Tag: bearish reversal

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Forex Price Action

The Beauty of Horizontal Channel Trading

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

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

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

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

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

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

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

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

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

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

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Forex Price Action

Trend Line Trading: Establishment and Choosing the Chart Timeframe

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

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

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

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

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

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

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

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

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

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

 

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Forex Price Action

Equidistant Channel: An Excellent Price Action Trading Tool

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

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

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

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

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

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

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

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

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

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Forex Basic Strategies

Trading The Most Popular ‘Head and Shoulders’ Pattern Forex Strategy

Introduction

Introduction

Introduction

Head and shoulder is a famous market reversal pattern. Most of the new and experienced traders use this pattern to identify the potential market reversal trade. Traders can use this pattern in every market, including forex, cryptocurrency, stock, indices, and commodities.

In this pattern, there is an indication that the price is trying to make a new higher but cannot do it. In the forex market, it is essential to understand the sentiment of buyers and sellers. In that sense, head and shoulder is a prominent price pattern indicating what buyers and sellers are doing in the market and how buyers got rejected from a potential zone.

What is the Head and Shoulder Pattern?

Head and shoulder is a price pattern that usually appears in an uptrend and indicates a price zone from where buyers are going to lose their momentum. A complete head and shoulder pattern indicates the start of a bearish trend. Therefore, if you want to join the bearish trend as early as possible, you should take trading decisions based on this pattern to have a better risk: reward ratio.

The head and shoulder pattern has three elements, as marked in the below chart.

The left shoulder is the ordinary swing high of a bullish trend. Later on, the head indicates another swing high indicating the continuation of the bullish trend. However, the right shoulder indicates that the price is unable to make another high above the head, which is an indication that buyers are losing their momentum.

On the other hand, the inverse head and shoulder are like the head and shoulder pattern that appears after a bearish trend. It indicates a potential market reversal from a bearish trend to the upside.

In the image below, we can see how an inverse head and shoulder looks like.

How to Identify the Head and Shoulder Pattern?

The head and shoulder pattern is prevalent in the chart that does not require any effort to see. You can easily spot it with the naked eye. Moreover, there are some Expert Advisors (EAs) or trading indicators that automatically show the head and shoulder pattern.

You can draw the head and shoulder pattern using the trendline (without ray) despite the automotive process. Later on, we should focus on the location of the pattern. If the head and shoulder pattern appears near any significant support level, it might not work well due to the lack of space for further price decline.

Overall, the head and shoulder pattern from a significant resistance level or key resistance level can provide a potential market reversal opportunity. Furthermore, head and shoulder patterns with significant economic events often make the level important among traders.

Head and Shoulder Pattern Trading Strategy

If you have read the above section, you would know that it is not difficult to find the price’s head and shoulder pattern. The profitability ratio of this pattern is very high, based on the previous trading result. There are several ways to make trades based on the head and shoulder trading strategy. However, the most reliable way to take the trade is from the neckline breakout.

Timeframe

The head and shoulder price pattern in a daily chart is more reliable than the head and shoulder pattern in a 5 minutes timeframe. The accuracy of this trading strategy increases if you move to a higher timeframe. However, it is often difficult for traders to take trades based on a weekly or monthly timeframe as it requires a lot of time and balance. Based on the retail and institutional traders, any time frame from 1 hour to a daily chart is perfect for this trading strategy.

Currency Pair

The head and shoulder trading strategy works well in all financial markets, including forex, cryptocurrency, stocks, indices, and commodities. Therefore, there is no barrier to use it on specific currency pairs. However, it is recommended to trade in major currency pairs as there is enough liquidity to provide a substantial movement without any unnecessary spike.

Entry

After forming the head and shoulder pattern, it is crucial to measure the price action at the neckline area. The neckline is a support level based on the lowest swing point of two shoulders and one head. In this trading strategy, you should wait for the price to break below the neckline with a big candle breakout. The strength of the breakout will indicate how reliable the upcoming bearish pressure is.

Later on, wait for the price to correct towards the neckline again with a corrective speed and enter the trade as soon as the price rejects the neckline with a bullish reversal candlestick.

