts as far as price action is concerned. However, the H4-H1 chart combination still offers a few entries. In today’s lesson, we are going to demonstrate an example of an entry based on the H4-H1 chart, which was offered in mid-December 2019.

Usually, the Forex market gets sluggish in December. It gets tough for traders to find out a good entry on major charts as far as price action is concerned. However, the H4-H1 chart combination still offers a few entries. In today’s lesson, we are going to demonstrate an example of an entry based on the H4-H1 chart, which was offered in mid-December 2019.

Usually, the Forex market gets sluggish in December. It gets tough for traders to find out a good entry on major charts as far as price action is concerned. However, the H4-H1 chart combination still offers a few entries. In today’s lesson, we are going to demonstrate an example of an entry based on the H4-H1 chart, which was offered in mid-December 2019.

Let us proceed.

We’re looking at the H4 chart. The last candle makes a strong breakout at the last swing low. Traders are to wait for consolidation and H1 breakout to go short on the pair. Let us find out whether it starts consolidating from right there or comes further down.

It comes down further for one more candle. It means traders are to wait longer. However, the nearest support is far enough. Thus, the price has a lot of space to travel towards the South.

The price starts consolidating and produces two bullish candles consecutively. The pair is to make a big decision from here. Does it continue its journey towards the North, or does it find its resistance nearby? Let us find out from the next chart.

The price finds its resistance and produces a bearish engulfing candle. The sellers have been waiting for this. It is time for the traders to flip over to the H1 chart and wait for an H1 bearish breakout to take a short entry. Let us find out how the H1 chart looks.

The H1 chart shows that the price produces an engulfing bearish candle and heads towards the South. The price on this chart makes a breakout at the red marked support level. It may make the traders wait for, or it may make a breakout straightway. Let us what the price does here.

The price makes an explicit bearish breakout. The breakout candle looks very strong, barely having a lower shadow. A short entry may be triggered right after the candle closes by setting Stop Loss above the level where the H4 chart produces the bearish reversal candle. Let us now find out how it ends.

The price heads towards the South with good bearish momentum. It produces a bullish engulfing candle having a long upper shadow. It may be time for the sellers to close the whole entry since it is the month of December.

As mentioned, in December, traders do not get as many entries as they usually get. However, the H4-H1 chart combination may offer a few entries occasionally even when the market gets sluggish.

Categories
Forex Daily Topic Forex Price-Action Strategies

Daily-H4 Combination – Rather Mechanical than Emotional

 

 

 

In today’s article, we are going to demonstrate an example of a daily chart, which after having a bounce at Double Bottom support heads towards the North. However, the question is whether the daily-H4 chart combination traders find an entry or not. Let us find this out.

The chart shows that the price has had several bounces at the level of support. Without any doubt, it is a strong level of support, in which buyers would love to keep an eye on the price action around this level. A bullish reversal candle around this level, like the last one, would make them flip over to the H4 chart to go long upon breakout. We are not flipping over to the H4 chart right now. You find out the reason in a minute.

The price on the H4 chart may have consolidated but never made any breakout on the following day. The candle is called Bearish Harami. Usually, it attracts buyers. However, the daily resistance is not too far, so the buyers may not be interested in buying the pair on the daily chart.

As expected, intraday sellers pushed the price down. Then, a bullish engulfing candle forms right at the level of support. The daily-H4 combination traders are to flip over to the H4 chart. Let us flip over to the H4 chart and find out how it looks.

The chart looks bullish, but the momentum is not there. The level of resistance is far enough, which suggests that there are still some pips for the buyers to grab. The buyers are to wait for consolidation and an upside breakout to go long on the pair.

The next candle comes out as a bullish candle too. The price has covered some distance. This means the price is offering less number of pips. However, if it consolidates from right there, the buyers would still be offered a good risk-reward. Let us proceed to the next chart.

The price keeps heading towards the North. It does not offer an entry. Moreover, it even makes a breakout at the level of resistance. This means the level of support has been working with command. Matter of regret, the daily-H4 chart combination traders have not been able to take an entry in such a strong bullish market.

When things go like this, it annoys us. This is obvious. After all, we are the human being, not a machine. The thing is we often have to deal with things like a machine in the Forex market. It is hard and needs someone to be mentally strong. Whatever it is, we must work towards it.

 

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Forex Basic Strategies Forex Trading Strategies

How To Trade The Engulfing Candlestick Pattern Using Support/Resistance

Introduction

Introduction

Introduction

Engulfing is one of those candlestick patterns in the forex market that provides a useful way for traders to anticipate a possible reversal in the trend. There are two types of engulfing patterns – Bullish Engulfing and Bearish Engulfing. The engulfing candle’s bearish or bullishness is wholly based on its position in relation to the existing trend of an underlying asset.

Understanding The Types

A bullish engulfing pattern can appear anywhere in the trend. But it holds more significance if it appears in a downtrend. This pattern indicates the surge in buying pressure as it shows that more buyers are entering the market, driving the price action further up. This pattern consists of a bearish red candle and the second bullish candle completely engulfs the body of the previous red candle.

Interpretation – Always look for the bullish engulfing pattern in a clear downtrend. For entering a trade, traders must combine this pattern with support resistance levels or with any reliable technical indicator for additional confirmation of the trend reversal.

Bearish engulfing pattern is just the opposite of the bullish engulfing pattern. Instead of appearing at the bottom of the trend, this pattern appears at the top of the trend. We can say that more accurate and reliable signals can be generated when this pattern appears at the top of an uptrend. The bearish engulfing pattern consists of two candles. The first one being the green candle. This one is, next, engulfed by the subsequent red candle. The pattern triggers a reversal in an existing trend. It indicates the buyers are no longer able to push the price higher, and the bears took control of the market.

Interpretation – Always look for the bearish engulfing pattern in a clear uptrend. The second red candle must engulf the green candle ultimately, showing that bears are piling into the market aggressively. For entering a trade, traders must look for additional confirmation, such as support resistance levels or by using any reliable technical indicator.

Pairing the Engulfing pattern with Support/Resistance

Every trader has a unique way of trading the market. Some traders like to go with the trend while some traders only trade counter-trend moves. In this strategy, we have paired the engulfing pattern with support & resistance to show you how to trade the reversals correctly.

Confirm the downtrend first on your trading timeframe 

The first step of this trading strategy is to confirm the trend of any underlying asset. Let’s trade the bullish engulfing pattern. So as discussed, we should be finding the downtrend on the price chart. As you can see in the below NZD/USD currency pair was in an overall downtrend.

Find out the Bullish Engulfing pattern on your trading timeframe

The key to successful trading is to follow all the rules of the trading strategy. The engulfing pattern can be seen all over the price chart, but obviously, we can’t trade all of these patterns. We should be trading only those engulfing patterns that appear in the major support area.

In the below image, the NZD/USD was in an overall downtrend, and price action respects the major support area. Market prints the engulfing pattern at the support zone, which indicates that the buyers are more likely to lead the price.

Entry, Take Profit & Stop loss

Enter the trade right after you see the bullish engulfing pattern at the S&R area. Take-profit targets depend on your trading style. If you are a swing trader or full-time trader, hold your positions for more extended targets. If you are an intraday trader, close your position at the nearest resistance area.

You can also book partial profits at a significant resistance area and close your full position when the market prints the bearish engulfing pattern. In this strategy, we took the buy at a significant support zone, so it’s a healthy practice to put stop loss just below the support area.

Look at the below image; you can see that price action goes above the significant resistance area. But we made sure to close our positions at the resistance area as we don’t want our money to be blocked in a single trade for a long time. Overall it was good 4R trade.

Bottom Line

There are so many different ways to take trades to use the engulfing pattern. Statistically, the engulfing pattern works better when traded at the bottom or top of the trend. So make sure to check their location before placing the trades. One other possible way to trade am Engulfing Pattern is when it is combined with Moving Averages. But even that way, make sure to trade the engulfing pattern at the significant support and resistance areas. Some traders use reliable indicators like MACD to confirm the trend reversals by using the overbought and oversold levels. That’s about the Engulfing pattern strategy. Make sure to find these patterns and trade them in your upcoming trading activities. Let us know if you have any questions in the comments below. Cheers!

Categories
Forex Price-Action Strategies

Daily-H4 Timeframe Combination – The Market Sometimes Makes You Wait More Than You Think

In today’s lesson, we are going to demonstrate an example of an entry derived from the daily-H4 combination. Usually, the daily-H4 combination does not take that long to offer an entry once the price makes a breakout on the daily chart. In today’s example, things are a bit different. Let us find out how it starts and ends.

In today’s lesson, we are going to demonstrate an example of an entry derived from the daily-H4 combination. Usually, the daily-H4 combination does not take that long to offer an entry once the price makes a breakout on the daily chart. In today’s example, things are a bit different. Let us find out how it starts and ends.

In today’s lesson, we are going to demonstrate an example of an entry derived from the daily-H4 combination. Usually, the daily-H4 combination does not take that long to offer an entry once the price makes a breakout on the daily chart. In today’s example, things are a bit different. Let us find out how it starts and ends.

The figure above shoes the daily chart. After a strong bullish impulse, the price action gets choppy for several days. Do you notice anything here?

The price gets caught within a rectangle. Since it has been choppy for quite a while, it makes some traders think not to keep the pair on their watch list.

There is a saying in price action trading “the more it ranges, the harder it breaks’. Thus, the next breakout may be a very strong one.

The breakout candle looks good. However, it is not that strong a breakout as we have expected. Nevertheless, it is a valid daily breakout, so traders are to flip over to the H4 chart to take a long entry.

The figure above shows the H4 chart. The price has been heading towards the North with an average bullish momentum. Traders are to wait for the price to find its support and make an upside breakout to offer them a long entry.

The price keeps being choppy on the H4 chart as well. It neither has consolidated nor produced a bullish reversal candle on which buyers could take a long entry. It has instead been within another bullish rectangle. This time it is, of course, an H4 bullish rectangle. Let us proceed to find out which way it makes its next breakout.

The price makes an upside breakout again. A bullish engulfing candle with long lower shadow makes the breakout. The buyers have been waiting for it, so a long entry may be triggered right after the candle closes. The Stop Loss shall be set below the rectangle support. There is no visible swing high. This suggests that the profit taking should be managed manually.

The plan has worked wonderfully well. The price goes straightway towards the North with extreme bullish momentum. The buyers may trail their Stop Loss in the middle of the big candle or at least above the breakeven point. As it has been going, it may keep pushing towards the North further. Let us find out what happens next.

The chart produces a bearish reversal candle. It is an Inside Bar, but it is time for the buyers to close the entry.

The price takes so long to make a breakout on the daily chart. It also takes a long time to offer entry on the H4 chart as well. This situation does not happen frequently, but sometimes it may occur. Thus, traders are to be mentally prepared for it.

