Forex trading is gaining popularity day by day, and traders are always looking for new strategies to improve their trading skills. One of the popular trading techniques that many traders use is the split bar trading strategy. This strategy is based on using the split bar to identify the direction of the trend and make profitable trades. In this article, we will discuss how to trade with split bar in forex trading.
What is Split Bar?
A split bar is a candlestick pattern that occurs when the opening and closing prices of a candlestick pattern are located in the upper and lower half of the candlestick’s range. In other words, the split bar has a long upper and lower shadow, and the body is located in the middle of the candlestick. This pattern indicates indecision in the market, and it is a signal that the market is about to change direction.
How to Identify Split Bar?
To identify the split bar, you need to look at the length of the upper and lower shadows of the candlestick. If the length of the upper and lower shadows is longer than the body, it means that it is a split bar pattern. The body of the candlestick can be bullish or bearish, but the length of the shadows is the critical factor in identifying the split bar pattern.
How to Trade with Split Bar in Forex Trading?
The split bar strategy is a trend-following strategy that traders use to identify the direction of the trend and make profitable trades. The strategy is based on using the split bar pattern to confirm the trend direction and enter the market at the right time.
Step 1: Identify the Trend Direction
The first step in the split bar strategy is to identify the trend direction. Traders can use various technical indicators to identify the trend direction, such as moving averages, trend lines, and support and resistance levels. Once you have identified the trend direction, you can move to the next step.
Step 2: Look for Split Bar Pattern
The next step is to look for the split bar pattern on the chart. The split bar pattern can occur at any point during the trend, and it is a signal that the market is about to change direction. When you see the split bar pattern, it is an indication that the market is indecisive, and there is a high probability of a trend reversal.
Step 3: Wait for Confirmation
Once you have identified the split bar pattern, the next step is to wait for confirmation. Traders can use various technical indicators to confirm the split bar pattern, such as MACD, RSI, and Stochastic. The confirmation signal should be in the direction of the trend, and it should occur after the split bar pattern.
Step 4: Enter the Trade
Once you have confirmed the split bar pattern, the next step is to enter the trade. Traders can enter the trade at the close of the confirmation candlestick or the next candlestick. The stop loss should be placed below the low of the split bar pattern, and the take profit should be placed at the next resistance level.
Conclusion
The split bar strategy is a simple but effective strategy that traders can use to identify the trend direction and make profitable trades. The strategy is based on using the split bar pattern to confirm the trend direction and enter the market at the right time. Traders should always use risk management techniques, such as stop loss and take profit, to minimize their losses and maximize their profits.
