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bobjlower · 5 years ago

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The 10 Best Candlestick Signals

In this article, we are going to discuss the 10 best candlestick signals.

Candlesticks are very important because they are the representation of the interaction between the buyers and the sellers on financial markets.

Candlesticks are way more than what most people think and we are going to take a look beyond the surface level, trying to understand what the psychology behind the price action is telling us.

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Location matters!

Although candlesticks can be powerful signals, they offer the most value when combined with other trading concepts.

In the scenario below, we see a strong bullish engulfing candle at a previous swing low.

The price was in a strong downtrend before the engulfing candle. But the failed breakout below the last swing and the immediate reversal with the engulfing candle shows that the sellers are not controlling the market anymore.

The scenario below shows a pinbar rejection after a trend change.

Prior to the pinbar, the uptrend has already turned. Whereas previously, the price made higher highs and higher lows, the pinbar marks the second lower high. Such a shift in trend sentiment is already a strong bearish signal. But when the lower high occurs with a pinbar rejection, the bearish signals is reinforced.

Fakeouts are among the best candlestick signals in price action analysis. The fakeout in the scenario happened right at a previous resistance level.

The pinbar fakeout shows that the price tried to initiate a bullish trend continuation but the bulls didn’t have the majority anymore.

Fakeouts often happen as stop hunting mechanisms at key price areas. It is, therefore, helpful to put yourself in the shoes of the average retail trader to get an idea of stop loss placement. A fakeout with a failed breakout often leads to a complete reversal when traders are trapped in a bull trap.

The scenario shows how multiple candlestick signals come together and help us form sophisticated price analyses.

First, the price traded into an already established support level (dotted line).

Second, the price tried to break out with a large bearish candle. However, there was no follow-through and as a breakout trader, you’d expect more bearish follow-up momentum after such a strong breakout.

Third, the two candles after the large breakout resemble neutral Doji candles. This shows indecision in the market.

Finally, the bullish candles accelerate away from the failed breakout. This concept of deceleration and acceleration often occurs at turning points. A new bullish trend formed as the acceleration continued.

The next scenario shows another example of deceleration and acceleration at a key support level.

This 3-candle sequence is among the best candlestick signals that exist.

The price first accelerated into the green support zone. The large bearish candle arrived at the previous low.

The next candle was a neutral Doji candle.

The third candle then formed as a strong bullish candle, rejecting the support level.

Although this pattern is among the best price action patterns there is, you must make sure to only trade it with confluence. Trading those patterns at key support/resistance, supply/demand areas and after trending markets may increase your odds significantly.

Always follow the story that the price is trying to tell you.

Failed breakouts that come with a candlestick pattern can be great trading opportunities.

In the scenario below, the price tried to break above the previous highs but was rejected immediately within the next candle. The rejection candle is so large that it completely engulfed the bullish breakout candle.

Strong breakout candles make it look like the price is finally ready to continue the previous trend. But often, such strong candles just try to lure in traders. When the failed breakout then becomes obvious, amateurs hang on to their position too long and can’t cut their losses.

An engulfing candle can also act as a trend continuation signal.

In the scenario below, the price already started a new bearish trend. The engulfing candle breakout marked the end of the first consolidation and led to a trend continuation.

On the left, the price was in a strong downtrend.

The first dotted line marks a lower low and a trend continuation. But from the first to the second dotted line, the price as just barely able to break lower. Such short trend continuations are very important signals and they indicate a lack of trend support.

The price just traded sideways by forming small inside bars at the bottom. By then, it wasn’t clear that the downtrend would be over and we do not predict that the trend will reverse.

The engulfing candle is the final piece to the puzzle and it marks the rejection of the downtrend. The engulfing candle is the strongest candle that was formed by that point on the whole chart snapshot.

The scenario below shows another fakeout at a previous high.

The fakeout happened as a pinbar. Furthermore, the concept of deceleration and acceleration can also be observed around the pinbar and show the gradual change from bullish to bearish market.

Multi-wick rejections are great candlestick signals because they give traders a lot of time to notice the chart.

The strong bearish downtrend came to a sudden end when two neutral Dojis formed after a strong bearish candle.

After the second Doji, the price shot higher and formed an engulfing candle. The engulfing candle is the signal that a new bullish trend is forming.