Categories
Forex Basic Strategies Forex Trading Strategies

Trading The Morning Star Candlestick Pattern Like A Pro!

Introduction

Introduction

Introduction

Morning star is a bottom reversal pattern, and it primarily consists of three candlesticks that indicate the bullish sign. This pattern warns the weakness in an ongoing downtrend that, in turn, suggests the start of an uptrend. Traders observe the formation of a Morning Star pattern on the price chart, and then they can confirm it with other technical tools.

The Three Candlesticks Of Morning Star Pattern

  • Large Bearish Candle
  • Small Bullish or Bearish Candle
  • Large Bullish Candle

The most fundamental thing to remember is that the market should be in a downtrend to trade the Morning Star pattern. To confirm the downtrend, mark the lower lows and lower highs.

Large Bearish Candle is the first part of the Morning star reversal pattern. The bearish candle indicates the bears are in complete control, which means the continuation of the selling pressure. At this point in the market, we should only be looking for the sell trades as there is no sign of reversal yet.

Small Bullish/Bearish Candle is the second candle that begins with a bearish gap down. This candle indicates that the sellers fail to push the price lower, despite trying really hard. The price action ends up forming a quite small bullish/bearish or Doji candle. If this candle is a small bullish candle, it’s an early sign of trend reversal.

Large Bullish Candle is the third candle that holds the most significance because the real buying pressure is revealed in this candle. If this candle begins with a buying gap, and if buyers can push the prices higher by closing the candle even above the first red candle, it is a definite indication of a trend reversal.

Trading strategy – Morning Star Candlestick Pattern

As we know by now, the Morning star is a reversal pattern. It mainly indicates the bulls taking over the trend while the bears lose the grip. Most of the beginners tend to trade the Morning Star pattern stand-alone. But we do not recommend this as it is not reliable enough. Always pair this pattern with some other credible indicators, support resistance levels, or trend lines to make profitable trades.

Morning Star Pattern + Volume

In this strategy, we have paired the Morning Star pattern with the volume. The volume plays a significant role in pattern formations. If the first red candle shows a low volume, it is a good sign for us. Then, if the second candle is green and the volume rises, it indicates the buying pressure. Lastly, the long green candle’s volume must be high. The high volume on the last candle shows the confirmation of the upcoming buy trend. If the third bullish candle has low volume, then try avoiding that Morning Star Pattern because the volume is not indicating the bullish reversal. If you observe the third candle closing with high volume, take up the buying position and ride the uptrend until there are any indications of a trend reversal.

Confirm the downtrend on the trading timeframe

Confirmation is very important because, if there is no downtrend, there’s no point in trading the Morning Star pattern. You can confirm the downtrend on a higher timeframe or on your trading timeframe. As you can see in the below image, the overall trend of the CAD/CHF Forex pair was down.

Find out the Morning star pattern on your trading timeframe

As you can see in the below CAD/CHF chart, the market prints the Morning Star pattern by following all the rules of our strategy. The first red candle was with low volume, and the second one was a small red candle. Hence there is no indication to go long in this pair yet. The very next was a long green candle with high volume. This is a strong indication of a trend reversal.

Entry, Take Profit and Stop Loss

We should be entering the trade when the next green candle closes. There are so many different ways to book profit. We can close the position at any resistance area or supply-demand zone. In this trade, we hold our positions because we took the trade from the beginning of a new trend. You can also close your positions when the price goes near the higher timeframe’s significant resistance level.

Pairing this pattern with volume makes it more reliable to trade. So it is a good idea to place the stop loss just below the second candle. In the above picture, you can see that we have put the stop loss just below the second candle, and we have also booked the profit at the higher timeframe’s major resistance area.

Reliability of Morning Star Pattern

This pattern is very easy to identify on the price chart if you are an intermediate trader. Even novice traders can easily spot it on the chart with little practice. Morning Star pattern often gives us well-defined entries and good risk-reward ratios. The only limitation of this pattern is that, if the sellers are strong enough, the prices could go further down despite the formation of the Morning Star Pattern. Hence it is always recommended to combine this pattern with some other trading tools rather than trading it stand-alone.

We hope you find this article informative. Try trading this pattern when you see a perfect downtrend next time. Let us know how the results have been in the comments below. Cheers!

Categories
Forex Price-Action Strategies

H4-H1 Combination – An Opportunity Missed Just for an Inch

The H4-H1 is an action-packed combination. By drawing support/resistance on the and upon getting a reversal candle on the H4 chart, an entry is triggered considering H1 price action. However, things do not always go according to our expectations. In today’s lesson, we are going to demonstrate an example of an H4-H1 combination and find out whether it offers us entry or not. Let us get started.

The H4-H1 is an action-packed combination. By drawing support/resistance on the and upon getting a reversal candle on the H4 chart, an entry is triggered considering H1 price action. However, things do not always go according to our expectations. In today’s lesson, we are going to demonstrate an example of an H4-H1 combination and find out whether it offers us entry or not. Let us get started.

The H4-H1 is an action-packed combination. By drawing support/resistance on the and upon getting a reversal candle on the H4 chart, an entry is triggered considering H1 price action. However, things do not always go according to our expectations. In today’s lesson, we are going to demonstrate an example of an H4-H1 combination and find out whether it offers us entry or not. Let us get started.

This is the H4 chart. The chart shows that the price after having a rejection at a strong resistance zone heads towards the downside with extreme bearish pressure. The support zone is strong too. The last three candles are bearish, but they suggest that selling pressure may have decreased off a little. The last candle is a Spinning Top.

The combination of the last three candles ends up producing a Morning Star. This is one of the strongest bullish reversal candle combinations. The buyers are to flip over to the H1 chart for consolidation and H1 breakout candle to go long on the pair. Let us flip over to the H1 chart.

This is how the H1 chart looks. The chart produces several bullish candles consecutively, which suggests that it is the buyers’ territory. The resistance level is far enough to offer a lucrative risk-reward to the buyers as well.

Here it comes. The first candle for consolidation comes out as a bearish engulfing candle. Let us find out whether the price finds its support nearby or it heads towards the downside further.

It seems that the price may have found its support. It produces a Spinning Top again. If a bullish engulfing candle breaches the level of resistance, it will be an A+ buying signal. If another bullish candle breaches the level from where the last candle closes, it will be a good buying signal as well but may have relatively less buying pressure than the engulfing one. In both cases, the buyers are to calculate that the signal candle does not go too far up. Let us find out what happens next.

A very good-looking bullish Marubozu candle breaches the resistance. The buyers may want to trigger a long entry right after the candle closes. Would you trigger a long entry here? I let you think for a minute.

If yes, then you might have missed the line “In both cases, the buyers are to calculate that the signal candle does not go too far up.” It does, and it leaves only a little space for the price to travel towards the resistance. The risk-reward is not lucrative here at all.

An entry where almost everything looks perfect, we may still skip taking that for not fulfilling just one condition. It may frustrate us to some extent, but we have to deal with it professionally.

Categories
Forex Price-Action Strategies

Be Patient and Observant, You Will be Paid Back

Price action traders are to be extremely observant to find out entries. Charts sometimes may seem not to offer an entry soon. However, if traders are sharp, they will be able to find out entries from the charts that may look choppy or dead for the price action traders. In today’s lesson, we are going to demonstrate an example of that.

Price action traders are to be extremely observant to find out entries. Charts sometimes may seem not to offer an entry soon. However, if traders are sharp, they will be able to find out entries from the charts that may look choppy or dead for the price action traders. In today’s lesson, we are going to demonstrate an example of that.

Price action traders are to be extremely observant to find out entries. Charts sometimes may seem not to offer an entry soon. However, if traders are sharp, they will be able to find out entries from the charts that may look choppy or dead for the price action traders. In today’s lesson, we are going to demonstrate an example of that.

After being very bearish, the price gets caught within a rectangle. The price action has been choppy, and it does not seem like that the chart is going to offer an entry. Many traders may want to skip eying on the chart to find out an entry. Can you sniff something out of it? Have a look at the chart below.

With a bit of adjustment, we can draw horizontal support as well as resistance. Look at the last bullish engulfing candle. It forms right at the support level, where the price had bounced twice earlier. That was on the daily chart. The daily-H4 combination traders may want to look for long opportunities here. Since the resistance is not far away, let’s wait for a daily breakout.

Here it comes. The next candle breaches the level of resistance and closes well above the resistance level, so it is an explicit breakout. The buyers, then, must wait for consolidation to get a level of support and to set their stop loss below that level.

The next candle comes out as an Inside Bar closing within the breakout level. This fact must excite the buyers and make them wait to get a bullish engulfing candle to trigger a long entry.

This has been a copybook price action, which price action traders dream of. The last candle engulfs the previous candle. The buyers may want to trigger a long entry right after the candle closes. Stop loss may be set below the flipped support.

This is how the chart looks after triggering the entry. The way the price has been heading, it may keep going towards the last swing high. However, by locking some profit, the buyers are to keep an eye on the chart.

The chart produces an Inside Bar. It still favors buyers. However, traders are to make a decision here. They either close the whole entry or take out at least 50% profit and let the rest of it run. This is part of trade management. However, the lesson we have learned from here is we are to be patient and extremely observant to be able to find out entries. If we are observant, we will be able to find out entries even from the charts that do not look that good.

Categories
Forex Price-Action Strategies

It’s Not Only the Levels, but It’s also about Zones

We keep talking about support, resistance, and their levels. Sometimes we forget that it is not only about the levels. A lot depends on their zones. No doubt, in the end, we are to calculate their levels at the time of taking an entry. However, we are to keep an eye at the zones where the price may create a new trend. In this article, we are going to demonstrate an example of that.

We keep talking about support, resistance, and their levels. Sometimes we forget that it is not only about the levels. A lot depends on their zones. No doubt, in the end, we are to calculate their levels at the time of taking an entry. However, we are to keep an eye at the zones where the price may create a new trend. In this article, we are going to demonstrate an example of that.

We keep talking about support, resistance, and their levels. Sometimes we forget that it is not only about the levels. A lot depends on their zones. No doubt, in the end, we are to calculate their levels at the time of taking an entry. However, we are to keep an eye at the zones where the price may create a new trend. In this article, we are going to demonstrate an example of that.

This is a daily chart. The chart shows that the price upon finding very strong support heads towards the upside. It may have found its resistance as well, which pushes the price towards the downside. Take note that the level of support is extremely strong, which creates a secure buying zone.

The price tried to find its support at the last swing high. However, it breaches the level and comes further down. It produces an Inside Bar. It looks good for the sellers so far. Let us proceed to the next chart to find out what the price does.

The price consolidates with several candles. Look at the last candle. This is an engulfing candle which states that buyers on the minor time frames are confident enough to push the price towards the North. The resistance is far enough. Thus the daily-H4 chart traders are to flip over to the H4 chart to find out a long opportunity.

