In today’s lesson, we are going to demonstrate an example of the ABC pattern trading. In this example, the price does not make a full-wave correction to produce C point. However, the signal candle comes out as a strong reversal candle, which drives the price towards the trend’s direction. Let us get started.
The price makes a long bearish move and produces a bullish reversal candle. The price heads towards the last swing high. The buyers are to wait for a breakout at the level of resistance (swing high) first. A correction followed by a bullish engulfing candle at the breakout level would be the signal to go long here.
The chart makes a breakout keeps producing bullish candles. The buyers are to wait for the chart to produce a bearish reversal candle to make a downside correction. Since the chart produces one more bullish candle, it may make a correction soon.
After producing a bearish reversal candle, the price keeps making a correction. Ideally, the buyers would love to see the price come back to the breakout level. However, it is the Forex market. Things do not always go by the book here.
As mentioned, things do not always go by the book. The price does not make a full-wave correction. Nevertheless, look at the bullish reversal candle. The candle closes way above the last swing high. The buyers may trigger a long entry right after the last candle closes. We must remember that this is not an A+ entry as far as the ABC pattern trading is concerned. Let us proceed to the next chart to find out how the trade goes.
The price heads towards the North with good bullish momentum. Typical 1 R is achieved as well. In a word, the long entry gets the profit for the buyers. As mentioned earlier, this is not an A+ entry. The question is, shall we go for such entry?
In most cases, such price action may get us profit. However, if we do not like to take losses, we may skip taking such entry. Especially, in the beginning, traders find it hard to digest losses. Thus, for beginners, it would be best if they skip taking such entry and only go for A+ entry. Traders learn the art of digesting losses with time. Yes, you have read it right. Digesting losses in Forex trading is an art. If you have already learned the art, then you may as well go with an entry like this. In the end, you will be able to come out with a profit.