I hope that you gained some insights into candlestick trading. I’d recommend picking a few candlestick formations that you want to master and then start tracking them on your charts. Don’t overwhelm yourself by trying to trade all candlestick patterns and just follow on the best ones.

Furthermore, combine single candlestick signals with other confluence factors such as support/resistance, supply/demand and trend analysis.

Further reading: The ultimate candlestick guide

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brandonfullers · 5 years ago

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London Open Scalping Forex Trading Strategy

Scalping is notoriously known to be a very difficult type of trading strategy. Some would even go as far to say that scalping isn’t profitable. But it is. I love to scalp the markets. Its quick, money is fast. You get in early in the move, you get much out of the move.

The difficulty lies in the cost to scalp. Often, what causes traders to lose money scalping the markets is the cost. This pertains to the spread and commission from the broker. When scalping, you get a move of just a few pips. Take into account the cost which could be at around 2 pips or more depending on the broker, even if you have a strategy that has a bit of an edge, that 2 pips could spell the difference. So, before you try scalping, first find a broker that has low spreads and commission.

Pin Bar – One of the More Effective Candlestick Patterns

Not all candlestick patterns perform equally. Some are good, some just doesn’t perform as well. Of all the candlestick patterns, the pin bar is one of my personal favorites. Although it isn’t perfect, it has a very high probability. Not only that, it is also often the start of a huge move.

A pin bar is basically a candlestick pattern with a long wick on one end, a very small body, and a very small wick on the other end.

Every time you see that, get excited because it could be an opportunity for profits, given that it occurs in a condition when the market is prime for a reversal.

The logic behind a pin bar is that of a very quick market sentiment. Imagine, the market has been on an uptrend and is pushing up. Then, suddenly bears started to push price back down and have managed to reverse the gains in one candle. The good thing with the pin bar is that it is also a signal of a start of a move. Price could still have been pushed lower if time didn’t run out for that candle. But, that move would usually continue on to the next few candles.

Stochastic – An Indicator for Reversals

Stochastics are probably one of the more popular indicators. This probably mainly due to its simplicity and effectivity.

The Stochastic Oscillator is basically an oscillating indicator that provides information regarding the short thrusts of the market. It does this by printing two lines, a faster and a slower stochastic line. These lines also provide a signal by crossing over each other.

Another very important feature of the Stochastic Oscillator is its overbought and oversold markers. These markers objectively identify if the market is overbought or oversold and could be prime for a reversal.

Trading Strategy Concept

This strategy is a mean reversion strategy mainly used during the London market open. During this time, a sudden burst of volume and volatility occurs, making the market conducive for scalping.

With this strategy, we will be using the Stochastic Oscillator as our trade direction filter. We will be looking to take trades only when the oscillators are on an overextended area, meaning the market is prime for a reversal. If the stochastics are on the oversold area, then the market might be reversing to the upside soon. If they are on the overbought area, then the market might reverse to the downside. We will only be taking trades if the stochastic oscillators are in these areas.

Then, we wait for our entry signal. We will be using the Pinbar custom indicator. It is a custom indicator that would alert us if ever a pin bar candlestick pattern appears. If a pin bar pattern appears when the market is in an overextended market condition, then we take our reversal trade setup.

Indicators:

Pinbar

Stochastic Oscillator: (21, 3, 3)

Timeframe: 1-minute chart only

Currency Pair: EURUSD and GBPUSD only

Trading Session: first two hours of the London open

Buy (Long) Trade Setup

Entry

Both stochastic oscillator lines should be on the oversold area (below 20)

A bullish pin bar pattern should appear

Take a buy market order as soon as the bullish pin bar candle closes

Stop Loss

Set the stop loss below the entry candle

Exit

Close the trade as soon as the stochastic oscillator reaches the opposite side

Sell (Short) Trade Setup

Entry

Both stochastic oscillator lines should be on the overbought area (above 80)

A bearish pin bar pattern should appear

Take a sell market order as soon as the bearish pin bar candle closes

Stop Loss

Set the stop loss above the entry candle

Exit

Close the trade as soon as the stochastic oscillator reaches the opposite side

Conclusion

This is a commonly recurring theme on the 1-minute chart, especially during range bound market conditions. However, this could also occur on an overextended trending market.