This is the H4 chart. The chart produces a Spinning Top. A bullish reversal candle, along with a breakout at the resistance, will be the signal to go long. Let us find out from the next chart whether it consolidates more or produces the bullish reversal candle.

It produces an H4 bullish engulfing candle as the reversal candle. It has an upper wick, but the body looks good enough to attract the buyers. A long entry may be triggered right here. Let us find out how the price heads with the bull. Do not forget it may go another way around, as well.

It goes towards the buyers’ desired direction. The buying pressure has been good as well. However, the last candle comes out as a bearish engulfing candle. It may be time for the buyers to close their entry.

The Bottom Line

We have demonstrated an example that the price creates a new trend, not right from the last level of support. It instead creates it from a support zone. Traders are to keep an eye on the price action around the support/resistance zone to be able to find out more entries.

Categories
Candlestick patterns Forex Basic Strategies Forex Trading Strategies

Pairing The Hanging Man Candlestick Pattern With MACD Indicator

Introduction

Introduction

Introduction

The Hanging Man is a visual candlestick pattern which is used by traders and chartists in all type of markets. The term ‘Hanging Man’ refers to the shape of the candlestick. Visually the hanging man looks like a ‘T,’ and it appears in an uptrend. The formation of this candlestick is an indication that the uptrend is losing its strength. Meaning, sellers started showing interest, and the current trend of an asset is going to get reversed. Anyone can easily predict from the name of this pattern that it is viewed as a bearish sign.

The Hanging Man candle composes of a small body and a long lower shadow with little or no upper shadow. The vital point to remember is that the hanging man pattern is a warning of the upcoming price change, so do not take it as a signal to go short. Also, trading solely based on one pattern is risky. To confirm the sign given by the Hanging Man pattern, traders must pair it with support resistance or any other trading indicator.

This pattern is not confirmed unless the price falls shortly after the Hanging Man. If the next candle closes above the high of the Hanging Man, this pattern is not valid. After the pattern, if the very next candlestick falls, then it’s a clear indication of the reversal. Now, if you see a Hanging Man candlestick and the above-discussed rules apply, you can go ahead and take the trade. But since it is crucial to have an extra confirmation, let’s pair this pattern with a technical indicator.

Pairing the Hanging Man Pattern With MACD Indicator

In this strategy, we have paired the Hanging Man pattern with the MACD indicator so that we can filter out the low probability trades. MACD stands for Moving Average Convergence and Divergence, and it is one of the most popular indicators in the market. It is essentially an oscillator that is used for trading ranges, trend pullbacks, etc. Also, this indicator identifies the overbought and oversold market conditions. In this strategy, we are using the default setting of the MACD indicator to identify the trades.

Step 1 – Confirm the uptrend first on your trading timeframe

We can’t use the Hanging Man pattern to take the buy trades. Since it is a reversal pattern, it only signals the selling trades. So first of all, find out the uptrend in any currency pair. One more primary thing to remember when trading this pattern is this – After finding a clear uptrend, if you see the market printing the Hanging Man, then try not to trade that pair. Because, in a strong trend, it’s not easy for a single candle to change the direction of the entire trend. But if you find this pattern when the uptrend is a bit choppy, it has higher chances to perform. As we can see in the image below, the uptrend in USD/CHF was not strong enough.

Step 2 - Find out the Hanging Man pattern on your trading timeframe

Some traders use two or three timeframes to trade patterns. But that’s not the right way of pattern trading. If you are an intraday trader, use only lower timeframes to identify the pattern. So the next step here is to find out the Hanging Man in this chart. Also, apply the MACD indicator. For us to go short, the MACD indicator must be in the overbought area.

As you can see in the image below, the USD/CHF Forex pair prints a Hanging Man pattern. This is the first clue for us that the buyers aren’t able to push the market higher. Soon after the crossover happened on the MACD indicator, we can say that this forex pair is in the overbought condition. So now, two forces are aligned, and they are indicating us to go short. Within a few hours, the pair rolls over, and it prints brand new lower low.

Step 3 – Entry, Take Profit & Stop Loss

We go short as soon as we see the Hanging Man candlesticks and MACD indicator at the overbought area, we can go short. In this pair, buyers were quite weak, and this is an indication for us to place deeper targets. As we suggest in every strategy, often close your position at significant support/resistance area, or when the market starts to print the opposite pattern. In this pair, we closed our full trade at 0.9844. Overall it was 7R trade, and we made nearly 140+ pips.

Placing the stop loss depends on what kind of trader you are. Some advanced traders use their intuition to close their positions, while some use logical ways such as checking the power of the opposite party. In this trade, we know that the buyers are not strong enough, so there is no need to use the spacious stop loss.

Difference Between Hanging Man and Hammer Patterns

The Hanging Man and Hammer both look the same terms of size and shape. Both of these patterns have long, lower shadows and small bodies. But the Hanging Man forms in an uptrend, and it is a bearish reversal pattern. Whereas the Hammer forms in a downtrend, and it is a bullish reversal pattern. These two patterns appear in both short and long term trends. Do not use these patterns alone to trade the market. Always use them in conjunction with some other reliable indicators or any other trading tool.

Bottom Line

Most of the professional traders never see this pattern alone as a predictor of a potential trend reversal. Because there will be times when the price action continues to move upward even after the appearance of the Hanging Man. Hence technical indicator support is required to confirm the reversal of the trend. Make sure to stick to the rules of the pattern so that you can use it to your advantage. This pattern forms in all the timeframes, but we suggest you master it on a single timeframe first. Cheers!

Categories
Forex Price-Action Strategies

Risk-Reward and Its Impact on the Price Behavior

Risk-reward is an essential factor in price action trading. When the price makes a breakout and produces a signal, the first thing traders are to calculate is risk-reward. It does not matter how the price heads towards a direction, significant higher high and lower low are to be calculated. These are what determine risk-reward. In today’s lesson, we are going to demonstrate an example of how risk-reward may have an impact on the market.

Risk-reward is an essential factor in price action trading. When the price makes a breakout and produces a signal, the first thing traders are to calculate is risk-reward. It does not matter how the price heads towards a direction, significant higher high and lower low are to be calculated. These are what determine risk-reward. In today’s lesson, we are going to demonstrate an example of how risk-reward may have an impact on the market.

Risk-reward is an essential factor in price action trading. When the price makes a breakout and produces a signal, the first thing traders are to calculate is risk-reward. It does not matter how the price heads towards a direction, significant higher high and lower low are to be calculated. These are what determine risk-reward. In today’s lesson, we are going to demonstrate an example of how risk-reward may have an impact on the market.

The above chart is a daily chart, in which the price action produces a Double Top along with an Inside Bar, and its neckline is not too far. The sellers are to wait for a breakout at the neckline and go short on the pair. Let us flip over to the H4 chart.

The H4 chart produces an Inside Bar as well as the reversal candle. However, the price heads towards the neckline with good bearish momentum. If the price makes an H4 breakout, the sellers may go short up to the last swing low on the H4 chart. The daily support, however, lies a bit further down.

The price is right at the neckline level. It is at a critical level since the last candle closes right at the neckline level. It could go either way from here. Let us see which way it heads.

A massive breakout takes place here. However, look at the last swing low. The price is adjacent to it. This means risk-reward is not lucrative at all. Traders must not sell from here on this chart.

It makes a breakout, which is fantastic. However, the black marked level is daily support. The sellers may take a short entry from here, but that is on the H4-H1 chart combination.

As expected, the price heads towards the daily support, and it produces a bullish reversal candle. It made such a strong bearish move, but the daily-H4 chart combination traders have not found any entry because of the risk-reward issue. If the daily-H4 combination chart traders found an entry, the bearish move would have been more consistent. Let us find out what happened next.

The price heads towards the level sellers were waiting for the price to make a breakout at first. This one is another inconsistent move on this chart. That means an inconsistent move may bring another inconsistent one. To sum up, we could conclude by saying that the risk-reward factor may make the price inconsistent to some extent.

Categories
Forex Basic Strategies Forex Trading Strategies

Trading False Breakouts Like a Professional Forex Trader

Introduction

Introduction

Introduction

Often there are times in the market when the price breaks a certain significant level, and most of the novice traders immediately jump into the market. But, suddenly, the price reverts quickly, stopping out these traders or putting them in a losing position. Most of the experienced traders would have exited their positions when they realized they are trapped by the big whales like industry or institutional traders.

But beginner traders often become the victims of these false breakouts, and it affects their psychology as well. They will start doubting their trading strategies, and the fear element will surpass their confidence. Instead of falling into the negative state of mind, traders should learn how to use these false breakouts to their advantage so that they can profit from it. In this article, let’s discuss how to trade the false breakouts properly.

Most of the traders often consider false breakouts as a negative thing in the market. The general perception is that, by trading the false breakouts, they are taking the unnecessary risk, or it is not the correct way to trade. Some traders also believe that simple breakouts are more comfortable to trade. It is true, but simple breakouts won’t provide a great risk-reward, and also, it is not a consistent way to trade the market. On the other hand, successful & experienced traders see the false breakout logically and consider it as an opportunity to make some quick profits.

There are a lot of ways to trade false breakouts. Some traders trade them in conjunction with indicators, and some use it with trend lines and support resistance. In this strategy, we will show you the most appropriate way of trading false breakouts.

Trading the false breakout by using the major S&R levels

False breakouts occur in all types of markets, such as Forex, Stocks, Futures, and Options. They also occur in all kinds of market conditions. But the critical thing to remember is that every false break out is not worthy enough to trade. Always consider trading the false breakouts by following the trend of the market. That is, if the trend is up, look for the buy-side false breakout and in a downtrend, look for sell-side false breakouts.

Step 1 – Find the trend of the higher timeframe

This step is simple yet crucial because we need to confirm the trend of the market. Keep in mind that most of the lower timeframes always follow the direction of the higher timeframe. To explain this strategy, we are examining the uptrend of the GBP/USD forex pair.

Step 2 – Look for the significant S&R in the lower timeframe

Most of the false breakouts occur near the support and resistance level. The reason brokers and market movers use these levels is to manipulate the market as is these areas act as a significant supply-demand zone. This makes it easier for the bigger players to fill more orders.

Step 3 – Look for the false breakouts at the S&R level

As we know by now, most of the false breakouts happen at major support resistance area. A trader can set the alarm on the price chart to see when the price action is at a major level. When the price breaks these levels, wait for the false breakout to trade the market.

In the below image, GBP/USD was in an uptrend. On 15 Min chart during the pullback phase, prices started holding at the support area. On 29th Nov, look at the first circle where the price action prints the false breakout. But there is no way to trade that breakout. Because after that, the price action dipped below the support area, which is a sign of a false breakout. So it is an indication to go long on the GBP/USD forex pair.

