Tag: Candlestick pattern

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Forex Basic Strategies

Learning To Trade The ‘Make Your Wish’ Forex Trading Strategy

Introduction

Introduction

Introduction

The ‘make your wish’ strategy is based on one of the most popular candlestick patterns, i.e., the Shooting Star. As we all are aware that it looks similar to an inverted hammer, we try to develop a strategy that gives us the ability to capture small bearish reversal in the market. This pattern can prove to be a very “dangerous” pattern if developed at the right location.

Once we comprehend the importance of shooting stars, we discover that one candle pattern has such a power that it can signal the reversal of a strong bullish trend. Very few people take the risk of trading reversal, as this type of trading has badly hurt the trading accounts of many.

Today’s strategy will address this issue and will show how we can catch a falling knife without cutting off our fingers. The ‘make your wish’ can help us spot the top of the market and how to trade it properly. As Shooting stars are believed to make our wishes come true, we have named this strategy as ‘Make Your Wish,’ hoping that the strategy makes our wish of winning come true.

Time Frame

This strategy can only be traded on very short-term price charts such as 5 minutes or 1 minute. Hence, this is a perfect, intraday trading strategy.

Indicators

We make use of just one technical indicator in this strategy, and that is the Chaikin Oscillator.

Currency Pairs

The most suitable currency pairs are EURUSD, USD/JPY, GBP/USD, AUD/USD, GBP/AUD, USD/CAD, GBP/JPY, and CAD/JPY. Minor and exotic pairs should completely be avoided.

Strategy Concept

The ‘make your wish’ strategy is a very simple and effective technique to use in the forex market. Since most traders are interested in day trading and scalping, there isn’t a better strategy to use for that. The strategy is based on the simple concept that when the market moves sharply in one direction, it needs to ‘pullback’ at some of the time that will lead to a decent retracement in the price to the next technical level. The ‘shooting star’ helps us identifying the time when retracement will start.

Here, we take advantage of this retracement and try to particulate in the short-term reversal of the market. As this can involve high risk, we cannot solely rely on a candlestick pattern and use a technical indicator to give us the extra confirmation. We use the ‘Chaikin Oscillator, ’ which is designed to anticipate directional changes in the market by measuring the momentum behind the movements. Anticipating change in direction is the first step to identifying a change in the trend. But this also isn’t enough for forecasting a reversal, which we shall in detail in the future course of the detail.

The risk-to-reward (RR) of the trades will not be high as we are trading against the trend of the market, which may not be suitable for high ‘RR’ seekers. But at the same time, the probability of success is high for trades executed using this strategy.

Trade Setup

In order to execute the strategy, we have considered the 5-minute chart of where we will be illustrating a ‘long’ trade. Here are the steps to execute the strategy.

Step 1: Firstly, we identify the trend of the market by plotting a trendline. If the price bounces off from the trendline, each time it comes close to it, we can say that the market is trending. Here we should make sure that the price is not violating the trendline multiple times. This also means that there are no deeper retracements in the trend, which is desired for the strategy. The trendline is plotted by connecting the ‘highs’ and ‘lows’ of the market.

The below image shows that GBP/AUD is in a strong uptrend.

Step 2: Next, we wait for the ‘Shooting star’ candlestick pattern to appear in the trend. Once the pattern shows up on the chart, we look at the Chaikin oscillator and make a note of its reading. When this ‘rejection’ pattern appears in an uptrend, it indicates a reversal of the trend if the Chaikin oscillator starts moving lower and slips below the ‘0’ level.

When this ‘rejection’ pattern appears in a downtrend, it indicates a reversal of the trend if the Chaikin oscillator starts moving upwards and moves from negative to positive territory. When both these criteria are fulfilled, reversal is imminent in the market. But we cannot enter the market as yet.

The below image shows how the pattern emerges on the chart along with a falling Chaikin oscillator.

