Forex for a trader
Candlestick forex analysis

Candlestick forex analysisBest 5 Forex Candlestick Patterns for Day Trading. Forex candlestick patterns are crucial for the success of your price action technical analysis. Along with chart patterns, traders constantly use candlestick patterns for day trading to open and close different trades. This is so because every Forex candle pattern contains a tradable potential. For this reason, I will dedicate the following material to the best 5 candle patterns Forex indicators and the way they should be traded when spotted on the chart. What are the Forex Candlestick Patterns? Forex candlestick patterns are special on-chart formations created by one or few Japanese candlesticks. There are many different candlestick pattern indicators known in Forex, and each of them has specific meaning and tradable potential. Forex traders constantly use candlestick chart patterns for day trading to foretell potential price moves on the chart. Forex candlesticks help them guess where the price will go and they buy or sell currency pairs based on what the pattern is telling them. Therefore, you should also spare time to examine the best candlestick patterns for intraday trading if you want to be a successful Forex trader. Type of Candlestick Patterns for Day Trading. There are two types of Forex candlestick patterns for day trading – continuation and reversal candle patterns. Let’s now briefly go through each of these two kinds. Continuation Forex Candle Patterns.

Continuation Forex candle patterns are the ones that come after a price move and have the potential to continue the price action in the same direction. The truth is that continuation candle patterns are not very popular in Forex trading. The reason for this is that they are not that many. In comparison to that, reversal candlestick patterns are dominating the Forex charts. Reversal Forex Candle Patterns. The reversal Forex candle patterns are the ones that come after a price move and have the potential to reverse the price action. Compared to continuation candle patterns, the reversal candle pattern indicators are the majority of the candle patterns you will meet on the Japanese candlestick charts. Best 5 Candlestick Patterns Explained with Examples. In this relation, you should not be surprised that the best 5 candlestick patterns for day trading are reversal patterns. 5 of the most profitable Forex candlestick indicators are: The Doji Family Tweezer Tops Tweezer Bottoms The Hammer Family Three Inside Ups Three Inside Downs Evening Star Morning Star. Notice that I have separated these into “families” or in their bullish and bearish versions since they refer to the same thing but upside down. Let’s now explain each of these with examples. Doji Candle Patterns. The Doji candle family consists of single candle formations where the price action opens and closes at the same price.

Every Doji candlestick symbolizes the equalization of the bearish and the bullish forces. This means that the current price trend is getting exhausted and it is likely to be reversed. The Doji Forex pattern could appear after bullish moves as well as after bearish moves. Despite that, the function of the pattern stays the same – to reverse the price action. Since the Doji candle closes at the same level where it opened, the candle looks like a dash. Yes, but this is not the only Doji candle pattern known in Forex trading. There are other Doji candlesticks too. Below you will find the most popular Doji candlestick pattern types. The confirmation of all of the Doji patterns comes when with the finish of a candle that closes in the direction that is opposite to the trend. This candle is the first indication that the reversal is beginning.

Tweezer Tops and Tweezer Bottoms. The Tweezer Tops is a double candlestick pattern Forex indicator with reversal functions. The pattern comes at the end of bullish trends and signalizes about the beginning of a fresh bearish move. The first candle of the Tweezer Top candlestick formation is usually the last of the previous bullish trend. The second candle of the Tweezer Top pattern should have an upper shadow that starts from the top of the previous shadow. At the same time, the upper shadows of the two candles should be approximately the same size. The Tweezer Tops has its opposite equivalent that is called Tweezer Bottoms. The Tweezer Bottoms Forex pattern has absolutely opposite structure. The pattern comes after price drops and signalizes upcoming bullish moves. The first candle of the Tweezer Bottom is usually the last candle of the previous bullish trend.

The second candle of the Tweezer Bottom pattern should have a lower shadow that starts from the bottom of the previous shadow. At the same time, the lower shadows of the two candles should be approximately the same size. The confirmation of the Tweezer Candlesticks comes with the candle that manages to close beyond the opposite side of the pattern. This candle is a strong indication that the trend is reversing. The Hammer candlestick pattern is a single candle pattern that has three variations depending on the trend they take part in. Every Forex candlestick that belongs to the Hammer family has a small body and a big upper or smaller shadow. At the same time, the other shadow is either missing or very small. You will guess right if you are wondering if the name of the Hammer candle family comes from the structure of the candles. The candles in the Hammer family are four, and they all have reversal character. Let me meet you with these candles now: I have shown the bullish and the bearish version of each candle. Notice that it doesn’t matter which of the two candles you will receive. The meaning is the same. Hammer Candlestick Chart Pattern. The first candle on the sketch is the Hammer candlestick chart pattern.

The candle emerges during bearish trends and signalizes that a bullish move is probably on its way. The Hammer candle has a small body, a long lower shadow and a very small or no upper shadow. Traders use the Hammer candlestick to open long trades. Inverted Hammer Candlestick Pattern. The Inverted Hammer candle has absolutely the same functions as the Hammer candle, but it is upside down. The Inverted Hammer has a small body, a big upper shadow, and a small or no lower shadow. Same as the Hammer candle, the Inverted Hammer candlestick comes after bearish moves and signalizes that a fresh bullish move might be emerging. Traders use the Inverted Hammer pattern to open long trades. Hanging Man Candle Pattern. The Hanging Man candlestick is absolutely the same as the Hammer candlestick pattern. It has a small body, a long lower shadow and a very small or no upper shadow.