Stop Loss

The stop loss will depend on two categories. If you are an aggressive trader, you can put the stop loss above the reversal candlestick with 10-15 pips buffer. In case the market moves above the neckline and hits your stop loss, it would indicate that the price made a false break below the neckline. However, the conservative approach is to put the stop loss above the left shoulder with some buffer. It would save your trading balance from the unusual market noise.

Take Profit

The first take profit level should be based on the 1:1 risk: reward ratio. You can close 50% of the position at the first take profit level and wait for the 100% of neckline to head for the final take profit.

Moreover, you should be more cautious in setting the take profit level by considering the near-term support and resistance levels. In the example below, we can see how the price broke below the neckline and retested it again to create a trading opportunity. Moreover, this image refers to how to set the stop loss and take profit levels.

Conclusion

The forex market is the world’s biggest financial market, which is very uncertain. Therefore, no trading strategy can guarantee a 100% profit. There is some possibility that your trade might hit the stop loss after taking the entry, instead of moving down. In that case, you should take the loss and wait for further trading opportunities.

The best way to keep yourself profitable in the market is to use appropriate money management and trade management rules for trading. Therefore, if you take 1% or 2% risk per trade, any unusual stop loss might not affect the overall balance.

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Forex Price Action

H1-15M Combination Strategy: Entry upon Consolidation and Fibo Targets

In today’s lesson, we are going to demonstrate an example of the H1 -15M combination trading strategy offering entry upon consolidation. We are going to integrate Fibonacci levels to see how far the price moves. This would give us an idea of how effective Fibonacci levels are to determine the stop loss and take profit level. Let us get started.

In today’s lesson, we are going to demonstrate an example of the H1 -15M combination trading strategy offering entry upon consolidation. We are going to integrate Fibonacci levels to see how far the price moves. This would give us an idea of how effective Fibonacci levels are to determine the stop loss and take profit level. Let us get started.

In today’s lesson, we are going to demonstrate an example of the H1 -15M combination trading strategy offering entry upon consolidation. We are going to integrate Fibonacci levels to see how far the price moves. This would give us an idea of how effective Fibonacci levels are to determine the stop loss and take profit level. Let us get started.

The H1 chart shows that the price makes a strong bearish move and finds its support. The black marked level is the level of H1 support here. The price moves towards the North with two candles and may have found its resistance. One of the candles comes out as a bearish engulfing candle. Traders are to wait for an H1 breakout followed by a 15M bearish reversal candle to go short in the pair. Let us see what happens here.

The chart produces one more bearish candle followed by a doji candle. It means the price consolidates in this chart. The next candle closes just below the level of support. Ideally, this is not a perfect breakout candle. However, the price consolidates and produces an H1 bearish reversal candle (the last candle). This is a signal that the price may get bearish and head towards the South. Let us flip over to the 15M chart.

The 15M chart shows that the last candle comes out as a bullish candle. Do not forget that H1 candle closes with a bearish body. Thus, a 15M bearish reversal candle (preferably engulfing candle) will push the price towards the South.

Look at the last 15M candle. It comes out as a bearish engulfing candle closing well below the last candle. This means the price may head towards the South with good bearish momentum. Let us proceed to the next chart with Fibonacci levels to find out how far the price heads to.

The price trends from the 78.6% level and reaches 161.8%. Usually, the 78.6% Fibo level drives the price towards the level of 138.2% with good momentum. It often reaches up to the level of 161.8% because of momentum. However, we may set our target at 138.2% if it trends from 78.6%. Another point you may have noticed is that we draw Fibonacci levels by using the lowest low, not the H1 support. These are two different things.

If the H1 chart makes a straight breakout, we may wait for a 15M reversal candle to take entry. If it consolidates and produces an H1 reversal candle, we may trigger entry if 15M chart produces a strong reversal candle closing well below the wave’s lowest low. Do some backtesting; you will see many charts where the price makes a move like this. Stay tuned. We will reveal more examples of this.

 

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Forex Price-Action Strategies

A Classic Example of the H4 Breakout Trading

In our trading lesson, we have been demonstrating H1 breakout strategies in our last five lessons. Today, we are going to demonstrate an H4 breakout trade setup, which is a classic example of price action breakout trading. The price makes a bullish breakout at the last highest high; comes back at the breakout level and produces a beautiful bullish engulfing candle closing well above consolidation resistance to offer a long entry. Let us proceed and see how it occurs.