Step 4 – Entry, Stop loss and Take profit

A trader should be entering the market when the price action holds at the significant support resistance area as it confirms that the levels are active to hold the prices. \

Take profit placement depends on your trading style. If you are an intraday trader, we suggest you close your position at a recent high. If you are a swing trader, look for another false breakout to load more positions. You can also use the recent high or any support resistance area of the higher timeframe to close all of your positions.

Most of the false breakouts are sure shot trades in the market. Place the stop loss just below the recent low, or at the closing of the most recent candle. If you are a conservative trader, then put stop loss bit spacious to your entry point.

In the below image, we have placed the stop loss just below the closing of the recent candle, and we have captured the 4R trade in the market.

Bottom line

It is essential to learn the logic and psychology behind any false breakout. Most of the time, the risk is small in these types of trades, and it is important not to be greedy while placing more extended targets. If there is no momentum in the market, close your positions, and if the trend is healthy to go for longer moves. You can still trade the regular breakouts, but throw relatively less money when compared to the false breakout trades. Also, make sure to practice trading false breakouts in a demo account until you master it. We hope you liked this article. Cheers!

Categories
Forex Price-Action Strategies

Never give Up: Chase it All the Way

Trading is a game of probability, which requires patience and amazing mental strength. A trader has to have ‘never give up’ mindset. In today’s trading lesson, we are going to demonstrate an example of the importance of having ‘never give up’ attitude.

Trading is a game of probability, which requires patience and amazing mental strength. A trader has to have ‘never give up’ mindset. In today’s trading lesson, we are going to demonstrate an example of the importance of having ‘never give up’ attitude.

Trading is a game of probability, which requires patience and amazing mental strength. A trader has to have ‘never give up’ mindset. In today’s trading lesson, we are going to demonstrate an example of the importance of having ‘never give up’ attitude.

The price heads towards the North by making new higher highs. The last candle comes out as a bearish candle. However, the overall trend is still biased with the bull. Thus, traders shall look for long opportunities here until it makes a breakout at the last swing low.

The last candle makes a breakout at the last swing low. The bear seems to have taken control. Traders are to go short on this chart upon upside correction. The last candle closes within the level, where the price reacted heavily earlier. Thus, the price may consolidate hard here.

It does not. It rather makes a breakout straightway. Moreover, it produces another bearish candle and approaches towards a significant level of support. Usually, after making such big movements without having consolidation, the price gets tired and choppy.

It is not tired on this occasion though. It consolidates and produces a bearish engulfing candle closing below the last support. A short entry may be triggered right after the candle closes by setting Stop Loss above the consolidation resistance.

Off she goes. The price heads towards the downside with extreme bearish pressure. Two consecutive bearish candles and there is still no sign of a reversal. The sellers may keep holding their position to make more pips. The movement justifies the statement that the market can be very tricky from time to time. It can do things (market move) that we may not even imagine on that particular occasion.

After making the first breakout, the price makes an abrupt move. Usually, in most cases, the price does not continue its journey towards the trend. Either it consolidates for a long time or it makes a reversal. Many price action traders may not want to keep their eyes on the chart. They may think it is a waste of time. However, the above example shows us that it is not waste. Experienced price action traders must have made full use of that bearish move. If a trader wants to survive in this market, he is to be patient, perseverant, and hard working. With these three qualities, he must have ‘never give up’ mind setup.

Categories
Forex Daily Topic Forex Price-Action Strategies

An Old Theory about Support/Resistance

Support and Resistance are the two extremely important components in financial trading. Price action traders rely on them as a critical component of their trading strategies.

Support and Resistance are the two extremely important components in financial trading. Price action traders rely on them as a critical component of their trading strategies.

Support and Resistance are the two extremely important components in financial trading. Price action traders rely on them as a critical component of their trading strategies.

Ideally, 90% of the indicators are able to reveal support and resistance levels. An ancient theory of support and resistance says that support becomes resistance and vice versa and interesting point is the theory still works nowadays as well as it did in the past. In today’s lesson, we are going to demonstrate an example of this long-used theory.

In the above figure, the price heads towards the North with good bullish momentum. It pauses at a level of resistance, where the price had a rejection earlier. The equation is simple here. If the price produces a bearish momentum and makes a breakout at the last swing low, the sellers are going to look for short opportunities. In case of an upside breakout, it remains buyers’ territory.

A bullish engulfing candle breaches the resistance. If the price confirms the breakout, the buyers keep dominating here. It seems that the sellers do not have any reasons to be optimistic soon.

The breakout level holds the next candle, as well. This move is a confirmed breakout. However, the buyers are to wait for price consolidation, which gives them a level of support to set stop loss and an upside breakout to trigger an entry.

Oh! No, a bearish Marubozu candle comes back in. All of a sudden, things look a bit different here. The buyers and the sellers both have chances. Let us find out what the price does next.

The price confirms the bearish breakout with an Inside Bar. Look at the last candle on the chart – a bearish engulfing candle forms at the resistance zone. The sellers may flip over to the H1 chart to take a short entry since it is an H4 chart.

The price takes some time to get bearish. It may have been consolidating on the H1 chart for several hours. However, it does get bearish in the end — the price heads towards the South with extreme bearish momentum. The last candle comes out as a Doji candle, which may make some sellers think about taking an exit. However, the way it has been heading towards the downside, most likely it may go towards the last swing low.

The Bottom Line

There are so many strategies, indicators, EAs in the market. It would be tough to suggest if you ask me which one works best. Then again, if I am asked to choose just one strategy, my choice would be “Sell at flipped over resistance; buy at flipped support.”

Categories
Forex Basics Forex Price-Action Strategies

A Story of a False Bullish Breakout

In today’s lesson, we are going to demonstrate an example of a short entry that is derived from a false breakout. It contains two lessons. Let us get started.

In today’s lesson, we are going to demonstrate an example of a short entry that is derived from a false breakout. It contains two lessons. Let us get started.

In today’s lesson, we are going to demonstrate an example of a short entry that is derived from a false breakout. It contains two lessons. Let us get started.

The price heads towards the North and makes an upside breakout. The buyers are to keep their eyes on the pair to go long upon consolidation and bullish reversal candle at the breakout level. Let us find out what happens next.

Wow! This is a copybook corrective candle, which closes right at the breakout level. A bullish reversal candle followed by a breakout at the highest high would get the buyers engaged in buying the pair.

The buyers might not have even thought about it. They are to let the sellers dominate in the pair, while sellers should wait for the breakout confirmation and a bearish reversal candle to go short on the pair. However, they have to calculate that the last swing low is not too far.

The price keeps going towards the South without having apposite consolidation. It consolidates just before the support. The price has been bearish but has not offered any short entry on this chart. Meanwhile, it has made another bearish breakout. The sellers shall be hopeful again. Look at the chart below.

This is an explicit breakout, and the next candle confirms it. The consolidation and the price breakout at the lowest low would be a signal to go short. Let see what the price does this time.

Price action traders have been waiting for this. The price consolidates and makes another breakout. By setting Stop Loss above the resistance, an entry may be triggered right after the last candle closes.

This is how it goes. The price produces consecutive four bearish candles. The very last candle comes out as an Inside Bar. Most traders may come out with their profit; some may still hold their trade by locking some profit.

 Lessons

We learned two lessons from here

  1. False breakout usually drives the price towards the opposite direction.
  2. Risk-reward is always a factor. It does not offer an entry within the first support since risk-reward is not lucrative. It offers an entry on the second breakout, where there is not support nearby.

The Bottom Line

In the beginning, it may sound too many things to remember in price action trading. It is right to some extent. However, if we practice hard, study with the recent price behavior on the chart with as many pairs as we can, surely it will get easy for us.

Categories
Forex Basic Strategies

Trading With The Bollinger Band %B Indicator

Introduction
If you have experience trading with the Bollinger Bands indicator, you will find it easy to trade with the Bollinger Band %B indicator. The only difference is that, in

Introduction
If you have experience trading with the Bollinger Bands indicator, you will find it easy to trade with the Bollinger Band %B indicator. The only difference is that, in

Introduction

If you have experience trading with the Bollinger Bands indicator, you will find it easy to trade with the Bollinger Band %B indicator. The only difference is that, in this indicator, you can identify the relationship between the price and the bands with at most clarity.

What is the Bollinger Band %B indicator?

It is basically a technical indicator that quantifies the price of an asset with respect to the upper and lower limits of Bollinger Bands. We have derived 6 relations between the price and the indicator.

  • The %B is at zero when the currency pair is at the lower band.
  • % B will be at 100 when the currency pair is at the upper band.
  • The indicator is above 100 when the price of the currency pair above the upper band.
  • It is below zero when the price goes below the lower band.
  • The %B is above 50 when the price goes above the middle band.
  • And it is below 50 when the price goes below the middle band.

The Bollinger band %B uses the 20-day simple moving average (SMA) as the default parameter, just like the Bollinger Bands. This indicator is available on most of the trading platforms and terminals.

Bollinger Band %B formula

%B = (Price – Lower Band) / (Upper Band – Lower band)

Things to know

Before understanding the strategy, it is necessary to know a few things about the indicator as these concepts will be used in every step of the strategy. Below is the chart of a forex pair with the Bollinger Band %B indicator plotted to it.

  • The upper dashed line represents the 100% level of the %B indicator also known as the upper band.
  • The lower dashed line represents the 0% level also known as the lower band of the indicator.
  • The area in between the two dashed lines is known as the middle band.

These bands help us in identifying different trading opportunities. Hence, one needs to know about it before knowing the strategy.

The Strategy

Step 1: Identify the major trend

To identify the overall trend of the market, the trader needs to shrink the chart and determine the trend.

An uptrend is defined as a series of higher highs and higher lows, while a downtrend is defined as a series of lower lows and lower highs. In this strategy, we have taken the example of a downtrend, as shown in the figure. One can also see lower lows and lower highs in the above chart.

Let us see how the strategy works.

Step 2: Find the price where %B is above 100 or below 0 in the currency pair.

In this step, we are looking for the price where the indicator is above the upper band or below the lower band. This extreme price action is said to continue for long after taking a suitable entry.

A sell setup is formed when the indicator crosses below the lower band, and a buy setup is formed when the indicator crosses above the upper band. This strategy is almost reverse of other strategies (as oversold indicates buying in other strategies).

The above chart shows the crossing of the indicator below the lower band, which is apt for a sell trade. Just because the price is below the dashed line, we cannot take an entry immediately.

The next step is to find a pullback and then make an entry. We will then see how and where to take profits.

Step 3: Take an entry only at a suitable pullback.

By suitable pullback, we mean the opposite color candles should not be swift candles and should not make higher highs. If this happens, the current trend can be weak and may not sustain. The %B indicator can also assist us with the same, as the indicator should move slowly after crossing the lower band. If the indicator reacts and moves fast, it means the pullback is strong and could also result in a reversal. Finally, an entry can be taken after the close of at least two pullback candles.

The below figure explains the above paragraph clearly.