However, the Hanging Man Forex pattern occurs after bullish trends and signalizes that the trend is reversing. In this relation, the Hanging Man candle pattern is used by traders to open short trades. Shooting Star Candlestick Pattern. The Shooting Star candle pattern has the same structure as the Inverted Hammer candle. It has a small body, a long upper shadow and a tiny or no lower shadow. However, the Shooting Star Forex candle comes after bullish trends and signalizes that the bulls are exhausted. As a result, a reversal and a fresh price decrease usually appear afterward. In this relation, Shooting Star candlestick chart pattern acts as a signal to short Forex pairs. The confirmation of the Hammer, Inverted Hammer, the Shooting Star and the Hanging Man comes with the candle which closes in the direction opposite to the trend. This candle is likely to be the first of an eventual emerging trend. Three Inside Up and Three Inside Down Candlestick Patterns. The Three Inside Up is another reversal candle pattern indicator that comes after bearish trends and foretells fresh bullish moves. It is a triple Forex candlestick pattern that starts with a bearish candle. The pattern continues with a bullish candle, which is fully engulfed by the fist candle, and which closes somewhere in the middle of the first candle. The pattern ends with a third candle, which is bullish and breaks the top of the first candle.

The first candle of the Three Inside Up candle pattern is usually the last candle of the previous bearish trend. The Three Inside Up has its opposite equivalent – the Three Inside Down candlestick pattern. The Three Inside Down is a mirror image of the of the Three Inside Up. It comes after bullish trends and usually begins fresh bearish moves. The Three Inside Down candlestick pattern starts with a bullish candle, which is usually the last of the previous bullish trend. The pattern continues with a second candle – a bearish one that is fully engulfed by the first candle and closes somewhere in the middle of the first candle. The pattern then continues with a third candle, which is bearish and goes below the beginning of the first candle. The confirmation of the Three Inside Up and the Three Inside Down candlestick patterns comes with the third candle that closes beyond the beginning of the first candle of the pattern. Morning Star Candle and Evening Star Candle Pattern. The Morning Star candle pattern is another three bar formation that has reversal functions. The Morning Star candlestick chart pattern comes after bullish trends and signalizes eventual price reversal. The pattern starts with a bullish candle that is long, and it is usually the last candle of the previous bullish trend. Then it continues with a very small candle that could sometimes even be a Doji star, and it is possible that this candle sometimes gaps up. The third candle of the pattern is bearish and goes below the middle point of the first candle, and it could also gap down from the second candle.

The opposite equivalent to the Morning Star Forex figure is called Evening Star candlestick pattern. The Evening Star Forex figure is a mirror version of the Morning Star that comes after bearish trends and signalizes their reversal. The Evening Star candle pattern starts with a bearish candle that is long, and it is usually the last candle of the previous bearish trend. Then it continues with a very small candle that could sometimes even be a Doji star, and it is possible that this candle sometimes gaps down. The third candle of the pattern is bullish and goes above the middle point of the first candle of the pattern. It could also gap up from the second candle. The confirmation of the Morning Star and the Evening Star candlestick reversal patterns comes with the end of the third candle. If the pattern emerges meeting the requirements of the three candles then you can trade in the respective direction. Best Forex Candlestick Patterns Cheat Sheet. I have created a simple candlestick pattern cheat sheet for your convenience. It contains all the sketches shown above. You can use these Forex candlestick patterns for day trading by simply peeking at the cheat sheet to confirm the patterns.

Save the image on your PC, or simply print it for your convenience. Real Examples of Candle Pattern Indicators. Now that you are familiar with the structure of the best candlestick patterns for intraday trading, I suggest that we go through coupe chart examples of how these work in trading. The first example on the chart shows the Three Inside Up and the Three Inside Down chart pattern indicators in action. See that after each of these two patterns the price action creates a turning point and the price reverses the previous trend. You should open a short trade at the Three Inside Down pattern and a long trade at the Three Inside Up Pattern. You should place your Stop Loss orders at the opposite side of the patterns as shown in the image. This is a Tweezer Bottoms Forex candle pattern. See that the lower shadows of the two candles start and end approximately at the same level, which confirms the validity of the pattern.

As a result, the price action reverses, which triggers a long trade. At the same time, you should put a stop loss order below the lowest point of the pattern. Now let’s go through the Morning Star candle pattern and the Hanging Man candlestick. Both patterns have the ability to end a bullish trend and to start a fresh bearish move. You should approach both patterns with a short trade, and you should sell upon their confirmation placing Stop Loss orders above their high. As you see, in both cases the price decreases after the confirmation of the pattern. Lastly, we will discuss a Doji candlestick pattern that comes after a bearish trend. Our Doji candlestick analysis shows that the price ends the bearish move and starts a fresh bullish move. You should trade in bullish direction here placing a Stop Loss order below the lowest point of the Doji star candle. Stop Loss Orders on Forex Candle Patterns. You should always use a Stop Loss order when trading Forex candle patterns.