In our trading lesson, we have been demonstrating H1 breakout strategies in our last five lessons. Today, we are going to demonstrate an H4 breakout trade setup, which is a classic example of price action breakout trading. The price makes a bullish breakout at the last highest high; comes back at the breakout level and produces a beautiful bullish engulfing candle closing well above consolidation resistance to offer a long entry. Let us proceed and see how it occurs.

In our trading lesson, we have been demonstrating H1 breakout strategies in our last five lessons. Today, we are going to demonstrate an H4 breakout trade setup, which is a classic example of price action breakout trading. The price makes a bullish breakout at the last highest high; comes back at the breakout level and produces a beautiful bullish engulfing candle closing well above consolidation resistance to offer a long entry. Let us proceed and see how it occurs.

The chart shows that the price heads towards the North with good bullish momentum. On its way towards the North, it does not produce even a single bearish reversal. It suggests that the buyers have been very confident. It makes a breakout at the last swing high. The breakout is not explicit though. However, the price continues to go towards the North after the breakout. Then, it finds its resistance and produces two bearish reversal candles. Look at the last candle. It closes within the last highest high (breakout level), which is a flipped support now. This is one of the most important factors in price action trading. The price reacts to such levels and produces reversal candles.

As mentioned, the level produces a bullish engulfing candle closing well above consolidation resistance. The buyers may trigger a long entry right after the candle closes by setting stop loss below the level of support and by take profit with 1R. Let us proceed to the next chart how the trade goes.

The last candle comes out as a spinning top. Not a good start for the buyers, but the buyers must keep patience here. Trading on the H4 chart allows traders to manage their trade and take early exit. However, they must not think taking an early exit here. The last candle is not a strong bullish candle, but it is not a strong bearish reversal either. Let us proceed to the next chart. It may take one good candle to hit the target.

The price does not take too long to hit the target. It hits the target with the last candle. This is a classic example of trading on the H4 breakout trading. After the breakout, the price comes back at the breakout level. It produces a bullish reversal candle right at the breakout level. The bullish reversal candle comes out as an engulfing candle closing well above consolidation resistance. Price actions traders wait for the price to behave like this to take an entry.

 

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Forex Price-Action Strategies

Skip Some Entries to Maintain Winning Consistency

Forex price action breakout trading strategies mainly rely on the breakout. Breakout candle’s attributes mean a lot, whether we shall take entry or not. If a breakout takes place with a strong bullish/bearish candle followed by another strong bullish/bearish candle, it is considered a good entry. On the other hand, if a breakout takes place […]

Forex price action breakout trading strategies mainly rely on the breakout. Breakout candle’s attributes mean a lot, whether we shall take entry or not. If a breakout takes place with a strong bullish/bearish candle followed by another strong bullish/bearish candle, it is considered a good entry. On the other hand, if a breakout takes place […]

Forex price action breakout trading strategies mainly rely on the breakout. Breakout candle’s attributes mean a lot, whether we shall take entry or not. If a breakout takes place with a strong bullish/bearish candle followed by another strong bullish/bearish candle, it is considered a good entry. On the other hand, if a breakout takes place right from the support/resistance level, it is not considered a good entry. In today’s lesson, we are going to demonstrate an example of a breakout from the breakout level. Let us find out what happens in the end.

The price after being bearish finds its support. It has been making a bullish correction. The sellers should wait for the price to produce a bearish reversal candle and a breakout with a good-looking bearish candle.

The price heads towards the level of resistance. If the last candle makes a breakout closing well below the level of resistance, it would be a perfect breakout by a good-looking bearish candle. It rather closes adjacent to the level, which may not produce a strong bearish candle to make the breakout.

It produces more candles but does not make the breakout. The price is roaming around the breakout level, which is not a good thing for the sellers. Usually, if a candle closes below the breakout level right from the level, it consolidates. Traders are to wait more and get less reward.

The next candle closes below the breakout level. It is a breakout but not the breakout that the breakout traders would love to get. Let us proceed to the next chart to find out what happens next.

The next candle closes well below the breakout candle. It confirms the breakout. A question may be raised here whether the sellers take the entry or not. Since the breakout is rather a fragile breakout, it is best to skip such entry. The price often comes back to the breakout level and takes time to finds its next direction. Yes, sometimes it continues to go towards the breakout direction too. Let us proceed to the next chart and find out what happens here.

