Categories
Forex Basic Strategies

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

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 Trading Guides

Ichimoku Kinko Hyo Guide – Start Here

Ichimoku Guide – Start Here

The Ichimoku Kinko Hyo system is a powerful, tested, and vetted trading system. This guide will lead you in the direction of the articles you should follow.

Phase One – Start Here

Ichimoku History

In this article, you will learn a short history of Japanese technical analysis. It is not necessary to read this article to understand the Ichimoku Kinko Hyo system, but I would suggest reading it.

Ichimoku Kinko Hyo System

Learn the Ichimoku Kinko System and its components. Learn how it works.

Phase Two – Beginners Strategies

Ichimoku Strategies

Ideal Ichimoku Strategy

Learn your first Ichimoku Strategy, the Ideal Ichimoku Strategy.

K-Cross Strategy

Learn the Kijun-Cross ‘Day Trading’ strategy.

Phase Three – Advanced Ichimoku Kinko Hyo Theory

The Two Clouds Discovery

Learn about Manesh Patel’s powerful discovery, an extremely useful addition to your Ichimoku trading strategies.

The Three Principles

Wave Principle

Price Principle

Time Principle

Learn about the three principles in Ichimoku Analysis. Ichimoku analysis has a Wave, Price, and Time principles.

 

Categories
Forex Course

12. The First Step In Your Trading Journey

Introduction

Trading the forex market involves high risk. As per statistics, 95% of the traders fail in this domain. Hence, having expertise and experience in trading is very necessary for staying away from the 95%. And in this course, we’re here to guide you on how to be a successful trader. So let’s discuss what your first step should be in your trading journey.

Demo Trading

As mentioned, forex is a very risky business. One must never enter the live market during their initially early stages. So, brokers help the novice traders by providing a facility to demo trade. With a demo trading account, one can place live trades in the market just like a real trading account. In this account, you get virtual cash to place trades on the live charts. Moreover, in this platform, you get all the features and tools that are available on a real trading platform. And the best part is that this platform is provided by brokers for free of cost.

Advantage of Demo Trading

Helps test your strategies and techniques

There is no strategy that will work with 100% certainty. So, testing a new strategy on the real account can cause damage to your account balance. But, with a demo account, you can test your strategies without any risk.

Gives you a hands-on experience on placing orders

In forex, there are different types of orders. With a demo account, one can test the working of all these orders without the fear of losing money.

Helps concentrate on analysis rather than emotions

Emotions play a major role when it comes to trading. Emotions in trading can lead to huge losses as it takes over the actual analysis. One can reduce emotions entering into them while trading, only when they start gaining experience. Hence, trading in a demo account can help you focus on your analysis rather than emotions taking over.

How to create a trading plan

Well, having experience in demo trading is insufficient to start trading the live markets. A systematic plan for trading plays a vital role, as well. Below is an example of how you can create a perfect plan for yourself.

Choose your time zone: Though the forex market is a 24 hours market, it is not ideal to trade anytime in the day. Hence, you must choose those zones which bring in great liquidity and volatility in the market.

Fix your timeframe: You must be firm on one set of timeframes because switching over timeframes is a clumsy way of trading.

Choose the right currency pairs: There are about 28 majorly traded currencies. Keeping track of all these is a challenging task. So, you must select only a few currencies and analyze them deeply.

Have one fixed strategy: Novice traders look for new strategies every trading day. But, this is completely the wrong way to trade as it becomes more like gambling than real trading. So, you must have one standard strategy in which you can keep optimizing with experience.

Maintain a trading journal: This can be the most vital plan in your trading plan. However, many take this for granted. With a journal, one can keep track of their past transactions and get a statement on the number of loss & win trades. It will give you a clear picture of your consistency. This can help you improve your trading by learning from past mistakes.

By following these steps, you can be sure that you are up to a great start on your trading journey. Take the below quiz to check your learnings.