As you have probably seen on the trading images above, the best place for your stops on candle trades is at the opposite side of the patterns. If you are trading a bullish candlestick pattern, place your Stop Loss order below the formation. If you are trading a bearish candlestick pattern, then you should place your Stop Loss order above the candle figure on the chart. Take Profit Orders and Targets on Forex Candlesticks. The rule of thumb says that you should trade every candle pattern for a minimum price move equal to the size of the pattern measured from the tip of the upper shadow to the tip of the lower shadow. In some cases, the price action will continue further than that. Therefore, use the basic price action rules to determine further exit points on the chart. If you spot another candle pattern during you trade that suggests the end of the trend, you should simply exit your trade and collect your profit. Forex candlestick patterns are crucial for the price action technical analysis of currency pairs. The candlestick pattern indicators form on the Japanese candlestick charts that visualize the price action of Forex pairs.

There are two main types of candle patterns Forex indicators: Continuation candle patterns – not very popular in Forex trading Reversal candle patterns – widely used to profit on the Forex market The best Forex candlestick patterns for day trading have reversal character. These are: The Doji Candlestick Patterns – Doji, Long Legged Doji, Dragonfly Doji, Gravestone Doji, and Four Price Doji Tweezer Tops and Tweezer Bottoms The Hammer Candle Pattern Family: Hammer, Inverted Hammer, Shooting Star, and Hanging Man Three Inside Up and Three Inside Down Evening Star and Morning Star Candle Patterns You should place your Stop Loss orders at the opposite side of the candle pattern you are trading. Stay in each candle trade for a minimum price move equal to the size of the pattern. Extend your targets by applying price action rules. GET STARTED WITH THE FOREX TRADING ACADEMY. Damyan is a fresh MSc International Management from the International University of Monaco. During his bachelor and master programs, Damyan has been working in the area of financial markets as a Market Analyst and Forex Writer. He is the author of thousands of educational and analytical articles for traders. When being in bachelor school, he represented his university in the National Forex Trading Competition for students in Bulgaria and got the first place among 500 other traders. He was awarded a cup and a certificate at an official ceremony in his university.

Forex Trading Strategy: The Ultimate Guide (2018 Update) Do you want to master Forex trading? Well it all starts with having the right strategy! Trading Forex using price action is simple, stress free, and highly effective. In this guide I will share my advanced Forex trading strategy with you. You will learn to use powerful price action techniques in a stress free and simple Forex trading strategy. Don’t have time to read this article right now? I will send you a ebook version that you can read offline whenever you want. Just let me know what email to send it to. Almost there! Create an account by completing the form below. Forex Price Action Strategy. The Story of Price. Price Action Setups. Chapter 1: My Price Action Trading Strategy. My Forex trading strategy is based completely on price action, no indicators, no confusing techniques, just pure price action! What is Price Action Trading?

All price movement in Forex comes from bulls (buyers) and bears (sellers). When GBPUSD moves up it’s because there are more bulls than bears and vice versa. The Forex market (and any market for that matter) is in a constant state of struggle between bulls and bears. Price action trading is about analysing who currently controls price, bulls or bears and if they are likely to stay in control. If your analysis shows that bulls are in control and that they are likely to stay in control, then you can buy (long). If it shows that bears are in control and that they are likely to stay in control, then you can sell (short). How do you analyse who’s in control of price? By using two simple price action techniques. Support and Resistance Areas. These are buy and sell areas you can easily identify and place on your chart.

Once price hits these areas you know it is likely to stall or reverse completely. This allows you to buy or sell at the right time. Advanced candlestick analysis. This is not that basic doji equals reversal stuff you may have seen elsewhere. Advanced candlestick analysis goes much deeper than that so that you have a full understanding of what a chart is telling you. Once you understand this, one glance at a chart will tell you who’s in control of price (bulls or bears) and if you should buy or sell. These two techniques make up the core of my price action trading strategy. In fact, those are the only techniques I use to find and trade high probability setups. My trading strategy differs from most courses you will come across as it is based entirely on Price Action… There are NO indicators. There are NO confusing techniques. There is NO stress.

It’s simply about reading price and making smart trading decisions. Forex Price Action Strategy. My Forex price action strategy was born in 2005 and has been constantly improved over the last 12 years – this strategy has seen it all. It has survived major market changes from the financial crisis in 2008 to the Swiss Franc disaster in 2014, to Brexit in 2016. It really has seen it all. My price action strategy works in all market conditions . From trending markets to low volatility, to ranging, to high volatility, it has weathered it all with consistent profits. Indicator based strategies work well in specific market conditions. If you have a strategy that works in low volatility markets, it will fail in high volatility, ranging, or trending market conditions. Price action adapts, indicators don’t! Price action doesn’t only adapt to changing market conditions though, it adapts to different pairs, different time frames and, crucially, to different traders. Above all, Price Action keeps your trading simple . In fact, my Forex trading strategy is so simple that you can trade it from your smartphone. I use this strategy to trade on the go – as of 2017 I take over 70% of my trades from my smartphone. My Forex trading strategy was created with simplicity in mind. The most common downfall of today’s traders is over complicating their strategy.

We have all seen charts that look like this. How can you trade comfortably using a chart like this? How can you trade efficiently using a chart like this? How can you trade from your smartphone using a chart like this? You can’t, it is too messy. The core rule of my price action strategy is to keep trading simple. Because the Forex trading strategies that work best are simple . The only thing I place on my charts is support and resistance areas . I use these support and resistance areas in conjunction with candlestick analysis to trade Forex. So what does a clean Forex chart look like? Much better than the monstrosity above! This chart is uncluttered, easy to understand and to navigate, with nothing to distract you from analysing price action.