The price here heads towards the South with extreme bearish pressure. The last candle suggests that the trend is strong, and it may continue. According to our today’s lesson, we shall skip taking such entry. It means we have wasted an opportunity. Do you really believe so?

Do not think it is an opportunity missed. A losing trade hurts a lot. We do not only lose money, but we also lose our faith. Forex trading is a psychological game. To be consistent, we must have strong faith in our trading strategy. To have that,  we must maintain winning consistency.

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Forex Daily Topic Forex Price-Action Strategies

Price Action Trading: Entries to Take and Entries to Skip

In today’s price action trading lesson, we are going to demonstrate an example of a chart that offers multiple entries. We try to spot out entry/entries that we may skip and the entry/entries we may take. We try to find out the reasons behind that as well. Let us get started.

In today’s price action trading lesson, we are going to demonstrate an example of a chart that offers multiple entries. We try to spot out entry/entries that we may skip and the entry/entries we may take. We try to find out the reasons behind that as well. Let us get started.

In today’s price action trading lesson, we are going to demonstrate an example of a chart that offers multiple entries. We try to spot out entry/entries that we may skip and the entry/entries we may take. We try to find out the reasons behind that as well. Let us get started.

The price after being bullish for a long time produces a bearish reversal candle and heads towards the South. Look at the last candle. It comes out as a bullish inside bar. Price action traders start eyeing on such a chart to go short. However, the sellers would love to see the price have deeper consolidation.

The chart does not make a deep consolidation. It produces a bearish engulfing candle closing well below consolidation support. The trend and the reversal candle get 10 on 10, but the consolidation is not deep enough. It is not an A+ entry. It is best if we restrain ourselves from taking such entry. Let us proceed to the next chart.

Many of us may think an opportunity missed. Here is one added lesson on ‘ do not cry over spilled milk.’ Forex traders must obey this. Let us concentrate on the chart again. The last candle comes out as a very strong bearish candle. The pair may offer more short entries.

The chart produces a bullish inside bar again. The equation is simple for the sellers based on price action. The chart is to produce a bearish engulfing candle closing well below consolidation support. Let us proceed to the next chart.

Here it comes. This is one good-looking bearish engulfing candle closing well below consolidation support. The trend, consolidation length, and the bearish reversal candle all get 10 on 10. As far as price action breakout trading strategy is concerned, this is an A+ entry. Let us now find out how the entry goes.

It does not go according to our expectations. It rather produces a bullish inside bar again. It is an inside bar. Thus the sellers still hold the key here. The fact remains at the first consolidation, despite having shallow consolidation, the price heads towards the South with extreme bearish momentum. On the contrary, despite being an A+ entry, the price does not move according to the sellers’ expectations. It may even go towards the North and hits the stop loss. Then again, we must stick with our trading rules and be extremely disciplined. Let us proceed to the next chart to find out what happens next.

Ah! What a move this is! The sellers make some green pips here. The chart makes them wait, but it pays them back. As mentioned, it could go another way. That does not mean we start thinking to change our strategies or start taking random entries. We must make sure we only take entries that get A+ after considering all the segments.

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Forex Basic Strategies

Trading The ‘AB=CD’ Harmonic Pattern Using Fibonacci Ratios

Introduction

Introduction

Introduction

H.M Gartley published a book known as ‘Profits in the Stock Market’ in 1932. In this book, Gartley shared the entire group of harmonic patterns that are widely being used by traders across the world. AB=CD is one such pattern from the harmonic group. As time has passed, professional traders and market technicians improved this pattern a lot. They have also incorporated the Fibonacci ratios to this pattern, which will be discussed in this article.

AB=CD is a reversal pattern that helps traders in predicting when the price action of an underlying asset is about to reverse. It is a visual geometric pattern comprised of three consecutive price swings. This pattern helps to identify the trading opportunities in all types of markets, on any timeframe, and in any kind of market condition. Bullish AB=CD pattern helps traders in identifying higher probability buy trades, whereas bearish AB=CD patterns help in determining selling opportunities.

This pattern includes a total of four letters – A, B, C, D. Each turning point represents a significant high or low on the chart. These turning points are referred to as AB move, BC move, and the CD move. Let’s see how traders must perceive this pattern in the upcoming sections.