I find the pin bar pattern to be very effective on the 1-minute chart as compared to higher timeframe day trading charts. This might probably be because on the lower timeframe, the pin bar candle signals the start of a probably reversal, while on the 5-minute chart and above, price have already moved by several pips. Although many traders have also been profitable on the 5-minute, 15-minute and even higher day trading timeframes.

This strategy could also work intraday during the London session, even after the two-hour window for volatility spike. However, often times, volatility fizzles out making it difficult to scalp. This strategy could also work on the New York open. The key is that volatility is high to allow us to easily scalp the market.

Forex Trading Systems Installation Instructions

London Open Scalping Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.

The essence of this forex system is to transform the accumulated history data and trading signals.

London Open Scalping Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.

Based on this information, traders can assume further price movement and adjust this system accordingly.

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Forex Metatrader 4 Trading Platform

Free $30 To Start Trading Instantly

No Deposit Required

Automatically Credited To Your Account

No Hidden Terms

How to install London Open Scalping Forex Trading Strategy?

Download London Open Scalping Forex Trading Strategy.zip

Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /

Copy tpl file (Template) to your Metatrader Directory / templates /

Start or restart your Metatrader Client

Select Chart and Timeframe where you want to test your forex system

Right click on your trading chart and hover on “Template”

Move right to select London Open Scalping Forex Trading Strategy

You will see London Open Scalping Forex Trading Strategy is available on your Chart

*Note: Not all forex strategies come with mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.

Click here below to download:

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bobjlower · 5 years ago

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Pivot Points Trading Tips

Pivot Points have been around forever in trading but as with so many trading tools, lots of misinformation has been spread as well. In this article, we will introduce the most important concepts that will allow you to use Pivot Points more effectively in your trading.

What are Pivot Points?

Pivot Points are price levels that are calculated based on previous price action. The calculation of the main Pivot Point is very straight forward and simple:

(High of previous day/week + Low of previous day/week + Close of previous day/week) / 3 = Central Pivot Point

So you can see, the central Pivot Point is just the average of last week’s price action more or less.

In the screenshot below, I marked the High, the Low and the Close of the previous week’s price action. The resulting Pivot Point (red line) is the average of those 3 price levels.

Above and below the central Pivot Point, further Pivot levels can be found. They are named R1 – R4 for the resistance Pivot levels above the central Pivot Point and S1 – S4 for the support Pivot levels below the central Pivot Point.

The S and R Pivot levels are calculated based on the central Pivot Point and the previous high and low of the price action. Therefore, the further away the high and the low from the Pivot Point are, the further away the S and R price levels.

How to use Pivot Points

There are multiple ways how you could use Pivot Points and in this article, I will introduce two trading techniques for Pivot Points. In our Masterclass, we also teach one day trading method that is based on Pivot Points, together with other trading tools.

But generally, Pivot Points are either used as a tool for support/resistance trading that then allows us to time trades more effectively.

On the left, you see how the central Pivot Point acted as support multiple times at point (1) and (2). At point (3), the central Pivot Point acted as a resistance. Especially the central Pivot Point works well because a lot of traders use it. In the later part of this article, we will take a look at trading strategies that are based on the central Pivot Point.

On the right, we see a Pivot Point rejection together with a flag pattern. Central Pivot Point rejections are a powerful tool and can build the foundation of various trading systems as we will see next.

Pivot Point Trading Scenarios

1. Pivot Point rejection

Central Pivot Point rejections and fake-breakouts are one popular trading strategy.

For that, a trader would wait for the price to move into the central Pivot Point, make a move beyond it and when the price falls back, initiate a trend.

In the screenshot below, you see two such examples. The price tried, on two consecutive days, to break the central Pivot Point from below but failed each time. The price wasn’t able to stay above the central Pivot Point. Especially during long-lasting trending phases, trend-following entries could be times using the failed breakout approach.

Sometimes, the fake breakout occurs with a candlestick confirmation signal. In the screenshot below, the price broke below the Pivot Point and the next candle formed a small pinbar. Ideally, pinbars should be larger in size, but the idea is the same. The pinbar shows a lack of follow-through and indicates rejection.

