Sandwich bars are a technical trading tool used in forex markets to help identify potential reversals in price trends. They are created by plotting two moving averages, with a shorter period moving average sandwiched between a longer period moving average and price chart. The sandwich bar pattern can be used to identify potential reversals, as well as to confirm existing trends and provide entry and exit signals.
The term “sandwich bar” comes from the appearance of the chart pattern, which looks like a bar sandwiched between two lines. The upper and lower lines represent the longer period moving average, while the shorter period moving average is represented by the bar. When the shorter period moving average crosses above the longer period moving average, it is considered a bullish signal, while a cross below is considered bearish.
One of the benefits of using sandwich bars is that they can help traders identify trends that may be difficult to see with other technical indicators. This is because they take into account both short-term and long-term trends, giving traders a more comprehensive view of the market. Additionally, because they are based on moving averages, they are a lagging indicator, meaning that they are less likely to generate false signals than other technical indicators that rely on more volatile price movements.
To use sandwich bars effectively, traders should first identify the longer period moving average that they want to use. This could be a 50-day, 100-day, or 200-day moving average, depending on the trader’s preference and trading strategy. Once the longer period moving average is established, traders can then plot the shorter period moving average, which is typically set at around 10 or 20 days.
When the shorter period moving average crosses above the longer period moving average, it is considered a bullish signal and traders may look to enter a long position. Conversely, when the shorter period moving average crosses below the longer period moving average, it is considered a bearish signal and traders may look to enter a short position. Traders can also use the sandwich bar pattern to confirm existing trends, as well as to identify potential reversals.
While sandwich bars can be a useful tool for forex traders, it is important to remember that no technical indicator is foolproof. Traders should always take into account other factors, such as market news and economic data, when making trading decisions. Additionally, traders should always use proper risk management techniques, such as setting stop-loss orders, to minimize potential losses.
In conclusion, sandwich bars are a technical trading tool that can be used to help identify potential reversals in forex markets. They are created by plotting two moving averages, with a shorter period moving average sandwiched between a longer period moving average and price chart. The sandwich bar pattern can be used to identify potential reversals, as well as to confirm existing trends and provide entry and exit signals. While sandwich bars can be a useful tool for traders, they should always be used in conjunction with other technical and fundamental analysis techniques, and proper risk management strategies should always be employed.