AB=CD Pattern Rules

Bullish AB=CD Pattern

  • The bullish AB=CD pattern always appears in a downtrend.
  • First of all, point A to B will be any random downtrend move.
  • Then the price action must go into the counter side of the AB move, printing the B to C move.
  • The original selling trend should resume and print the CD leg resembling the AB leg.
  • Once all these three moves are completed, we can conclude that the market has printed the bullish AB=CD pattern
  • Activate the buy trades only at point D.

Bearish AB=CD Pattern

  • Bearish AB=CD pattern is nothing but a mirror image of the Bullish AB=CD pattern.
  • The pattern begins with a bullish line from point A to B.
  • These points could be any random move in an uptrend.
  • B to C move should reverse the trend of the market but shouldn’t cross point A.
  • C to D move should be equal in size to point A and B.
  • Once all these moves are completed, we can conclude that the market has printed the bearish AB=CD pattern
  • Start taking sell trades only from point D.

AB=CD Pattern – Fibonacci Ratios

As already mentioned, Fibonacci ratios can be used to confirm the validity of the AB=CD patter. Below are the fib levels that are incorporated in the AB=CD pattern by trading experts for pattern validation.

BC leg is the 61.8% Fib retracement of AB leg.

CD leg is the 127.2% Fib retracement of BC leg.

Only at these retracement levels, the length of AB will be equal to the length of the CD.

Only take the trades if these above Fibonacci levels are matching with the setup on your charts. Ignore the setup if the Fib levels aren’t matching.

As you can see in the above image, the BC move retraces 61.8 of the AB and CD move is the 127.2% extension of the BC move. Also, the length of the AB move is equal to the extent of CD, i.e., both the movements must take the same time to develop on the charts. If any underlying currency pair is confirming all the mentioned rules, only then we can safely anticipate a higher probability trade.

AB= CD Pattern Trading Strategy

We believe by now, you understood the formation of the AB=CD pattern very well. Now let’s combine this pattern with the Fibs ratio as discussed to learn how to trade this pattern in the right way. As soon as we identify this pattern on the price chart, the only problem most of the traders have is while determining the accurate Fib ratios. Novice or intermediate traders go wrong most of the time in this aspect. As a result, they lose their trade. So make sure always to set the accurate fibs ratio and only then trade the AB=CD setup.

Bullish AB=CD Pattern

In the below EUR/USD 240 minutes chart, we can see that the pair was in an overall downtrend. We can also see that the CD move is equal in size to AB move. Also, after applying Fib ratios, we now know that the BC is 61.8% retracement of the AB move, and CD is the 127% extension of the BC. Therefore we can confirm the validity of the Bullish AB=CD pattern.

Entry, Stop-loss & Take Profit

Execute a buying trade at point D. Furthermore, always place the stops just below the D point. This is because, if price action goes beyond this point, it invalidates the pattern. This pattern provides two ‘take profit’ targets. The first one is point C, and the other is point A. We have closed our full position at point A because after activating our trade, the price action immediately blasted to the north. This indicates that we can expect more extended targets in this pair.

Bearish AB=CD Pattern

In the below 60 minute chart of the NZD/CAD Forex pair, the market was in an uptrend. This means that if at all, we are expecting an AB=CD pattern, it will be bearish. Notice that the AB is completely equal in size to the CD move. Following the rules of the pattern is critical while trading the AB=CD pattern. After applying Fibs, we can see that the BC is 61.8% retracement of the AB move, and the CD move was also a 127% extension of the BC move on the price chart. This confirms the authenticity of the bearish AB=CD pattern. We have executed a sell trade at point D. Although it was not a smooth ride, we have closed our full position at the major support area.

Bottom Line 

AB=CD is one of the most popular trading patterns in the market. It is straightforward to identify, confirm, and trade as well. Also, we get to see this pattern frequently in the market, and traders can pair it with other forms of technical analysis to improve the odds of their trades. Always remember to follow the rules of the game; else, it is very difficult to win the game of trading. We hope you find this strategy useful. Try applying this strategy on a demo account and then apply it on the live charts. If you have enough questions, let us know in the comments below. Cheers!