Step 4: Determining how to take profit

In this strategy, we follow a rule-based system for making profits which are again based on our indicator. A trader needs to cover his position after the indicator crosses the lower band once again and goes above the dashed line. This style of taking profit is different than in other strategies where it is based on a fixed percentage. This way of taking profits ensures that a trader is trading based on rules and guidelines which is a disciplined approach.

The below figure explains how profit is taken and the position is covered.

When the indicator goes above the 0% (lower band) level after crossing below, it means profit can be taken now and the trade can be closed.

Step 5: Place a protective stop

Stop-loss is a mandatory and essential part of risk management, hence it needs to determined before entering a trade. For this strategy, stop-loss is placed above the high of the pullback which makes it an optimal place. The stop-loss, in this case, is very small which increases the risk to reward ratio (RR) considerably.

Here is exactly where it is recommended to put the stop loss.

The final trade setup would look something like this 👇

This results in a minimum of 2:1 RRR.

Final words

This is one of the easiest strategies which can be learned by new and experienced traders. It makes use of simple Bollinger bands added with a %B indicator. This indicator can also be combined with several other technical indicators and trading systems, but this alone, too, has a very good level of accuracy.  Now, we have to follow the money management principles to take the best trades and make huge profits from the same strategy. For this, you can also refer to our money management article series, which talks on various risk management topics. Cheers!

Categories
Forex Basic Strategies Forex Daily Topic

The Case for Average True Range-based Stop-loss Settings

Most traders are taught to use stop-losses based on critical levels. The basic idea is to spot invalidation levels based on previous low or high. The assumption is that by

Most traders are taught to use stop-losses based on critical levels. The basic idea is to spot invalidation levels based on previous low or high. The assumption is that by

Most traders are taught to use stop-losses based on critical levels. The basic idea is to spot invalidation levels based on previous low or high. The assumption is that by putting the stop a few pips below or above a support/resistance level will be enough to ensure the right trade will not be stopped out and just bad trades will be taken away.

The problem with that is that all participants in the market, including institutional traders, can see these levels. Institutional traders have lots of cash to play with, so they can push the price down to take all the buy-stop (or sell-stop) orders they see in their price book.

Key-level-based Stops

In the following example, we see the EUR(USD making a breakout after failing to break the previous high, on high volume. A perfect setup for a short trade. We then see the price moving down and then retracing and heading up to our stop-loss. We have been cautious and set it above the last top made on the 6th of November.

Nevertheless, the price kept moving inexorably up until the stop was taken. This is market manipulation at the highest level by institutions. Institutions have advanced tools to observe the depth of the order book, so they know the place and amount of the stops. Also, they have the liquidity necessary to move up the market, take all the liquidity at excellent prices, then continue south.

Chart 1 – EURUSD Key-level-Based Stop-loss placement

 

ATR-Based stops

If we look at the next chart, we see the same asset with the Average True Range indicator added. For this kind of stop-setting strategy, we need to detect the short term range. Therefore, we use a period of five for the ATR indicator. Next, we look at the peak set by the latest impulsive candlestick, which happened ten bars ago, 0.00168, which is about 17 pips. This figure gives us the expected 4-hour price movement for the current market volatility. The usual is to protect us against two times this figure, at least. In this case, we would need to move the stop-loss level 34 pips away from the entry point.

Chart 1 – EURUSD ATR-Based Stop-loss placement

It is wise to keep statistics of the ideal ATR multiplier, because as the number increases, it cuts our position size for the same dollar-risk amount, and also it reduces our Reward-to-risk ratio.

John Sweeney developed the general method of stop-loss placement. He called it the Maximum Adverse Execution method. The theory of it has been already described in our article Maximum Adverse Excursion, so we are not going to repeat ourselves here. Using  MAE delivers statistical-significant and tamper-proof stops, but it is a bit cumbersome. The use of ATR Stops is a simpler and second-best option instead of the foreseeable key-level-based stops.

 

 

Categories
Forex Basic Strategies

Trading Price Channels Like A Professional Forex Trader

Introduction
One of the most important characteristics of price in the Forex market is that it moves in the form of channels 20-25% of the time. So it is crucial

Introduction
One of the most important characteristics of price in the Forex market is that it moves in the form of channels 20-25% of the time. So it is crucial

Introduction

One of the most important characteristics of price in the Forex market is that it moves in the form of channels 20-25% of the time. So it is crucial to learn how to trade the market when it is in this state. The price channel strategy that we are going to discuss is intuitive and most straightforward. In this article, we will see how to implement this strategy and take profitable trades while reducing risk at the same time. Let’s get right into it.

What is the price channel pattern?

Before exploring the strategy, we need to know what a price channel means and the different types of channels. The price channel represents two trend lines drawn above (channel resistance) and below (channel support) the price. The price moves within these two trend lines.

The width of the channel should be big enough if you want to trade inside it. In this case, a simple trade would be to buy at channel support and sell at the channel resistance level.

However, the most significant opportunity is to trade the channel breakout.

We can distinguish the channel into two types:

  • Upward price channel
  • Downward price channel

An upward price channel occurs when price makes higher highs and higher lows. More the number of touches the price makes to channel’s support and resistance, stronger is the channel.

A downward price channel occurs when the price makes a series of lower lows and lower highs. The trend line should be able to connect to these points; only then we can call it a channel.

This represents the consolidation or ranging zone. Here the market bounces on and off between the two support and resistance lines.

If you understand the psychology and reason behind the formation of a price channel, it can save you a lot of losing trades. The reason why channel breakout is so significant is that many traders trade inside the channel. They place their stop loss above or below the price channel pattern.

As more and more traders start placing their stops, they will eventually be targeted by smart money. One needs to remember that a price channel won’t last forever. Breakout in any form is inevitable.

So, now, let’s see what the price channel strategy is and how to trade it effectively. This strategy is independent of technical indicators and does not make use of it (except for taking profits). Hence, there is no prior knowledge of technical indicators is required.

Price channel strategy

Recognize the early signs of a price channel breakout, as this will help you make better decisions. This strategy is based on such breakout signs, so knowing about them in advance is an advantage.

Here are the various steps involved in the strategy. We will be taking the example of a sell trade.

Step 1: Draw an upward channel

The upward channel should be constructed in such a way that it should connect at least two higher highs and higher lows. You can also make use of the price channel tool, which is provided by most trading platforms to connect the highs and lows.

Before the breakout, we need to make sure of an important rule, which brings us to the next step.

Step 2: For an upward channel, look for a false breakout above the channel resistance.  

In the case of an upward channel, the first warning would be the price failing at the resistance and giving a false indication that the price has broken above resistance.

Only this strategy makes use of this powerful price reading technique. It is in this unique style that we have developed this strategy. The failed attempt at the top is a sign of ‘stop-loss hunt’ by large players, which is confirmed when the price comes back to the channel support.

Note – The more times a ‘swing high‘ tries to get violated and fails, the stronger will be the breakdown.

Step 3: Wait for the breakdown and confirmation

A mistake that most traders do is that they don’t wait for a confirmation signal after the breakdown happens. For this strategy, the confirmation is to wait for the breakdown candle to close below the channel support. Before this, wait for the breakdown and then look for confirmation.

The closing of the candle should be like one in the below figure.

So, don’t just sell after the support is broken. Instead, see that the breakdown candle closes below the price channel. This is an effortless way to avoid false breakdown signals.

Note – If the breakdown candle is decisive, it’s good, but not mandatory.

Then what is the exact point of entry? This brings us to the fourth step of the strategy.

Step 4: Sell right at the closing candle

The entry technique of the strategy is quite simple. A sell order can be executed at the breakdown candle closing price.

Now you can be confident in taking the trade, as you have done everything right until now. The next logical thing to do is to determine where to take profits and place the protective stops.

Step 5: Take 50% profit at consolidation near EMA and rest 50% after price crosses above the EMA. The stop loss has to be placed above the channel support.           

We will be taking profits based on EMA plotted on our chart. Our first potential take profit zone is when the price starts to consolidate near the EMA and touches the line multiple times, as this means that the trend might be coming to an end.

The second potential take profit zone is when the price crosses above the EMA, signaling a reversal of the current trend.

Next, we need to establish our stop-loss.

The stop-loss is placed right above the price channel support, which was broken. Stop-loss can also be extended up to price channel resistance to give more room for the price.

Finally, the trade would look something like in the below figure. This trade will result in a risk to reward ratio of 1:1 minimum. However, if you are patient enough to wait for the trend to continue, the RRR can be increased.

Note – The above trade is an example of a sell trade. The same rules apply for a ‘buy trade,’ but in reverse, as this time, you will be using a downward price channel.

Bottom Line

The price channel strategy can be used in any kind of market. It can also be incorporated into your current strategy to bring a new dimension to price action trading. If you are good at spotting price patterns and money management, this strategy can make huge profits. Happy Trading!

Categories
Forex Basic Strategies Forex Fibonacci

Perfecting The Fibonacci Retracements Trading Strategy

Introduction
The Fibonacci tool was developed by Leonardo Pisano, who was born in 1175 AD in Italy. Pisano was one of the greatest mathematicians of the middle ages. He brought

Introduction
The Fibonacci tool was developed by Leonardo Pisano, who was born in 1175 AD in Italy. Pisano was one of the greatest mathematicians of the middle ages. He brought

Introduction

The Fibonacci tool was developed by Leonardo Pisano, who was born in 1175 AD in Italy. Pisano was one of the greatest mathematicians of the middle ages. He brought the current decimal system to the western world ( learned from Arab merchants on his trips to African lands). Before that, mathematicians were struggling with the awkward roman numerical system. That advancement was the basis for modern mathematics and calculus.

He also developed a series of numbers using which he created Fibonacci ratios describing the proportions. Traders have been using these ratios for many years, and market participants are still using it in their daily trading activities.

In today’s article, we will be sharing a simple Fibonacci Retracement Trading Strategy that uses Fibonacci extensions along with trend lines to find accurate trades. There are multiple ways of using the Fibonacci tool, but one of the best ways to trade with Fibonacci is by using trend lines.

With this Fibonacci trading strategy, a trader will find everything they need to know about the Fibonacci retracement tool. This tool can also be combined with other technical indicators to give confirmation signals for entries and exits. It also finds its use in different trading strategies.

Below is a picture of the different ratios that Leonardo created. We will get into details of these lines as we start explaining the strategy.

Strategy Prerequisites

Most of the charting software usually comes with these ratios, but a trader needs to know how to plot them on the chart. Many traders use this tool irrespective of the trading strategy, as they feel it is a powerful tool. The first thing we need to know is where to apply these fibs. They are placed on the swing high/swing low.

  • A swing high is a point where there are at least two lower highs to its right
  • A swing low is a point where there are at least two higher lows to its right

If you are uncertain of what the above definitions meant, have a look at the below chart.

Here’s how it would look after plotting Fibonacci retracement on the chart.