This style of trading is quick, efficient, stress-free, and you can do it from anywhere, including your smartphone. So if you want a simple Forex strategy, keep reading. Chapter 2: Support & Resistance Areas. Support and resistance areas show you where to buy and sell, they are a vital part of every traders toolkit, and it is essential that you learn how to place them . What is Support and Resistance? Placing support and resistance areas is the most important skill you can master in trading. And placing them is easy. Support and resistance areas divide your chart up into buy and sell areas. An area that sits above current price is a sell area, any area below current price is a buy area. The terms buyers and bulls are interchangeable. Support is a buy area as buyers are found at support. Resistance = Sell Area. The terms sellers and bears are interchangeable. Resistance is a sell area as sellers are found at resistance. On the GBPUSD chart below, you can see price is approaching the blue shaded area at 1.3500.

This is a strong resistance (sell) area. When price approaches a sell area large amounts of sell orders are triggered countering buy orders. This usually results in price stalling or even turning around completely for a reversal. Why does this happen though? It’s simple, the market movers like banks and hedge funds place their orders at areas of support and resistance. Why Do Market Movers Place Their Orders At SR? Good traders don’t randomly place entry orders and hope that they get lucky. They place their entry orders at significant price levels. Significant levels come in many forms. Yearly, monthly, weekly highs or lows. Rounded numbers such at 1.0000 and 1.0500 (also called psychological levels) All time highs or lows. Areas in which price has stalled or reversed more than once. In the GBPUSD chart example above, we can see that price has stalled at the 1.3070 twice (green highlights). The next time it approaches the level it pulls back again and then again two more times (yellow highlights).

Because market movers place their buy orders at the 1.3070 and when price hits the area the buys trigger causing a reversal. This happens all the time on every Forex pair and in every financial market for that matter. This is how markets work, buy and sell orders are grouped together in the same general area and when they are hit we see the impact on price. Placing Support and Resistance Areas. There are a lot of indicators out there that claim to give you great support and resistance areas. I have tried them all and I do not find them reliable. Support and resistance placements still need to be done by a person. These are my support and resistance areas, but if you want to trade more pairs you will need to place them yourself. A good Forex trading strategy requires some work! But don’t worry, it is easy, all you are doing is placing horizontal lines when you spot an area with two or more bounces.

I am going to break it down into a step by step process for you though. But first, we need to define some rules for support and resistance areas. Three Rules to Support and Resistance. There are three key rules you need to keep in mind when placing support and resistance areas. Place areas on the body of a candle, the body is more important than the wick. The more recent the bounce the more important. Prioritise recent bounces over older bounces. You need at least two connecting bounces to place a support and resistance area. There are a few exceptions to this, the most common one being for points which are yearly or all-time highslows. When you spot a year or all-time highlow you can place an area there even if it has only once bounce. Step By Step Guide to Placing Support and Resistance. Step 1: Select a daily chart and zoom out until you see around one year of data.

Don’t worry if you see a little more or less than one year, it’s not a big deal. Step 2: Identify the highest and lowest bounces in the last year and place an area at each. Remember, place your areas at the bodies, not the wicks and as these are yearly highs and lows placing them based on a single bounce is enough. Step 3: Place support and resistance areas between the first two by connecting areas which have two or more bounces. You will generally find that there are 5-8 support and resistance areas on most charts. If you have more than 8 you probably placed too many. Chapter 3: Advanced Candlestick Analysis. Most new traders learn a little bit about candlestick analysis. But most of what they learn is completely useless! Well the standard approach to candlestick analysis is basic pattern recognition, which fails to work in real trading. I delve much deeper than that, I look at the story behind the candle and in this chapter I will show you how to do that too. You can’t skip straight to advanced candlestick analysis without knowing some basics first. If you don’t know the basics, that’s fine, I got you covered! The Truth About Candlestick Analysis.

When Forex traders first start out they usually learn about candlesticks. But what they learn is usually useless. They normally see a list of “candle patterns” like the one below. Each pattern has a set in stone definition and that is the only meaning it can have. This is not candlestick analysis, it is pattern recognition. And for a price action trader, it is useless. Actually, it is worse than useless. Thinking about candles as just patterns is counterproductive. It makes you a worse trader, it leads you to make massive mistakes. Giving a pattern a set definition leads to tunnel vision. When you see that specific pattern, you assume that something will happen. But that is not how candlesticks work. All candlesticks need to be assessed based on the candlesticks around them, and many other factors.

Below is a candlestick pattern commonly called a “spinning top”. Normally people say that a spinning top means a reversal is imminent, which can be true. However, this same pattern can also mean that a continuation is imminent. It can mean that price is temporarily stalling. It can mean a lot of different things. Thinking of candles as simple patterns is the wrong way to do things. You need to look beyond the pattern and read the story of price. Every single candle on your chart is telling you a story. When you combine those candles together, you get the story of price. The foundation of my Forex trading strategy is reading and understanding the story of price. Reading and understanding the story of price is vital in Forex.