In the screenshot below we first see a Pivot Point rejection at point (1) where the price tried to break above it and then fell back below quickly. The candle that shows the rejection was the huge bearish candlestick that closed back below the Pivot Point. This large candle clearly shows a lack of buyers’ interest.

Point (2) foreshadows our next Pivot Point strategy. Often, you will see that the price is hovering on one side of the central Pivot Point without being able to break it. Sometimes, we will be able to identify a price action pattern around those levels. In this case, we can draw a trendline, marking a flag pattern. The break of the pattern then allows us to time trades away from the Pivot Point. The lack of momentum that didn’t allow the price to break the Pivot Point was the first clue here.

2. Pivot Point pattern breakouts

When the price hovers below or above a central Pivot Point for numerous candles without being able to break it, it already can indicate a lack of momentum.

In the screenshot below, the price hovered below the central Pivot Point at points (1) and (2) for a long time. Simultaneously, a trendline was established during that time below the central Pivot Point. Then, a trader would only need to wait for the price to break the trendline to start looking for trading opportunities.

At point (3), the price had already been in a prolonged downtrend and the price didn’t even come close to the central Pivot Point while established the flag-trendline pattern.

During a trending market, such an approach may be used to time trades into the trend direction.

The scenario at point (1) in the screenshot below shows another trendline break just after the price hovered below the central Pivot Point for a long time.

At point (2), the price established a horizontal support level as the breakout level. The price also traded below the central Pivot Point in this example for a long time without being able to break about it. Whenever you are able to define a pattern with a horizontal support/resistance line or a trendline, you could look for trading opportunities if the Pivot Point context also indicates a potential trade idea.

Of course, trading Pivot Points on their own is usually not robust enough and it is always advisable to layer additional confluence factors around such a trading approach. But it is a great starting point for any trading strategy and as an alternative approach to common support/resistance tools.

In our Masterclass, we add multi-timeframe analysis, moving averages and various price action concepts around Pivot Points to create a robust trading strategy.

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bobjlower · 5 years ago

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5 Trading Strategies That Work – Trading Strategy Guide

Let’s talk about trading strategies and in this article, I am sharing 5 trading strategies that I use or have used in my own trading. Each trading strategy can be traded by itself and you could also combine different ones.

Each trading strategy consists of multiple confluence factors to provide robust signals. Of course, one can add more triggers and criteria to this approach. If you like this approach and are interested in learning my current trading strategies and get my trade setups, make sure to check our Masterclass where we currently have a special deal.

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Trading Strategy 1: A Cross-Over System

The first strategy is a cross-over system with an RSI tiebreaker.

I used a 20 and 40 period SMA but you can use any combination. Here some inspiration:

Moving Averages Trading Style 10 and 20 Short-term day trading 20 and 40 Medium-term trading (best for 1H and 4H) 50 and 100 Longer-term trading (best for 4H and Daily) 100 and 200 Swing trading (Daily and Weekly)

I use a 14 period RSI indicator as a trend tiebreaker. When the RSI is above the 50 level (orange line), you only look for bullish signals. And when the price is below the 50 level, you only scan for bearish cross-overs.

Let’s take a look at the situation below and I will go through points 1 to 4.

1. The short-term moving average crosses above the longer-term MA. This is a bullish signal because it means that the short-term prices are rising over the longer-term prices. It signals bullish momentum.

2. The RSI is trading above the 50 level which means that it would have been OK to follow the bullish cross-over signal. The RSI is, therefore, a filter tool. If the moving averages cross into a bullish signal but the RSI is below the 50 level, a trader would not open any long trades.

3. The next moving average cross-over to the bearish side happened here. Although the moving averages came close to crossing before, you must wait for a confirmed cross.

4. The RSI dipped below 50 with the crossover, confirming the bearish signal.

Of course, you can layer more criteria on top of those two. For example, a trader can add trendline or horizontal breakouts to the strategy. Or even add a longer-term moving average as an additional trend direction filter.

I put together more trade studies for you below.

At point (1), the moving averages crossed bullish. The price was trading above the moving averages before already, but you must wait for a cross of the moving averages. When the moving averages crossed, the RSI was already above the 50 level, confirming the bullish trend signal.

By now you can probably already follow the system and understand how a bearish setup was created at points 3 and 4.

I do not recommend to just start trading this approach blindly. Instead, try it out on a demand account and get a feeling for how the components work together. You may want to make alternations or add different tools to this approach.