In an uptrend, it is drawn by dragging the Fibonacci level from the swing high all the way to swing low. In case of a downtrend, start with the swing high and drag the cursor down to the swing low. Let’s go ahead and find out how this strategy works.

The Strategy

This strategy can be used in any market, like stocks, options, futures, and of course, Forex as well. It works on all the time frames, as well. Since the Fibonacci tool is trend-following, we will be taking advantage of the retracements in the trend and profit from it. Traders look at Fibonacci levels as areas of support and resistance, which is why these levels could be a difference-maker to a trader’s success.

Below are the detailed steps involved in trading with this strategy

Step 1 – Find the long term (4H or daily time frame) trend of a currency pair

This is a very simple step but crucial, as well. Because we need to make sure if the market is either in an uptrend or a downtrend. For explanation purposes, we will be examining an uptrend. We will be looking for a retracement in the trend and take an entry based on our rules.

Step 2 – Draw a line connecting the higher lows. This line becomes our trendline.

The trend line acts as support and resistance levels for us. In this example, we will be using it as support.

Step 3 – Draw the Fibonacci from Swing low to Swing high

Use the Fibonacci retracement tool of your trading software and place it on swing low. Extend this line up to the swing high. Since it is an uptrend, we started with a 100% level at the swing low and ended with 0% at the swing high.

Step 4 – Wait for the price to hit the trend line between 38.2% and 61.8% Fibonacci levels.

In the below-given figure, we can see that the price is touching the trend line at two points (1 and 2). There is a significant difference between the two points. At point 1, the price touches the trend line between 78.6% and 100%, whereas, at point 2, the price touches the trend line between 38.2% and 61.8%.

The region between 38.2% and 61.8% is known as the Fibonacci Golden Ratio, which is critical to us. A trader should be buying only when the price retraces to the golden ratio, retracements to other levels should not be considered. Therefore, point 2 is where we will be looking for buying opportunities.

Step 5 – Entry and Stop-loss

Enter the market after price closes either above the 38.2% or 50% level. We need to wait until this happens, as the price may not move back up. However, it should not take long as the trend should continue upwards after hitting the support line.

For placing the stop loss, look at previous support or resistance from where the price broke out and put it below that. In this example, stop loss can be placed 50% and 61.8% Fibonacci level because if it breaks the 50% level, the uptrend would have become invalidated. The trade would look something like this.

Final words

The Fibonacci retracement tool is a prevalent tool used by many technical traders. It determines the support and resistance levels using a simple mathematical formula. Do not always rely only on Fibonacci ratios, as no indicator works perfectly alone. Use additional tools like technical analysis or other credible indicators to confirm the authenticity and accuracy of the generated trading signals. One more important point that shouldn’t be forgotten is not to use Fibonacci on very short-term charts as the market is volatile. Applying Fibonacci on longer time frames yield better results.

We hope you find this strategy informative. Try this strategy in daily trading activities and let us know if they helped you to trade better. Cheers!

Categories
Forex Basic Strategies

The Most Simple Scalping Strategy To Trade The Forex Market!

What is Scalping?
Scalping is one of the trading styles in the forex market, which is gaining popularity with the emergence of artificial intelligence and automated trading systems. Nowadays, there

What is Scalping?
Scalping is one of the trading styles in the forex market, which is gaining popularity with the emergence of artificial intelligence and automated trading systems. Nowadays, there

What is Scalping?

Scalping is one of the trading styles in the forex market, which is gaining popularity with the emergence of artificial intelligence and automated trading systems. Nowadays, there are a set of traders who enjoy scalping than day trading, swing trading, or position trading.

The main difference between scalping and other styles of trading is that in scalping, the trading time frame is very short and face-paced. The holding period does not last more than a few minutes, whereas ‘positional’ traders hold their trades from 1-Hour to few weeks. Scalpers find trading opportunities on very short timeframes such as the 1-Minute and 3-Minutes.

Impulsive traders are the ones who are most attracted to scalping, as they don’t want to wait for a trade to set up on the higher time frame. Sadly, new traders fall into this trap and start scalping the market, totally unaware of the risk it carries.

To scalp, a trader needs to be experienced. We recommend first being consistently profitable on the higher time frame or swing trading and then move on to scalping. Because this form of trading is extremely difficult as it requires a trader to make decisions in mere seconds or minutes.

5-Minute Scalping Strategy

In this section, we’ll cover a simple yet very effective scalping strategy on the 5-minute timeframe. The most suitable time to implement this strategy is during volatile market conditions. This means the best results are obtained during the New York-London session overlap (8:00 AM to 12:00 PM EST). During this time, trading costs are also relatively low, and liquidity is high, which is essential for the scalpers to take a trade.

We will be using two exponential moving averages in this strategy. Below are the indicators that one needs to apply to their charts.

  • 50-Period exponential moving average
  • 200-Period exponential moving average
  • Stochastic indicator

The Strategy

Let us look at the detailed steps involved in the 5-minute scalping strategy.

Step 1️⃣ – Identify the current trend

The two EMAs are used to indicate the trend in the 5-minute chart. To identify the larger trend, a trader will have to change the time frame to 15-minutes. Identifying the bigger trend is crucial to understand the overall direction of the market. The 50-period EMA is much faster than the 200-period EMA, which means it reacts to price changes more quickly.

If a faster (50-period) EMA crosses above the slower EMA (200-period), it means the prices are starting to rise, and the uptrend is more likely to be established. Similarly, a cross of faster EMA below the slower EMA indicates a drop in the price, and that also means a downtrend is about to form. Always make sure to take trades in the direction of the major trend.

Step 2️⃣ – Look for a pullback

Once we determine the current trend on the 5-minute chart based on EMA’s, it is time to wait for a pullback and stabilization of the price. This is one of the most important steps in this strategy as prices tend to make false moves after strong ups or downs. By waiting for the pullbacks, we can prevent ourselves from entering long or short positions too early.

Step 3️⃣ – Confirmation with the Stochastic Indicator

Finally, the Stochastic indicator gives the confirmation signal and helps us to take only highly-profitable trades. A reading above 80 indicates that the recent up move was strong, and a down move can be expected at any time. This is referred to as the overbought market condition. Whereas, a reading below 20 indicates that the recent down move was strong, and an up move is about to come. This market condition is referred to as the oversold market condition. After a pullback to the EMA’s, the Stochastic Indicator’s final confirmation gives us the perfect trade entry.

Let us understand this strategy better with the help of an example.

Chart-1

The above figure is a 5-minute chart of a currency pair, and the 200-period EMA is represented by the orange line while the 50-period EMA is represented by the pink line. The cross of the pink line above the orange line signals that the currency pair is entering into an uptrend on the 5-minute chart. As long as the faster EMA remains above the slower EMA, we’ll only look for buying opportunities. This step is to identify the direction and crossing of the two EMAs.

Chart-2

A trader shouldn’t be going ‘long’ as soon as they see the lines crossing. They should always wait for the pullback and only then take an entry. In ‘chart-2’, when we move further, we were getting the kind of pullback that we exactly need.

The next question is, at which point to buy?

Chart-3

The Stochastic plotted in the above chart helps in giving us the perfect entry points by getting into the oversold area. One can take a risk-free entry after all the indicators support the direction of the market.

Chart-4
Finally, the trade would look something like this (chart-4). The risk to reward ratio (RRR) of this trade is 2:5, which is very good. Also, make sure to place precise stop-loss and take profit orders, as shown above.

Final words

Scalping is a faced-paced way of trading that is preferred by a lot of traders these days. The main difference between scalping and other styles of trading is the timeframes involved in analyzing the market. This type of trading carries certain risks that are unavoidable, such as high trading costs and market noise, which can impact your profits. We hope you find this article informative. Let us know if you have any questions below. Cheers!

Categories
Forex Basic Strategies

Learning The Art Of Fading In Trading

What is Fading?
Fading involves placing trades against the trend to profit from a reversal. Using the concept of fading, a trader will short sell, expecting the momentum to fade

What is Fading?
Fading involves placing trades against the trend to profit from a reversal. Using the concept of fading, a trader will short sell, expecting the momentum to fade

What is Fading?

Fading involves placing trades against the trend to profit from a reversal. Using the concept of fading, a trader will short sell, expecting the momentum to fade when the market is in an uptrend. Likewise, he/she will buy a currency pair with the expectation that the move will fade away and reverse when the market is in a downtrend.

The fading strategy involves three assumptions:

  • The price is either at the overbought or oversold condition.
  • Early buyers or sellers are getting ready to take profits.
  • Current position holders might be at risk.

Overbought and oversold conditions can be identified using technical indicators such as the Relative Strength Index (RSI). Momentum shows the signs of shifting of forces from bulls to bears or vice-versa. And as these signs develop, current holders of the asset start to rethink their positions.

These conditions get exaggerated after an earnings announcement or news release. This may lead to a knee-jerk reaction on the part of other traders to sell the currency pair. As a result, this reaction gets overextended, and a mean-reversion takes place.

Now let us see how does the strategy work and what are the necessary steps you need to take to profit from the strategy:

The Fading strategy

Step 1 – Identify market extremes from the daily time frame 

The first step is identifying overbought and oversold zones using technical indicators or chart patterns.

The popular indicators used for identifying the zones include:

The overbought and oversold conditions are indicated by reading above or below a certain level. For example, the market is said to be in an overbought condition if the RSI is above 70, and it is said to be in oversold condition if the RSI is below 30. This can help traders in identifying fading opportunities.

In the above chart, we can see how the RSI indicator was crossing the normal range when the market gets into the overbought zone. One can find trading opportunities just using the RSI indicator stand-alone. But to trade like how professionals trade, we need to use a lot more tools.

Traders may also use familiar chart patterns or analysis based on price action and watching the price continuously.

Step 2 – Look for signs of capitulation

The second step in the strategy is to look for early signs of capitulation or change in the short-term trend using momentum. This can be mostly done by using candlestick patterns or price action with a volume indicator. We suggest looking for price action signals.

Some other signs to watch for include:

  • When technical indicators start to fade or move away from their extreme overbought or oversold levels.
  • The volume of the significant trend starts decreasing, or the volume of the opposite trend starts increasing.
  • Bearish candlestick patterns appear (in case of an uptrend), or critical support and resistance are broken.

It’s essential to identify these signs early to maximize profit and avoid mistakes.

The signs mentioned above can be explained better with the help of some figures.

Image 1

In the above image, we clearly see that the market is in an uptrend and has been trending from a few days (as it is a daily chart). The volume of the significant trend is also high with the decreasing volume of the sellers, which is a good sign for bulls. But in the end, the volume starts to decrease. The RSI declines sharply after entering the overbought zone for a while.

Image 2

Immediately we see an increase in the volume of sellers with a drastic drop in the RSI indicator (Image 2). The signs are getting stronger for a reversal, and this trend can continue. All the traders who are holding the currency pair start exiting the market. This could be one of the most reliable signs for us to take appropriate action. 