It is vital because it allows you to answer one of the most important questions in trading… Who is in control of price? This question has three possible answers: buyers, sellers, or neither. Being able to accurately answer this question is vital. If you are about to enter a short trade and you ask yourself. “Who is in control of price?” and your answer is “buyers”, well perhaps selling is not a great idea. Let’s break down the story of price. If you look at the three highlighted candles below, it is easy to conclude that sellers are in control of price. The candles all closed lower than they opened, they all created new lows beyond the previous candles low and they all had small upper wicks in comparison to the candle body. The small upper wicks indicate that buyers were unable to push price up by much.

But what does the highlighted candle in the next chart tell us? It has a short upper wick, a small body, and a long lower wick. This is what I call an indecision candle. What’s an Indecision Candle? Indecision candles occur when neither buyers or sellers can gain and maintain control of price. They are common, but if used in the right way, they can be very powerful. Take a look at this bullish trend (yellow highlight), it is a strong trend, there are several bullish candles heading towards an area of resistance. The big bullish candles tell us that during the highlighted period buyers were in complete control of price. When price hits resistance we get an indecision candle forming (green highlight). Let’s break this candle down into a story so you understand why it indicates indecision.

Large Upper Wick (Blue Highlight) A large upper wick shows that buyers tried to continue the bullish trend but failed. Sellers took control of price and pushed it down. Small Bearish Body (Green Highlight) The small bearish body shows that sellers were able to close lower than the open. This is significant because in the three candles before this price consistently closed higher than open. This shows us that buyers are losing power. Small Lower Wick (Red Highlight) The small lower wick shows us that sellers were not able to gain much ground either. This tells us that sellers are not strong enough to turn price around completely. However, they are strong enough to stall further buyer movement. All together this indecision candle forming right after strong bullish candles suggests that power has shifted from a decidedly bullish (buyer) market to an undecided market. While sellers are not in control, neither are buyers. But there is one more thing we need to look at… … The indecision candle is forming on top of a resistance area. Let’s looks at this chart again.

If you remember, in the previous chapter we talked about resistance being a sell area and support being a buy area. So the image above shows us three strong bullish candles heading into a resistance area. And then… Price stalls and we get indecision forming on top of that area. This tells us that the sell area is working. When price pushed into that area sell orders triggered and buyers could no longer continue up. That is the story of price for this chart. And this story gives us a nice little price action trade setup. Chapter 4: Setups With My Forex Trading Strategy. Price action allows you to take many different types of trades, reversals, continuations, range, swing, breakout and scalp trades to name a few. In my free Forex trading strategy I will focus on one type of setup, the easiest to spot and trade, reversal . How to Spot a Reversal Trade. Reversals occur quite often, but if you do not know what to look for, you cannot trade them. Reversals are one of the strongest price action setups, and one of the easiest to trade. And because they occur so often, you can trade this setup exclusively and be a profitable trader. In fact, for years Forex trading strategy focussed on reversals only. However, these days I trade more price action setups.

Reversal trades come in three parts: The preceding trend. The Indecision candle(s). The reversal trend. Let’s break down each of these parts. A preceding trend is a strong move by the bearsbulls heading into an area of supportresistance. In the example above, the preceding trend is a very strong bearish move, indicating that there are a lot of bears in the market and very few bulls. If bulls were strong then price would not be trending down. The preceding trend shows us that bears (sellers) have strong control of price and they are pushing price down into a support area. The opposite applies for a bullish preceding trend which would show bulls (buyers) trending towards resistance, as you see below. A preceding trend can be formed by as little as one candle. If the candle is strong and covers a lot of price distance, I categorise it as a preceding trend for the purposes of reversal trading.

The example below shows a single candle preceding tend. Preceding trends are pretty simple. As long as you see a strong move heading into an area of support or resistance, you can consider it a preceding trend. The Indecision Candle(s) A reversal setup will have one to three indecision candles. The indecision candles need to form on or near to the support and resistance area. If indecision does not form on or near to the area of support and resistance, it is not a valid reversal setup. Why does it need to be on a support and resistance area? An indecision candle in a bullish preceding trend indicates that buyers are possibly losing control, and sellers may be gaining control. In a bearish preceding trend it indicates that sellers are losing control and buyers may be gaining control.

However, an indecision candle does not indicate that price will reverse with any degree of certainty. An indecision candle indicates only one thing… Indecision! You cannot take a trade based solely on indecision. The image below shows indecision forming between support and resistance. If you were to enter reversal trades based solely on indecision, it wouldn’t work out too well… What about when a bullish preceding trend heads into an area of resistance (sell area) or a bearish trend into support (buy area) and indecision forms? Well, then we get the makings of a high probability reversal setup. But we cannot enter just yet, we need confirmation, which comes in at part three of a reversal setup. The reversal trend is the third and most important part of a reversal setup. This is where we make our profit! After a preceding trend stalls at support, and indecision forms, you often see a reversal trend. The image below shows a bearish reversal trend forming after indecision on resistance. In this case we saw a transition of power from a bullish preceding trend to a bearish reversal trend separated by a stall on resistance. Where do you enter the trade though?