Also, make sure to consult my latest article about stops, targets, and winrate when it comes to choosing the right parameters for your trading approach.

Trading Strategy 2: Spikes & Traps

I used to trade spikes a lot. For that, I set the Bollinger Bands(r) to 2.5 standard deviations to create a wider channel. With a wider channel, a price spike through the channel is more meaningful and a significant event. You could even set it to 3 standard deviations to filter out more price action and find bigger spikes.

A spike alone is not enough and I recommend adding a candlestick filter on top of it. A spike that comes with an engulfing candlestick or a pinbar usually provides more robust trading scenarios.

In the example below, the price made a significant spike through the upper band and immediately retracted back inside the channel. The fact that the price closed back inside the channel is another key component. During strong trends, the price will sometimes close outside or very close to the outer bands. You must avoid those situations and wait for a complete rejection.

In this scenario, the spike happened as a pinbar and, therefore, provided at least 2 confluence signals: a channel spike + a candlestick confirmation.

In the scenario below, we can see a spike, a pinbar and also the confluence of a previous support area.

The hardest part when it comes to using multiple confluence factors is passing on trades where you are missing just one. Let’s assume you see a great spike but no other confluence factor. In such scenarios, you must skip the trade even though it may look very tempting. But if you built a system that requires additional confluence signals such as a candlestick pattern and maybe even a signal at a previous support/resistance area, you have to follow the rules and skip the trade. This is where many amateur traders can’t sit on their hands but it is absolutely crucial to only trade when you have a complete trading signal.

Therefore, write down your trading rules and put them where you can see them all the time during your trading. It is a constant reminder of what you are looking for.

Trading Strategy 3: Momentum Divergence

Divergences are one of my favorite tools and I have been using divergences for years in several of my trading strategies. I discussed the concepts of divergences at length in other articles.

In the screenshot below, the price made a quadruple divergence at point 1. The price made 4 consecutive high points (2), but the RSI made 4 consecutive lower lows.

As of writing this, the price made multiple consecutive lower lows (3) and the RSI is making higher lows (4). This indicates that the trend is losing strength.

Of course, this is not enough to enter a trade because the price can keep trending for a long time even though it shows a divergence. As with all trading strategies, we need to add additional confluence factors to a divergence strategy.

The screenshot below shows the same scenario from above but this time I added a 40-period moving average and trendlines; we will discuss trendlines as strategy 5 in this article.

The length of the moving average matters here a lot and you can see that the price violated the moving average multiple times during the uptrend on the left. Hence, a longer period moving average would have been a better choice for such a volatile market.

The trendline at point (1) worked well and it wasn’t until the trendline was broken that the trend actually turned bearish.

The current trendline at point (2) hasn’t been broken yet and, therefore, no bullish signal was provided. As mentioned earlier, just a divergence by itself is not a strong enough signal and the trendline confluence factor works well in this scenario. Now, a trader would simply wait for a strong breakout of the trendline before looking for buying opportunities.

Trading Strategy 4: Breakout System

Horizontal breakouts are among my favorite trading concepts and especially for new and struggling traders, spotting horizontal levels is usually much easier because they are very objective.

A good horizontal level is validated after the second touchpoint and with every subsequent touch, a level gets progressively weaker.

In the screenshot below, the horizontal resistance level at point (1) has around 5 touchpoints. Such a level has a high likelihood of breaking. Even more so, just before the breakout, the price was “sticking to the level” which means that the sellers were not able to push the price lower and the buyers came into the market more and more. In my trading, I call this concept a “lower bounce” and it often foreshadows a high probability breakout.

Once the price has broken out of the sideways range, a trader would wait for short consolidations that allow you to draw horizontal levels at the top. Points (2) and (3) are great examples here. Such consolidation phases are often used to time trend-following entries and I talked about this in the past in my pullback-strategy guide.

To improve the robustness of trading signals, one could add a moving average to the chart as shown in the screenshot below.

The moving average acts as a trend direction filter and one would only look for trades into the direction of the moving average.

At point (1), the price crosses above the moving average and the trader would start looking for bullish opportunities. Such trend-following scenarios occurred at points (2) and (3) when the price made sideways consolidations where it was possible to draw a horizontal resistance level at the top. The price stalled shortly during those sideways phases and the breakout signaled the continuation.