Image 3

Finally, we see a break in the ‘support’ by the bears with high volume. Now we have combined all the tools, and each of them is indicating a reversal. Hence, we should take a position in the opposite direction. This is precisely the kind of setup that you need to be looking for every time.

Image 4

In order to find the exact entry, we need to magnify the chart. For this, you need to go on a lower time frame to analyze and set your stop-loss or target based on that time frame. This is mandatory for getting precise entries. The above figure is the lower time frame chart of the explained example.

Note: Images 1, 2 & 3 belong to the daily timeframe, whereas Image 4 belongs to the 4H timeframe.

Step 3 – Enter the trade with a stop-loss and take-profit

The last step is to enter the market with a compulsory stop-loss and take profit to ensure risk management is in place. In this strategy, a stop-loss order can be placed above the price where the RSI enters the overbought/oversold zone. Avoid putting small stop-loss as you can prematurely get stopped out from the trade.

Profit can be booked when the volume of your trend starts to decrease. Now, the stop-loss and target would be placed, as shown in the above chart. This trade would result in a risk-to-reward ratio of a minimum of 1:5. Traders can also use a moving average or any other indicator to set a profit-taking price level. Limit orders are almost used by all traders to avoid any slippage or other issues, particularly in less liquid assets.

Bottom line

Fading strategies can be considered as risky as you are going against the trend. It is always a good idea to take a trade if the risk to reward ratio is favorable. These strategies are commonly used by short to medium term traders to capitalize on short term reversals. Even though it seems risky, it can be extremely profitable if appropriately used. This is because the market has reached a saturation state, and there has to be some balancing force. This is why fading strategies are also known as contrarian strategies. Because they work on the assumption that prices deviating far from the trend, tend to reverse and revert back. That’s about Art Of Fading. If you have any queries, let us know in the comments below. Cheers.

Categories
Forex Basic Strategies

Understanding The Volatility Breakout Strategy

Introduction
Breakout trading is one of the most common and popular strategies among traders across the world. In this article, we have added a powerful concept to this strategy, which

Introduction
Breakout trading is one of the most common and popular strategies among traders across the world. In this article, we have added a powerful concept to this strategy, which

Introduction

Breakout trading is one of the most common and popular strategies among traders across the world. In this article, we have added a powerful concept to this strategy, which is volatility. In a volatility breakout, we determine the movement of prices just before the breakout and also their reaction at important support and resistance levels. After analyzing the market, we will decide which breakout is safe to trade and which is not.

Volatility cycles

We have built the volatility breakout strategy in a very simple way. The principle of this strategy is that, when the market moves from one level to another (support to resistance or resistance to support) with strong momentum, the momentum is said to continue further. The other characteristic of the price is that it moves from periods of sideways movement (consolidation) and vertical movement (trend).

Price breaking out of a consolidation prompts us to believe that price will continue in that direction, which might last for one day, one week, or one month. The market after trending downwards gets choppy and reduces directional movement. Traders can use technical indicators like Bollinger Bands, which helps them to determine the strength of the breakout. Breakouts that happen with low volatility are ‘real’ breakouts; on the contrary, breakouts with high volatility can result in a false breakout. We shall look at each case in detail in the next sections of the article.

 

High volatility breakout

When we are talking about volatility, we mean the choppiness of the price, i.e., the back and forth movement of price. There are traders who like this kind of volatility, as they feel price moves very fast from one point to another. But this isn’t necessarily true in case of a breakout. If you don’t have the required strength in a breakout, you could be trouble.

In the above chart, we see that the price has been in a range for a long time. This means a breakout could happen anytime. Much later, the price tried to break above resistance and stayed there for quite a long time. The price is just chopping around without moving in any particular direction eminently. All these are indications that the breakout, if it happens, will not sustain. Hence, one needs to be extra cautious before going ‘long’ after the breakout.

There are many traders who are willing to take the risk and want to try their luck in such conditions. In that case, after you buy the forex pair, always keep a tight stop loss. The reason why we are suggesting a tight stop loss is that there are high chances for the trade will not work in your favor, and you should avoid making a big loss in that trade. The setup would look like something below.

If the trade works, it can give a decent profit with risk to reward of more than 1.5, which is really good. Again this strategy is only for aggressive traders.

Low volatility breakout    

When a breakout happens with a lot more strength, it is said to be a low volatility breakout. The price here does not face much of hurdle and crosses the barrier with ease.

As you can see in the above chart, the price does not halt at resistance, and the breaks out smoothly, which is exactly how a breakout should be. After that, you can see that the breakout happens successfully, and the price continues to move higher. When such type of volatility comes into notice, we will see a higher number of traders being a part of this rally because they are relatively risk-free trades. This strategy is recommended by us to all types of traders, irrespective of their risk appetite. The next question is where to take profit and put a protective stop.

Stop-loss can be placed below the higher low, which will be formed near the resistance, and profit should be booked at a price which will result in a risk to reward ratio of 1:2. Some money management rules should also be applied while booking profits. The setup would look something like this.

Measuring volatility

Since this strategy is mostly based on volatility, it is important to know how to measure volatility.

  • Bollinger bands are excellent volatility and trend indicators, but like all indicators, they are not perfect.
  • Average true range (ATR) measures the true range of the specified number of price bars, typically 14. ATR is a volatility measuring indicator and does not necessarily indicate a trend. We see a rise in ATR as the price moves from consolidation to a strong trend and a fall in ATR as market transitions from strong trend to choppiness.
  • ADX is also a prominent indicator that measures the strength of a trend based on highs and lows of the trend over a specified number of candles, again typically 14. When ADX rises, it indicates that the volatility has returned to the market, and you might want to use a strategy that fits that market condition.

Bottom line

The market does not always be in trending and consolidation phases, and we also have to learn to deal with different types of volatility. This is where most of the strategies can be used at their best, and using volatility indicators can help you trade more effectively. A breakout, when accompanied by the right amount of volatility, can be highly rewarding. Hence this is an important factor in any breakout trading system. Cheers!

Categories
Forex Price-Action Strategies

An Engulfing Candle at a Flipped Resistance

An Engulfing candle is a strong bearish reversal candlestick. This makes traders look for trading opportunities. In today’s lesson, we are going to demonstrate an example of how an Engulfing

An Engulfing candle is a strong bearish reversal candlestick. This makes traders look for trading opportunities. In today’s lesson, we are going to demonstrate an example of how an Engulfing

An Engulfing candle is a strong bearish reversal candlestick. This makes traders look for trading opportunities. In today’s lesson, we are going to demonstrate an example of how an Engulfing candle creates an entry. Let us proceed.

This is a daily chart. The price heads towards the downside with good bearish momentum. Traders shall wait for the price to have consolidation or an upside correction followed by a bearish reversal candle or pattern.

The price starts having the correction. It produces a bearish reversal candle after three consecutive bullish candles. The bearish reversal candle is an Inside Bar. This is not a strong bearish reversal candle. However, we still may flip over to the H4 chart (this is a daily chart) and wait for an entry.  The H4 chart does not produce any bearish momentum. Thus, the price goes towards the upside instead. Have a look at the chart below.

This is one strong bullish candle. However, the candle closed within the level, which the price breached earlier. Traders must be patient here to find out what the price does around this level. Does it make an upside breakout or produce a bearish reversal pattern?

It produces a Doji candle right at the flipped resistance followed by an Engulfing candle. This surely attracts traders to keep an eye on the pair to look for short opportunities. The question is, how do we find out entries? When the price is at correction, if we have such a bearish reversal candle at the valuable area, we shall flip over to a minor chart. This is a daily chart. Thus, we shall flip over to the H4 chart. Let us flip over to the H4 chart and find out how that looks.

The H4 chart looks bearish. We are to wait for consolidation and a downside breakout to take a short entry. This is what comes out after a while.

The price produces two bearish candles followed by a bullish one. Any bearish reversal candle breaches the support of the consolidation is the signal to go short here.

This is it. A bearish engulfing candle breaches the support of consolidation. A short entry may be triggered right after the candle closes. Let us find out how the trade looks like in a nutshell.

We may set our Stop Loss above the resistance of consolidation. The Entry-level is very explicit, as it has been explained a bit earlier. We may set our Take Profit at the last lowest low where the price started its correction on the daily chart. Alternatively, we may wait for the price to produce a bullish reversal candle. In this chart, we may come out with our profit right after the last candle (bullish) closes. The choice is yours regarding ‘Take Profit.’ Both have merits and demerits.

The Bottom Line

In the above examples, we have learned what to wait for when to flip over a chart, and on what entry shall be triggered. It does look and sound easy. Trust me. It’s never as easy as it looks when you are to deal with the live market. However, having a lot of practice, and with experience, it surely becomes easier.

Categories
Forex Price-Action Strategies

Trading is the Hardest Way to Make the Easiest Money

Financial traders need to be very alert and patient to deal with the market. These two components are vital for a trader to be successful in trading. In today’s lesson

Financial traders need to be very alert and patient to deal with the market. These two components are vital for a trader to be successful in trading. In today’s lesson

Financial traders need to be very alert and patient to deal with the market. These two components are vital for a trader to be successful in trading. In today’s lesson, we are going to demonstrate an example of alertness and patience. Let us get started.

The price heads towards the South. Ideally, a trader shall look for short opportunities in a chart like this. The last candle comes out as a bullish reversal candle. It is time for consolidation and waiting to get a downside breakout to take a short entry.

The price seems to go too far. It consolidates and produces a bearish engulfing candle. We may flip over to the H4 chart to find an entry since this is a daily chart. The support level looks strong since it created a long bullish move. The price may play around the level for a while.

As expected, the price stalls at the level of support. Things are different now. A downside breakout would make the pair bearish. A bullish reversal candle would make the traders look for long opportunities. This is where traders must be alert and never be rigid with their initial thought.

A bullish reversal candle forms right at the level of support. Traders may want to flip over to the H4 chart to look for long opportunities. We are not flipping over to the H4 chart this time since I know what happens afterward. Our trading lesson today is going to emphasizes something else.

The price heads towards the South instead. The H4 chart does not offer any entry after that daily bullish engulfing candle. Now, the price action is choppy. It seems that it is a chart to avoid for a while.

Not really, be alert. The price obeys a down-trending channel. Thus, any rejection at the upper band may create short opportunities. The price heads towards the resistance. Let us wait for a bearish reversal candle at the upper band (resistance of the channel).

The price makes a breakout at the upper band instead. It consolidates and produces a Spinning Top. Again, we are to change our trading direction. This time we are to go long.

The last candle breaches the horizontal resistance after consolidation. A long entry may be triggered right after the candle closes. Let us proceed to find out what happens next.

Two consecutive bullish candles form right after the breakout candle. Formation of a bearish reversal candle signals that it may be time to come out with a profit. At last, we make some green pips by going long.