[wp_quiz id=”45923″]
Categories
Forex Basic Strategies

Trade Breakouts Like A Pro With This ‘Breakout Trading Strategy’

Introduction

In previous strategies article, we have discussed the ‘Turtle Soup Strategy by fading the Donchian channel.’ We hope you tried that strategy. In today’s article, let us discuss how to trade breakouts. We will also cover some of the best strategies used by professional traders to trade breakouts. Aggressive traders prefer trading this Breakout strategy compared to the conservative ones.

What is breakout trading?

To understand breakout trading, it is necessary to know the two important types of breakouts.

Defining a breakout

Breakout trading is an effort to enter the market when price moves outside a defined price range. The price range could be between support and resistance or between swing high and swing low. It is good if the breakout is accompanied by high volume.

Breakout of support and resistance

This type of breakout is quite simple and straight forward. The breakout of support and resistance should ideally happen with a big and bold candle. Because that shows the genuineness of the breakout. In the below chart, the candle closes well above the support and resistance level. In the below figure, it can be noticed instantly. A rule of thumb is that the bigger the breakout candle, the better it is.

Breakout of swing high and swing low

Very similar to the support and resistance breakout, this type of breakout has an additional filter. The filter is nothing but to trade the setups that offer the best outcome. In a swing high and swing low breakout, we enter the market after the price crosses a long-time high (1hr or 4hr high). That high should be followed by a strong sell-off. Conversely, the same is true for a swing low.  A trader must backtest their strategy before applying them to the live markets.

Best Breakout Strategy

To increase the accuracy of the signals generated by this strategy, we use an indicator known as Volume Weighted Moving Average (VWMA). It is a very simple technical indicator that is used for volume analysis. It resembles a moving average but is based on volume. It gives extra information than just the price of an asset. This indicator can be found on most of the trading platforms by default, and when plotted, it looks something like this.

Step 1: Identify the swing highs from where the market sold off very strongly and traveled a fair amount of distance. Mark that price on the chart.

The first step of a breakout strategy is to identify those levels and mark them as breakout trading levels. This step is important because we should pay attention to only significant and clear levels.

The resistance level we have identified in the above figure is a significant level. If you look closely, you will see rejection off the resistance level took the price down three times. Whenever there was a rally, the swing high stopped the price.

Step 2: Wait for a break and close above the resistance level

Once we have identified the swing highs, it’s just a game of patience and waiting. Next, we need a breakout candle to close above our resistance level. This is a sign that bulls are in full power.

It is not the end yet. We need confirmation from the VWMA indicator. This will give us the green signal to enter the trade in this breakout.

Step 3: Buy when the price closes above the VWMA

The final step of the breakout strategy is confirmation from the VWMA indicator. You should buy only if the VWMA is stretching above the close of the breakout candle. Visually, the VWMA should look stretched up. It is better if the moving average inclination is towards the upside.

Let’s understand this more clearly with the help of a chart.

In the above chart, prior to the breakout, the VWMA moved gradually higher, and after the breakout happened, the VWMA moved aggressively higher. This shows a strong presence of volume behind the breakout.

We haven’t still talked about placing our stop loss, which is crucial to reduce your losses in a trade. We also need to know where to book profits. This brings us to the final step of the strategy.

Step 4: Put stop loss below the breakout candle and take profit when you see a break below the VWMA

It is obvious to place the protective stop loss below the breakout candle. Because, if the price breaks below the candle that initiated the breakout, it will quickly tell that it was a false breakout.

Our take profit technique is automatic because a break below the VWMA suggests no more buyers are willing to participate in the current rally. We want to book profit at the early sign of market rollover.

We have taken the example of a buy trade. The same rules apply for a sell trade but in reverse. The best breakout strategy can be used in all market trends, whether up or down.

Bottom line

One of the advantages of our breakout trading strategy is that you’re trading with the momentum of the price. A final tip for all the traders while using this strategy is that, if the breakout happens after a big news event, then it is likely that big institution money is behind this breakout. When both fundamentals and technicals are working for you, the probability of success increases. We hope you find this strategy useful. If you have any questions, please let us know in the comments below. Cheers!