At point (4), the price crossed below the moving average and it also broke out of a sideways range that market the top of the uptrend. Often, such top patterns also show divergence signals and one could add an RSI indicator as a third confluence factor.

At point (5), the short sideways consolidation with a horizontal support level broke and because the price was below the moving average, the trader would look for bearish opportunities.

At point (6), the market made a bottom pattern with a horizontal resistance level and the breakout happened simultaneously with the cross of the moving average.

Trading Strategy 5: Trendline System

Trendlines can be more subjective than horizontal levels but they also work very well.

The screenshot below shows an overall primary uptrend and within the uptrend, the trader would look buying opportunities.

With the help of trendlines, one can identify consolidations effectively. When you can connect 3 or more highs and find a downward sloping trendline in an upward trend, a bullish breakout often signals a trend continuation.

All three points in the screenshot below show such periods where the sideways consolidation was defined by a downward sloping trendline. And each time, the breakout signaled the continuation.

Moving averages are an ideal filter for trendline strategies. Moving averages work best during trending phases and so do trendlines.

In the screenshot below, I added a 40-period moving average to the chart. For all 3 trendline breaks, the moving average also confirmed the trend direction. Not only was the price trading below the moving average for each signal, but the moving average itself was also pointing downward, confirming the trend direction, once the trendline break happened.

Again, I do not recommend that you copy those trading strategies blindly but use it as an inspiration. Test different ideas, see which one feels natural to you and then explore how you can make it for your own personality and trader profile.

The post 5 Trading Strategies That Work – Trading Strategy Guide appeared first on Tradeciety Online Trading.

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bobjlower · 5 years ago

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Wyckoff trend analysus and trading tips

Many traders have heard about the Wyckoff method and the Wyckoff trend analysis. In this article, we help you understand the different Wyckoff concepts and we share tips on how to include the Wyckoff analysis in your trading.

Wyckoff 101 – Introduction

At the core of the Wyckoff method are the different trend and market phases which the graphic below shows:

Downtrend

Accumulation This is where the previous downtrend stalls and the price just moves sideways. At this point, it’s impossible to know that the downtrend is actually over.

Spring The spring marks a failed breakout to the downside and, therefore, also a failed downtrend continuation. Now, the trader can be fairly certain that the previous downtrend is not going to continue.

Markup On the breakout, out of the accumulation zone, the price starts the new uptrend.

Distribution The uptrend slows down and enters a distribution phase. Here, the buyers from the previous uptrend are selling and the “big players” are starting to build their position slowly, getting ready for a new trend.

Spring The spring is a great way to load up on more shorts when the price makes a higher high. If the big players are preparing a new downtrend, selling at such a high would give them the best possible price. Many traders also place their stops above a range high and the spring is a stop-hunting mechanism and a bull/bear trap.

Markdown…

Of course, not all markets will follow this pattern all the time, but once you are familiar with this approach, you will start noticing time and again.

In the following, we will analyze various Wyckoff-based chart scenarios.

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Institutional buying and selling

The most important market participants are the so-called “big players”. Those are central banks, hedge funds, regular banks and governments – among others. They are the ones who move the markets.

Those market participants cannot just enter their trading positions at once, but they need to slowly build their position. This usually happens during the accumulation and distribution phase. They need to carefully unload their previous positions and then build a new position. It is very important for those market participants that the price does not run away from them until they have built their position fully.

For retail traders, it is advisable not to get involved during the accumulation and distribution sideways phases and wait for the breakout and/or the pullback.

Retail traders chase price way too often and get into trends too late usually. Since most trading literature recommends trend-following trading as the “easy way to make money”, the average retail trader waits for a trend to present itself. However, it may be more profitable to get into a trend as close to the zone where those big players trade.

This is why we personally trade and teach breakout and pullback trading strategies. The general trend-following approach often yields worse results.

Wyckoff study 1: Retest

When I research trading concepts or teach my strategies, I focus mostly on non-textbook patterns. The price rarely follows the perfectly mapped-out textbook patterns and exposing yourself to as many different chart studies can be helpful for your actual trading.

The screenshot below shows a perfect markdown-accumulation-spring pattern.