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Forex Course

57. Trading Triple Candlestick Patterns – Part 2 (Reversal)

Introduction

Introduction

Introduction

We have discussed some of the major triple candlestick continuous patterns in the previous articles. In this lesson, let’s talk about the triple candlestick reversal patterns. Morning Star and Three Inside Up patterns are very well known as they provide some of the most profitable signals. Let’s get right into the topic.

Morning Star Candlestick Pattern

Morning Star is a bullish candlestick pattern consisting of three candles and is interpreted as a bull force. The pattern is formed following a downtrend and indicates the start of an uptrend, which is a complete reversal. After an occurrence of the Morning Star, traders seek reversal confirmation through additional technical indicators. The RSI is one such indicator which tells that the market has gone into an oversold condition and that a reversal can happen anytime.

Below is how a Morning Star Pattern looks like on a price chart

Criteria for the Morning Star pattern

  1. The first candle is a long bearish candle with little or no wicks.
  2. The second candle is a smaller bullish or bearish candle that captures the indecision state of the market, where the sellers start to lose control.
  3. The third and last candle is a long bullish candle that confirms the reversal and marks a new uptrend.

A trader must lookout for a bullish position in the Forex pair once they identify the Morning Star pattern on the charts. Another important factor for traders to consider is to pair this pattern with a volume indicator for additional confirmation.

Three Inside Up Candlestick Pattern

The Three Inside Up is also a triple candlestick reversal pattern. This pattern indicates the signs of the current trend losing momentum, and warns the market movement in the opposite direction. It is a bullish pattern that is composed of large bearish candle, a smaller candle contained within the previous candle, and then a bullish candle that closes above the second candle.

Below is the picture of how the Three Inside Up pattern would appear on a chart.

Criteria for the pattern

  1. The market should be in a downtrend with a large bearish first candle.
  2. The second candle should open and close within the real body of the first candle, which shows that sellers have stopped selling further.
  3. The third candle is a bullish candle that closes above the second candle, trapping all the short-sellers and attracting the bulls.

Traders must take long positions at the end of the third candle or on the following green candle, which provides additional confirmation. This pattern is not always reliable when used stand-alone. So there are chances that the trend could reverse once again quickly. So risk management should be in place before taking any trades. A stop-loss must be placed below the second candle, and it depends on how much risk the trader is willing to take.

Conclusion

The opposite of the Morning Star candlestick pattern is the Evening star. Even this is a reversal pattern, but it signals a reversal of an uptrend into a downtrend. Likewise, the opposite of the Three Inside Up pattern is the Three Inside Down pattern, which reverses an uptrend. Learn about more triple candlestick patterns and how to trade them. The more you research, the better trader you will be. Cheers.

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Forex Course

55. Learning The Dual Candlestick Patterns – Part 2 (Reversal)

Introduction

Introduction

Introduction

In the previous lesson, we learned Continuous Dual Candlestick Patterns by taking examples of the two most traded patterns. In this lesson, we will see how to generate trading signals using Dual Candlestick reversal patterns. We will mainly look at the two widely used dual candlestick patterns – Engulfing and Dark Cloud Cover patterns. As the names suggest, both of these patterns consist of two candlesticks, and when we see them on a price chart, we should be anticipating a trend reversal shortly.

Engulfing Candlestick Pattern 

Engulfing is a two-candle trend reversal pattern. It got its name from the fact that the second candle completely engulfs the first candle, irrespective of its size. There are both Bullish Engulfing and Bearish Engulfing patterns. A Bullish Engulfing can be identified when a small (preferably) red candle of the downtrend is followed by a large green candle that overpowers the previous candle entirely. Vice-versa for a Bearish Engulfing Pattern.

Below is the picture of how the Bullish Engulfing pattern looks like on a chart.

Criteria for the pattern

  • The body of the second candle should be at least twice the size of the first candle.
  • Even though it is a dual-candlestick pattern, Bullish Engulfing gives the best reversal signals when the bullish candle engulfs the bodies of four or more previous candlesticks.
  • It is better if the Engulfing candle does not have any upper wicks. This shows the buying interest among investors and increases the likelihood of Green candles in the following days.

The Bullish Engulfing Pattern is a powerful reversal pattern that has the potential to reverse the current downtrend and turn it into an uptrend. Hence, traders always look out for this pattern and take big positions in the market by adding to their ‘long’ positions.