Step 3: It is important to note that we enter the market soon after the appearance of the pattern. After the formation of the pattern, it is necessary to wait for a ‘lower high’ in case of an uptrend reversal and a ‘higher low’ in a downtrend reversal.

The below image shows the formation of  ‘lower high’ after the appearance of the ‘shooting star’ pattern, which is the final confirmation for entering the trade.

Step 4: Now, let us determine the stop-loss and take-profit levels for the strategy. Setting the stop-loss is pretty simple, where it is placed above the ‘lower high’ in a ‘long’ trade and below the ‘higher low’ in a ‘short’ trade. The take-profit is set at a price where the distance of take-profit from the point of ‘entry’ is equal to the distance of ‘stop-loss.’ That means the risk-to-reward (RR) of trades executed using this strategy is not more than 1:1. The reason for low RR is because we are trading against the trend of the market. Hence there is a possibility that the market might start moving in its major direction.

Strategy Roundup

A lot of traders warn against reversal trading, but finding top and bottom in the market and trading reversal can be done successfully if we have a proven methodology like the ‘make your wish’ strategy. We need to take into consideration all the rules outlined in this strategy guide other than just looking for the ‘shooting star’ pattern.

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Forex Services Reviews-2

Tipu Candles Pattern Indicator Review

The Tipu Candles Pattern was made available by Kaleem Haider in January 2016. This product is built on the Japanese technique of charting that has been around since the 17th Century. Haider has a number of successful products available such as the Tipu Trend Dashboard and Tipu Heikin Ashi Panel, which have been very well received by traders in the past. At this moment, traders can purchase or rent version 1.10 of this Tipu Candles Pattern Indicator.

The Tipu Candles Pattern was made available by Kaleem Haider in January 2016. This product is built on the Japanese technique of charting that has been around since the 17th Century. Haider has a number of successful products available such as the Tipu Trend Dashboard and Tipu Heikin Ashi Panel, which have been very well received by traders in the past. At this moment, traders can purchase or rent version 1.10 of this Tipu Candles Pattern Indicator.

The Tipu Candles Pattern was made available by Kaleem Haider in January 2016. This product is built on the Japanese technique of charting that has been around since the 17th Century. Haider has a number of successful products available such as the Tipu Trend Dashboard and Tipu Heikin Ashi Panel, which have been very well received by traders in the past. At this moment, traders can purchase or rent version 1.10 of this Tipu Candles Pattern Indicator.

Overview

The Tipu Candles Pattern Indicator uses the candlestick pattern class by Metaquotes however it has been re-written to suit MQL4 and it has been combined with the panel class written for the Tipu Panel. Some of the main features of this indicator include; a visual display of the last candle of the pattern as well as the age of the pattern, a number of alerts that are customizable such as; push alerts, email alerts, on-screen alerts and Buy/Sell alerts and its supports Multi Time Frame Candle Patterns.

The main task of this product as a pattern recognition indicator is to visually mark patterns, along with their age, on a chart to make it easier for traders to take notice and act upon specific indications.

This product is very customizable with a number of parameters to set such as; Bearish/Bullish/Neutral Pattern colors – allows traders to choose the color that will be used to mark the chart, Box Line Style/Width, Max Candles to Check, Signal Setting, time frame setting and also a number of alerts that can help traders stay on top of all the market movements that might affect their trades.

Service Cost

Traders can purchase this Indicator for $30 and it is also available for rent at an affordable $10 per year. If you want to test this product out without spending any money, there is a free demo available to all traders that would like to see the product in action.

Conclusion

From what we could see, the overall feedback for this indicator is quite positive and it seems to work very well with the Tipu Trend Indicator when this is combined with high probability patterns such as Englulfing. A common disadvantage that seems to be limiting customers from purchasing and using this product is the fact that it is only available in English for the time being. If you’re interested in finding out more about what this indicator has to offer, download the Demo Version and test it out for yourself.

This Forex Indicator is currently available in the MQL5 marketplace: https://www.mql5.com/en/market/product/13428

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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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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 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!