At the bottom, the price briefly traded below the previous low but failed to continue the downtrend. Also note how the bearish candlesticks that form the potential breakout are very small and not really convincing. The subsequent bullish candles were much stronger and longer. This already indicates that the breakout attempt was very weak.

The breakout then happens and the price trended higher for a while before pulling back. Many traders will trade the breakout and then move their stop loss to break even. This is such a known market behavior that you will see retests all the time. The retest perfectly traded back into the previous breakout level and took all the stops, while providing another buying opportunity at a fairly low price.

Pre-breakout price behavior

This is a little excursion, but it will be worth your while. Before the actual breakout from the accumulation/distribution pattern, the price often forms a smaller pullback which I call the Lower-Bounce.

Again, ask yourself what this tells you about the buyer-seller ratio:

During the range, the sellers already drove the price down strongly into the support level (big red candles). Then the buyers tried to step in and push the price higher, but they did not succeed and the price didn’t even come close to the previous high. This is a very important finding because it indicates that the sellers are in control. The bearish breakout was the logical consequence.

You will find that this pattern precedes many successful breakouts and you may want to include this Lower-Bounce as a confluence factor. In our (now free) premium trading courses, you will learn much more about it.

Wyckoff study 2

Sometimes the spring happens in the form of just a single spike-pinbar. It is very important that the spring takes out the previous lows to fully confirm the failed breakout attempt.

In the scenario below, the accumulation phase formed in a well-defined sideways range with a horizontal resistance level. Before the breakout, the price already started making higher lows, which is a good confluence factor – especially if it happens after the spring and, therefore, further indicates the building buying pressure.

The retest in this example happened right away and it, again, highlights why break-even stop-loss orders may not be the best choice. Although traders believe that they can “protect” their position with a break-even stop, most of the time it just makes their traders vulnerable to pullbacks.

The markup started right after the pullback was confirmed.

Wyckoff study 3: Non-textbook Accumulation and Distribution

Let’s continue with non-textbook accumulation and distribution phases.

On the left, the price did not form a long sideways accumulation, but we can clearly observe how the price stalled after the downtrend. Furthermore. before prior to the accumulation, the price didn’t trend lower strongly either. The market just slowly ground lower. This is already a heads-up that the downtrend wasn’t very strong. If a reversal happens after a weak downtrend, the new uptrend will often be even stronger.

The spring pattern was also very strong which further indicates that the market powers are about to shift. After the failed breakout to the downside from the spring, the bullish candle was a very strong one.

By now, we have found multiple confluence factors that indicate that the (potentially) coming bullish trend could succeed. To trade such a system with confidence, it can be important to stack those confluence factors. The more hints we can find, the more conviction it provides for your trading.

After the breakout, the market immediately makes a pullback and forms the retest pattern. This is such an important market pattern and it’s worth studying it.

On the right, you can see a trade that I am still in (by the time of publishing this article, the trade has reached the take profit target). I traded the breakout out for the distribution zone. The spring was a single pinbar candlestick that took out all previous highs. The distribution was defined by a great horizontal support level. Horizontal levels make trade-timing easier, compared to trendlines because they are less subjective.

This breakout also happened with a retest.

Wyckoff study 4: Wyckoff and divergences

Divergences are a great trading concept and it integrates perfectly with the Wyckoff and trend analysis. I wrote about divergences multiple times but, in a nutshell, a divergence indicates that the current trend is losing momentum.

And as we have seen in the previous chart studies, the Wyckoff trend analysis is all about understanding trend structure and trend strength.

In the scenario below, the distribution phase happened while the RSI indicator was showing a divergence. Although this distribution is not a perfect sideways consolidation, one can clearly see how the uptrend was losing strength. The trend waves became shorter and the price had a hard time making higher highs. At the top, the spring showed a failed breakout that immediately reversed lower.

After the spring, the bearish candles suddenly became strong and much longer, further confirming the shifting bull-bear ratio. The sellers were clearly ready to take over.

The markdown (downtrend) didn’t succeed immediately, but the price pulled back into the breakout area once again.

Wyckoff study 5: Spring and Bollinger Bands (r)

When it comes to identifying significant spring patterns, the Bollinger Bands are the perfect tool for the job. The Bollinger Bands are essentially just measuring the standard deviation of the price moves which means that if the price is moving outside of the Bollinger Bands, it highlights a significant event. 95% – 99% of all price action happens within the Bollinger Bands.