The Bottom Line

This is an example of why we must not be rigid with our direction and how important it is to be alert with price patterns. Trading is never easy. As they say, “Trading is the hardest way to make the easiest money”. If we work hard in learning, only then we will be able to make money easily.

Categories
Forex Basic Strategies

You Must Definitely Try These Most Promising Bollinger Bands Strategies

Understanding Bollinger Bands
Bollinger Bands is one of the most famous indicators out there, developed by a technical analyst named John Bollinger in the 1980s. This indicator primarily identifies the

Understanding Bollinger Bands
Bollinger Bands is one of the most famous indicators out there, developed by a technical analyst named John Bollinger in the 1980s. This indicator primarily identifies the

Understanding Bollinger Bands

Bollinger Bands is one of the most famous indicators out there, developed by a technical analyst named John Bollinger in the 1980s. This indicator primarily identifies the volatility level of a currency pair. Bollinger bands are volatility bands placed below and above a moving average. These bands are designed such that they automatically widen when the market volatility increases and narrow or contract when volatility drops.

One of the important purposes of the Bollinger bands is to determine the relative high and low prices of the market. As simple as it gets, the prices are comprehended to be low at the lower band and high at the higher band. With this definition, we can come up with trading patterns that can help predict the upcoming market trend.

Calculation

Bollinger bands have three bands, namely, the upper band, the middle(mean) band, the lower band. And they are calculated as follows:

Upper Band = Middle band + 20-day Standard deviation x 2

Middle Band = 20-period the moving average (20 SMA)

Lower Band = Middle band – 20-day Standard deviation x 2

Below is a chart that has the Bollinger Bands embedded in it.

Setting up the Bollinger band

Every trading platform will ask you for the length of the Bollinger band. By default, the value is set to 20. And it is highly recommended to keep the default configurations to obtain optimal results from the indicator.

Now, let’s put all of the above information into action by analyzing some great strategies.

Strategy 1: Double Bottom Setup

One of the most popular trading strategies using the Bollinger bands is the double bottom setup. This is because John Bollinger himself said that, “Bollinger bands can be used in pattern recognition to define pure price patterns such as “W” bottoms, “M” tops, momentum, shifts, etc.”.

In this strategy, we will be discussing the “W” bottoms, and “M” tops.

W-Bottoms

This strategy can be applied when the market is coming from a predominant downtrend. There are four stages to consider to trade the W-bottom (double bottom) Bollinger band strategy.

  1. The reaction low must form around the lower band.
  2. From the lower band, there must be a bounce up to the middle band.
  3. Thirdly, there should be a new low, which must hold above the lower band. The hold above the previous low confirms the inability of the sellers to push the prices lower.
  4. Lastly, the price must move off the low and break the previous resistance. This confirms the start of bullishness in the market.

Example

In the below chart, the market was in a downtrend. It made a low at the lower band and went up until the middle band and held. This satisfies the first two considerations in the W-bottom strategy. Moving forward, the price comes down again, but this time, it holds above the lower band. This confirms the third consideration, as well. Finally, the market shoots up and breaks the resistance (black line), indicating a buy signal.

M-top

M-top is the opposite of the W-bottom strategy. But, the working of this strategy remains the same. That is, firstly, the price must try to go above the upper band. Secondly, the price should drop down to the middle band. Thirdly, it must go up again but not higher than the previous high. And finally, the market must drop below the support line. And once all these scenarios take place, we can prepare to go short.

Example

In the below chart, the market went above the upper band, pulled back to the middle band, shot up again, but could not go higher than the upper band, and finally, the price dropped below the support (black line). So, this is when we can confidently hit the sell.

Strategy 2: Return to the Mean or Middle of the band

If you wish to extract only small profits from the market, then this strategy will be apt for you. This strategy mainly focusses only on small movements rather than big swings. An advantage of this strategy is that you will be able to pull off consistent profits and reduce risks significantly.

The principle of this strategy is to go long when the price comes down to the middle line. However, to reduce the risk, there are some factors which are implemented when trading this strategy. Below, we have mentioned some of the techniques to trade this strategy.

In the below chart, we can see that the market shot to the upside, pulled back to the middle line, and again shot up north. Here, if we were buying at the middle line, we would have made a profit out of it. But, not always will this work in your favor.

There are some points you must consider before trading this strategy. Firstly, the initial buyers must be very strong. Secondly, the sellers (pullback) must be weaker than the preceding buyers. Thirdly, the price must hold around the mean line. The occurrence of patterns like doji, hammer, spinning top, etc. around the mean line can give additional confirmation on the trade. Therefore, once all the criteria are satisfied, you can go for the buy.

Bottom line

Bollinger band is an excellent indicator to determine the direction of the market. The bands indicate if the market is at a relatively high or low. And these highs and lows help in predicting if the market is continuing its trend or preparing to reverse. Also, chartists combine this indicator with other indicators to have an extra edge over their trade.

We hope you understood these strategies. It is highly recommended to try these in your daily trading activities. With practice, you can master this indicator and can make consistent profits if used correctly. Let u know if you have any questions in the comments below. Happy Trading!

Categories
Forex Ichimoku strategies Ichimoku

Ichimoku Strategy #1 – The Ideal Ichimoku Strategy

The Ideal Ichimoku Strategy is the first strategy in my series over Ichimoku Kinko Hyo. There are two sides to a trade, and so there will be two different setups

Bearish Ideal Ichimoku Strategy Entry
Bearish Ideal Ichimoku Strategy Entry

The Ideal Ichimoku Strategy is the first strategy in my series over Ichimoku Kinko Hyo. There are two sides to a trade, and so there will be two different setups

The Ideal Ichimoku Strategy is the first strategy in my series over Ichimoku Kinko Hyo. There are two sides to a trade, and so there will be two different setups for long and short setups. This strategy comes from the phenomenal work of Manesh Patel in his book, Trading with Ichimoku Clouds: The essential guide to Ichimoku Kinko Hyo technical analysis. Buy it, don’t pirate.

Patel identified this strategy as the foundational strategy. Because it uses all of the components of the Ichimoku system, I believe that this is the strategy that people should be able to know so well, that they can glance at a chart and understand what is happening. You should see this strategy and be ready to trade it profitably before you transition into trying other Ichimoku strategy. If you don’t, you can run the risk of being disenfranchised with the system and believe that it is another trading system that doesn’t work.

Moving on to the other strategies without mastering this strategy first is very dangerous to your trading development and your understanding of the Ichimoku Kinko Hyo system.

Ideal Ichimoku Bullish Rules

  1. Price above the Cloud.
  2. Tenkan-Sen above Kijun-Sen.
  3. Chikou Span above the candlesticks.
  4. The Future Cloud is ‘green’ – Future Senkou Span A is above Future Senkou Span B.
  5. Price is not far from the Tenkan-Sen or Kijun-Sen
  6. Tenkan-Sen, Kijun-Sen, and Chikou Span should not be in a thick Cloud.
Bullish Ideal Ichimoku Strategy Entry
Bullish Ideal Ichimoku Strategy Entry

Ideal Ichimoku Bearish Rules

  1. Price below the Cloud.
  2. Tenkan-Sen below Kijun-Sen.
  3. Chikou Span below the candlesticks.
  4. The Future Cloud is ‘red’ – Future Senkou Span A is below Future Senkou Span B.
  5. Price is not far from the Tenkan-Sen or Kijun-Sen.
  6. Tenkan-Sen, Kijun-Sen, and Chikou Span should not be in a thick Cloud.
Bearish Ideal Ichimoku Strategy Entry
Bearish Ideal Ichimoku Strategy Entry

 

Sources: Péloille, Karen. (2017). Trading with Ichimoku: a practical guide to low-risk Ichimoku strategies. Petersfield, Hampshire: Harriman House Ltd.

Patel, M. (2010). Trading with Ichimoku clouds: the essential guide to Ichimoku Kinko Hyo technical analysis. Hoboken, NJ: John Wiley & Sons.

Linton, D. (2010). Cloud charts: trading success with the Ichimoku Technique. London: Updata.

Elliot, N. (2012). Ichimoku charts: an introduction to Ichimoku Kinko Clouds. Petersfield, Hampshire: Harriman House Ltd.

 

Categories
Forex Price-Action Strategies

A Breakout and the Confirmation

Support and Resistance, also known as Supply and Demand, have long been used in the financial markets. The most characteristic feature of support/resistance is a level of support becomes resistance

Support and Resistance, also known as Supply and Demand, have long been used in the financial markets. The most characteristic feature of support/resistance is a level of support becomes resistance

Support and Resistance, also known as Supply and Demand, have long been used in the financial markets. The most characteristic feature of support/resistance is a level of support becomes resistance, and a level of resistance becomes support. The price after making a breakout comes back to the level and makes a move towards the established trend. The price does not always confirm all the breakout levels, though. Traders do not know which broken level is going to produce a trading signal. In reality, they do not even have to know or guess. They have to make decisions according to the price movement or Price Action. Let us have a demonstration of this.

The price is up trending. Traders shall look for long opportunities. To be honest, the last candle on the chart is a buy signal. It was a week ending candle, which must have held the buyers back. Let us wait for a while to get more clues.

The last candle came out as a bearish engulfing candle. Such price action usually makes a pair choppy. The buyers may want to wait for an upside breakout to go long. However, a bearish engulfing candle may not let that happen.

A strong bullish candle closes within the resistance. It seems that the chart may produce a Double Top. Thus, the bear may come and dominate. Let us draw the Neck Line and resistance of the Double Top.

The equation is very simple here. A breakout at the neckline attracts the sellers, which is more likely. On the other hand, an upside breakout attracts buyers. Let us find out which way the price heads to.

The price makes a breakout at the Neckline. However, it does not consolidate around the Neckline after the breakout. Unfortunately, the sellers do not get an opportunity to go short here. It often happens with the traders. Traders’ life is never easy!

Here is a question. Do you see anything interesting? Has the price made another breakout?

It has made a breakout at the red-marked level. It goes back to the level to confirm the breakout, as well. Moreover, it has produced a bearish engulfing candle with a long upper shadow. Things look good for the sellers. A breakout at the lowest low would be the signal to go short.

Here comes the breakout. A bearish Marubozu candle breached the lowest low. The sellers may want to trigger a short entry right after the last candle closes. Let us find out how far down it goes before producing any bullish reversal candle.

Here comes the breakout. A bearish Marubozu candle breached the lowest low. The sellers may want to trigger a short entry right after the last candle closes. Let us find out how far down it goes before producing any bullish reversal candle.

The price heads toward the downside with good bearish momentum. It produces a Doji Candle. It may be time to come out with a profit.

The Bottom Line

The price does not confirm all the breakouts. That does not mean we should start pulling our hair. Concentrate hard and calculate well. The next opportunity is just around the corner.