Let’s discuss that in the next chapter. Chapter 5: Trading Reversal Trades With My Strategy. You know what a reversal trade looks like. You know that you need to enter after indecision and before the reversal trend. In this chapter I will show you how to use my Forex trading strategy to trade reversals profitably. Don’t worry, entering reversal trades at the right time is a lot easier than you may think. My Forex trading strategy was built on reversal trading. It has now expanded beyond just reversals, but reversal trading is where it all started. Over the years I have refined reversal trade entries into a simple step-by-step process. Entering trades does not need to be difficult – remember, my goal is to keep everything simple. Getting in at the Right Time. In the previous chapter I explained that a reversal comes in three parts. The preceding trend. The Indecision candle(s). The reversal trend. You need to enter the reversal trade after part two (indecision) closes, but before part three (reversal trend) completely takes off. Obviously if you enter after the reversal trend takes off, it is too late.

You also need to make sure you do not enter too early as you could be entering a false setup. In the image below you see a preceding trend heading into support, indecision, and a failed reversal trend. If you entered too early, you would have failed this trade. Failed trades happen, there is nothing you can do about them. But getting in at the right time lowers your percentage of failed trades. Many people wait for a candle close to get in, but I have tested this thoroughly and waiting for closes gets you in too late. In the image below you can see the first candle in the reversal trend closing far from support. This means you miss out on a lot of potential profit, which is obviously not good. The key to reversal trading, or any trading for that matter is getting in at the right time . So, how do you do that?

How to Enter Reversal Trade. I have tested countless entry methods in the last 15 years. In that time I have found three awesome entry strategies: entering on new highlow, retrace entries, and distance entries. In my free strategy I will teach you the easiest, entering on new highslows. When indecision forms on an area of support or resistance, you can use the high or low of the indecision candle as an entry trigger and as a stop loss. In the image above indecision has formed on resistance after a bullish preceding trend, so we want to enter a short reversal trade. We set our entry a few pips below the low of the indecision candle, and our stop loss a few pips above the highest point of the candle. In trading, highs and lows are very important. If a new low is created from resistance it indicates sellers have taken control of price, which means we want to be short. Our stop loss sits above the high as a break of that high would indicate buyers have regained control of price.

For long trades you set your entry a few pips above the high of indecision, and a few pips below the low. This is the most simple form of trade entry, but also one of the most effective. Now that you know how to enter, you need to know where to set your target. Where to Set Your Target. Targets are also very easy, you need to make sure your target comes before major barriers like the next area of support or resistance. So, if you enter a long reversal from support, make sure that your target is before the next resistance area. The minimum risk to reward ratio I use is 1:1.5 R. This means that my target has to be a minimum of 1.5 times the size of my stop. If my stop is 100 pips, the minimum size of my target is 150 pips (1.5 x 100). If my stop is 75 pips, the minimum size of my target is 112.5 pips (1.5 x 75). If there is a major barrier like the next support and resistance area in the way of my minimum target I skip the trade. In the image above the support area is before my minimum target of 1.5 R is met so I skip the trade. What Pairs and Timeframes With The Forex Trading Strategy? The last thing you need to know is the pairs and timeframes. This strategy works on every single Forex pair, and it also works in other markets like cryptocurrencies, options, futures, stocks and everything. I trade around 10 pairs regularly. However, I often have extra pairs on my list that I monitor. If you want to see what I am currently watching check out my weekly analysis on YouTube. As for time frames, I currently trade these.

Many people do not have access to the 6, 8 and 12 hour time frames because their broker doesn’t support it. The general rule in trading is the more time frames you trade the more trades you find. If your broker does not support 6, 8 and 12 hour time frames you need to find a broker who does, or simply use a charting platform separate to your broker. While this strategy can be traded with just the 4 hour and daily time frames, there is absolutely no sense in sacrificing potential trades because your broker is too outdated to provide new time frames. Chapter 6: Learn More About My Forex Trading Strategy. If you want to get my latest analysis, or want to learn more price action setups, I got you covered. Every Monday I do weekly analysis using my price action strategy. You can check it out on my YouTube channel. If you want a more in-depth guide to my Forex trading strategy you can check out Forex Mastermind. In my course, I expand on this strategy, and I also share different price action strategies. Learn My Forex Scalping Strategy. While the strategy above is an awesome day trading strategy and even a swing trading strategy, for scalping you will need a different approach. In this article, I share my Forex Scalping Strategy. What is a Japanese Candlestick? While we briefly covered Japanese candlestick charting analysis in the previous forex lesson, we’ll now dig in a little and discuss them more in detail. Let’s do a quick review first.

Japanese Candlestick Trading. Back in the day when Godzilla was still a cute little lizard, the Japanese created their own old school version of technical analysis to trade rice. That’s right, rice. Steve researched, studied, lived, breathed, ate candlesticks, and began to write about it. To make a long story short, without Steve Nison, candlestick charts might have remained a buried secret. Steve Nison is Mr. Candlestick. What are Japanese candlesticks? The best way to explain is by using a picture: They are used to describe the price action during the given time frame. Japanese candlesticks are formed using the open, high, low, and close of the chosen time period. If the close is above the open, then a hollow candlestick (usually displayed as white) is drawn.