Dark Cloud Cover Candlestick pattern

The Dark Cloud Cover pattern is a bearish reversal candlestick pattern that is formed from two candles. In this pattern, the Red candle opens above the close of the prior candle and then closes below the midpoint of the previous green candle.

This pattern implies that buyers are trying to push the price higher, but sellers finally take over and push the price sharply down. A shift in momentum causes the trend to reverse, and this marks the beginning of a new downtrend.

Below is an image of the Dark Cloud Cover pattern that makes a reversal of the trend.

Criteria for the pattern

  1. The first requirement is to have an uptrend that is clearly visible on any chart.
  2. The second candle should be a gap up that, by the end of the day, comes down and closes as a bearish candle.
  3. The bearish candle needs to close below the midpoint of the previous bullish candle.

Traders usually wait for confirmation before taking aggressive short positions in the underlying Forex pair. The confirmation is just another Red candle following the first Red candle. On the close of the third candle, traders sell the currency and exit on the following days as the price continues to decline. They place stop-loss just above the high of the bearish candle.

Conclusion

The Engulfing pattern is a bullish reversal pattern, which is one of the easiest patterns to identify and trade. Talking about the bearish reversal Dark Cloud Cover pattern, it has the potential to identify the lower lows and lower highs, which is very rewarding on the downside. This was about the Dual Candlestick reversal patterns. Please explore more patterns of this kind to increase your exposure. In the next lesson, we will talk about the triple candlestick patterns and their types. Cheers!

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Forex Course

53. Trading The Single Candlestick Patterns – Part 2

Introduction

Introduction

Introduction

In the previous lesson, we discussed some basic single candlestick patterns, which gave us trend continuation signals. In this lesson, we will look at reversal patterns that are formed by a single candlestick and how traders should perceive them.

These patterns are very important to learn as they indicate clear market reversals. So essentially, when we find these patterns on the charts, we should anticipate a reversal and take our trades accordingly.

The Hanging Man Candlestick Pattern

A Hanging Man is a single candlestick pattern that occurs during an uptrend. They give warning signals that markets are going to fall. This candlestick pattern is composed of a small body, a long lower shadow, and no upper shadow. Since it is a reversal pattern that reverses the current uptrend, The Hanging Man indicates the selling pressure that is starting to increase. Below is how the Hanging Man candlestick would look like.

Below is a picture of how this pattern would like on the chart and how the trend reversal takes place.

Pattern Confirmation Criteria

  • Hanging Man is a single candlestick pattern that forms after a small rally in the price. The price rally can also be big, but it should at least be composed of few candles moving higher overall.
  • The candle must have a small body and a lower shadow at least twice the size of the real body.
  • This pattern is only a warning and a bearish candle after the formation of this pattern is highly desired. This is necessary for the Hanging Man pattern to prove to be a valid reversal. This is called confirmation.

The Hanging Man pattern is used by traders to exit long positions or enter into new short positions. After entering for a short position, stop loss can be placed above the high of the Hanging Man candle.

The Shooting Star Candlestick Pattern 

A Shooting Star is a bearish single candlestick pattern which also indicates a market reversal. It has a long upper shadow with little or no lower shadow and a small body.

This pattern typically occurs after an uptrend and forms near the lowest price of the day. The Shooting Star pattern can be seen as the market creating potential resistance around the price range. It implies that the sellers stepped in, erasing all the gains, and pushed the price near the open. Basically, at the appearance of this pattern, buyers are losing control, and sellers are taking over.

Below is a picture of how the pattern would look like on a chart

Pattern Confirmation Criteria

  • The pattern must appear after an advance in price. The price must rally in at least alternate green and red candles if not in all green candles.
  • The distance between the highest price of the candle and the opening price must be twice the length of the body of the candle.
  • It is best if there is no shadow below the body of the candle.

Traders should not take immediate action after the formation of this pattern. They should wait to see what the next candle does following the Shooting Star. If they see a further price decline, they may sell or short that currency pair. However, if the price continues to rise, it means the uptrend is still intact. So traders must favor long positions over shorting.

The difference between the Hanging Man and the Shooting Star is in the length of upper and lower shadows along with the context. By now, we have understood how continuous and reversal single candlestick patterns work. In the upcoming lessons, we will be learning dual candlestick patterns and their implication. Cheers!

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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!

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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.

 

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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.