If the close is below the open, then a filled candlestick (usually displayed as black) is drawn. The hollow or filled section of the candlestick is called the “real body” or body. The thin lines poking above and below the body display the highlow range and are called shadows. The top of the upper shadow is the “high”. The bottom of the lower shadow is the “low”. Candlestick Strategy in Forex. If you prefer day trading, being skeptical to indicators, then Japanese candlestick forex trading strategy would meet your expectations. Candlestick patterns enable a trader to determine the market situation as well as supply and demand balance. Peculiarities of the candlestick pattern analysis. The longer the «body» of the candlestick in forex, the stronger the Momentum and the greater the potential to move in specified direction.

A «bullish» candlestick with the large «body» and the short «shade» shows that the buyers influence the market more than the sellers. A «bearish» candle with large body and short «shade» means that the market supply is stronger than demand. A long «shade» in specific direction means that in the process of the candlestick’s formation in forex the supply and demand balance has shifted. The changes of the market expectations can be determined by comparing the candlesticks with each other. The short shade fr om one or the other side indicates greater chances of the movement in definite direction. Relatively equal «shades» provided the candlestick’s body is small (Doji candlesticks for forex pattern) represents market indecision - the pressure on the buyer’s and seller’s price is approximately the same. In such circumstances, even a small growth in volume of trade may cause a strong price movement; more often there is a trend to reverse. Let us remind the main candlestick trading systems: The candlestick patterns which may be defined as reversal patterns warn not only about reversal trend but also about the lateral movement start or exit from it; and sometimes about reduction of the movement’s speed without change of the direction. Any pattern makes sense only wh ere it reaches the strongest level. If reversal pattern succeeds then it will be followed by continuous definite movement. All trading patterns made up of 1-2 candlesticks would lose their significance if during current movement (trend or correction in price movement) this pattern applied more than once.

This is especially true for Doji candlestick patterns. The most reliable Japanese candlestick signals appear on Daily timeframe. Following timeframe decrease, the reliability of the signals lowers. An example of trading candlesticks strategy based on Engulfing pattern. Candlestick forex trading strategy uses this candlestick pattern as reversal signal or the correction start. Trading asset: any currency pair. Trading period: the European and the US sessions. Timeframe: D1 or H1. Candlestick trading strategy for signal to buy: The formation of candlestick «engulfing» pattern is required on the low of the downward trend. The signal is confirmed: it can be Doji candlestick pattern or one more Engulfing pattern in the same direction. Low of the first Engulfing pattern must not be renewed, moreover - the more remote the price, the stronger a trading signal.

At the moment of the next candlestick opening we will open a long position. Stop Loss will be fixed below a Low confirmation signal. Candlestick strategy forex for signal to sell: The formation of candlestick «engulfing» pattern is required on the high of the upward trend. The signal is confirmed: Doji candlestick pattern or one more Engulfing pattern in the same direction. High of the first Engulfing pattern must not be renewed. We will open a short position at the moment of the next candlestick formation. Stop Loss will be set above the High confirmation signal. The candlestick forex strategy with «Free candle» indicator. The trading strategy uses candlestick patterns with high reliability level and sliding average for the determination of the current trend. EMA(9) is advised for the popular currency pair trading on M15 timeframe. «Free candle» is considered to be a fully formed 15-minute candle, body and shade of which do not touch EMA (9) line, and the closing price of the candlesticks in forex trading is not higherlower the previous extreme. «Free candle» must have the average «body» and average «shade» («hammer», «dodji» reversal patterns and GAP are not applicable). Trading asset: EURUSD, USDJPY, USDCHF, GBPUSD, EURGBP, EURJPY, GBPJPY. Trading period: the European and the US trading session. Candlestick forex trading in the periods of the market’s indecision is not advisable.

The main trend’s direction is determined by EMA(9). For the long position (buy), the existence of the «free» bullish candle above EMA(9) is required. The next candle’s entry after «free candle» or a Buy Stop order should be slightly higher than the closing price. The Stop Loss is fixed in max level of the «free candle». For a short position (sell) a «free bearish candle» should be fixed below the moving average. The entry at the opening of the next candle depends on the market or should be made by a pending Sell Stop order. A Stop Loss should be fixed 3-5 points below min of the «free candle». For setting of Take Profit, two ranges of the «free candle» should be used. A good moment for the entry when it comes to candlestick strategy trading in regard to main currency pairs appears within 15-30 minutes after the European session opening, when the market direction has been determined. The average duration of the open deal is up to 1 hour. It is not recommended to trade without Stop Loss or enter within first 5 minutes of each hour. The deal should be opened unless: distance from closing price of the «free candle» to (9) is less than 3-4 points; body of the «free candle» is less than 10 points. From the mathematical expectation prospective, the «free candle» forex candlestick trading is sufficiently effective, if the deals are not made too often and only in reliable configurations. General remarks regarding candlestick trading.

Forex candlesticks analysis comprises of a variety of types, which may involve from 1 to 6 candles. The majority of patterns work more efficiently in the main trend direction, the reversal patterns considered to be weaker. In intraday trading, the main trend on the greater timeframe should be taken into account. If after receiving of the candlestick signal, the movement in the market does not confirm it, then the trend will probably flow in the opposite direction. The principles of the capital management are mutual for any forex candlestick trading strategies. For the long positions Stop Loss is fixed 5-10 points below the candlestick pattern’s minimum, while Take Profit is 10 points lower than the maximum of the previous fractal. For the short position rules for fixing Stop LossTake Profit are similar. Neither forex candlestick pattern can be a trade signal itself, nor can it be used for indicating of the possible entries. The pattern just shows the expectations in the market and signalizes the possible changes.

For seeking of the entry, another methods of analysis rather than Japanese candlesticks should be used. . . The Best Candlestick Patterns to Profit in Forex and Indices - For Beginners. ? ? Start off with our free Introduction to Trading course - decisivetrading. infoprot. This video will show you the best candlestick patterns to use in Forex and Indexes. They are patterns that I use and have learned through extensive testing and use. Profitable candlestick patterns are important to anyone wishing to learn how to trade using price action. The video will also explain why each setup works. The 5 Most Powerful Candlestick Patterns. Candlestick charts are a technical tool that pack data for multiple time frames into single price bars. This makes them more useful than traditional open-high, low-close bars (OHLC)? or simple lines that connect the dots of closing prices. Candlesticks build patterns that predict price direction once completed. Proper color coding adds depth to this colorful technical tool, which dates back to 18th century Japanese rice traders. Steve Nison brought candlestick patterns to the Western world in his popular 1991 book, "Japanese Candlestick Charting Techniques.

" Many traders can now identify dozens of these formations, which have colorful names like bearish dark cloud cover, evening star and three black crows. In addition, single bar patterns including the doji and hammer have been incorporated into dozens of long - and short-side trading strategies. (For related reading, see: Candlestick Charting: What Is It? ) Candlestick Pattern Reliability. Not all candlestick patterns work equally well. Their huge popularity has lowered reliability because they've been deconstructed by hedge funds and their algorithms. These well-funded players rely on lightning-speed execution to trade against retail investors and traditional fund managers who execute technical analysis strategies found in popular texts. In other words, hedge fund managers use software to trap participants looking for high-odds bullish or bearish outcomes. However, reliable patterns continue to appear, allowing for short - and long-term profit opportunities. (See also: The Multiple Strategies of Hedge Funds .

) Here are five candlestick patterns that perform exceptionally well as precursors of price direction and momentum. Each works within the context of surrounding price bars in predicting higher or lower prices. They are also time sensitive in two ways. First, they only work within the limitations of the chart being reviewed, whether intraday, daily, weekly or monthly. Second, their potency decreases rapidly three to five bars after the pattern has completed. Top 5 Candlestick Patterns. This analysis relies on the work of Thomas Bulkowski, who built performance rankings for candlestick patterns in his 2008 book, "Encyclopedia of Candlestick Charts." He offers statistics for two kinds of expected pattern outcomes: reversal and continuation. Candlestick reversal patterns predict a change in price direction, while continuation patterns predict an extension in the current price direction.

In the following examples, the hollow white candlestick denotes a closing print higher than the opening print, while the black candlestick denotes a closing print lower than the opening print. (See The Basic Language of Candlestick Charting for more information.) The bullish three line strike reversal pattern carves out three black candles within a downtrend. Each bar posts a lower low and closes near the intrabar low. The fourth bar opens even lower but reverses in a wide-range outside bar that closes above the high of the first candle in the series. The opening print also marks the low of the fourth bar. According to Bulkowski, this reversal predicts higher prices with an 84% accuracy rate. The bearish two black gapping continuation pattern appears after a notable top in an uptrend, with a gap down that yields two black bars posting lower lows. This pattern predicts that the decline will continue to even lower lows, perhaps triggering a broader-scale downtrend. According to Bulkowski, this pattern predicts lower prices with a 68% accuracy rate. The bearish three black crows reversal pattern starts at or near the high of an uptrend, with three black bars posting lower lows that close near intrabar lows. This pattern predicts that the decline will continue to even lower lows, perhaps triggering a broader-scale downtrend. The most bearish version starts at a new high (point A on the chart) because it traps buyers entering momentum plays. According to Bulkowski, this pattern predicts lower prices with a 78% accuracy rate. (For related reading, see How Do I Build a Profitable Trading Strategy When Spotting a Three Black Crows Pattern? ) The bearish evening star reversal pattern starts with a tall white bar that carries an uptrend to a new high.

The market gaps higher on the next bar, but fresh buyers fail to appear, yielding a narrow range candlestick. A gap down on the third bar completes the pattern, which predicts that the decline will continue to even lower lows, perhaps triggering a broader-scale downtrend. According to Bulkowski, this pattern predicts lower prices with a 72% accuracy rate. (See also: How Is an Evening Star Pattern Interpreted by Analysts and Traders? ) The bullish abandoned baby reversal pattern appears at the low of a downtrend, after a series of black candles print lower lows. The market gaps lower on the next bar, but fresh sellers fail to appear, yielding a narrow range doji candlestick with opening and closing prints at the same price. A bullish gap on the third bar completes the pattern, which predicts that the recovery will continue to even higher highs, perhaps triggering a broader-scale uptrend. According to Bulkowski, this pattern predicts higher prices with a 70% accuracy rate. (For more, see Using Bullish Candlestick Patterns to Buy Stocks .) Candlestick patterns capture the attention of market players, but many reversal and continuation signals emitted by these patterns don't work reliably in the modern electronic environment. Fortunately, statistics by Thomas Bulkowski show unusual accuracy for a narrow selection of these patterns, offering traders actionable buy and sell signals. (To learn more, take a look at Advanced Candlestick Patterns .



  • Candlestick forex analysis