Now, if the price is able to spike outside of the Bands by a lot, this is even more meaningful. A large spike through the outer Bands should always catch your attention. In the example below, the left spring shows a very strong spike through the outer Band. We talked about this chart scenario above, but with the Bollinger Bands, we can add another confluence factor to our toolbox.

The stronger the spike, the higher the likelihood, that the trend will actually reverse if all other confluence factors confirm the trend analysis.

Although trading just based on Wyckoff analysis might not be the most accurate way, it provides a solid foundation for any chart analysis.

In our masterclass and in our premium courses (both free now), the Wyckoff analysis takes an important role too. However, we add trading tools and other concepts on top of the trend analysis to time trades and find actual trading signals.

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bobjlower · 6 years ago

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Mastering and Understanding Candlesticks Patterns

Candlestick charts are further developed line charts – which the image below shows – that serve to compensate for the disadvantage of less information. Candlestick charts have their origin in 17thcentury Japan. Today, candlestick charts are the preferred tool of analysis for traders and most investors since they provide all the required information at a glance. In this article, you will learn everything you need to master candlesticks patterns like a true professional.

The candlesticks

As the name suggests, a candlestick chart is made up of so-called (price) candlesticks. These candlesticks are made up of different components to describe the price movements of financial instruments.

Two sample candlesticks are shown below. A candlestick consists of a solid part, the body, and two thinner lines which are called candle wicks or candlestick shadows.

The candlesticks are color-coded to illustrate the direction of the price movements. A white candlestick represents rising prices, whereas a black candlestick shows that the price fell during the period.

Figure: A rising candlestick is shown on the left and a falling candlestick is shown on the right along with the explanations of terms used for individual candlestick components.

The length of the shadows shows how much the price has moved up and down with respect to a candlestick within a specific duration. If we set our charts so that one candlestick corresponds to one day, then we can read the daily fluctuations in the financial market using the shadows of a candlestick.

The candlestick body describes the difference between the opening and closing prices for the corresponding time period.

The body of the white, rising candlestick below shows that the price opened at $10 and closed at $20 in the selected time interval, but has fluctuated between $25 and $5 in the meantime, as indicated by the shadows.

Figure: The trend of candlesticks from the opening price to the closing price is described by the candlestick body. The shadows show the entire fluctuation width.

If we line up several candlesticks, we can reproduce the progression of line charts by following the candlestick bodies as shown below. The candle shadows also show the severity of price fluctuations in each case. We, thus, get all the information that is essential for an effective price analysis at a glance. This is why candlestick charts are mostly used for technical analysis these days.

Figure: If you follow the path of the candlestick prices, you can reconstruct the line charts. Candlesticks offer more information and are the preferred medium for technical analysts.

Anyone who knows how to analyse and interpret the so-called candlestick patterns or candle formations, already understands the actions of the financial market players a little better.

Candlesticks can be divided into four elements, where each element reveals a different aspect of the current trading behavior and the prevailing market sentiment.

Intro: The strength ratio – bulls vs. bears

To understand the price and candlestick analysis, it helps if you imagine the price movements in financial markets as a battle between the buyers and the sellers. Buyers speculate that prices will increase and drive the price up through their trades and/or their buying interest. Sellers bet on falling prices and push the price down with their selling interest.

If one side is stronger than the other, the financial markets will see the following trends emerging:

If there are more buyers than sellers, or more buying interest than selling interest, the buyers do not have anyone they can buy from. The prices then increase until the price becomes so high that the sellers once again find it attractive to get involved. At the same time, the price is eventually too high for the buyers to keep buying.

However, if there are more sellers than buyers, prices will fall until a balance is restored and more buyers enter the market.

The greater the imbalance between these two market players, the faster the movement of the market in one direction. However, if there is only a slight overhang, prices tend to change more slowly.

When the buying and selling interests are in equilibrium, there is no reason for the price to change. Both parties are satisfied with the current price and there is a market balance.

It is always important to keep this in mind because any price analysis aims at comparing the strength ratio of the two sides to evaluate which market players are stronger and in which direction the price is, therefore, more likely to move.

Element 1: Size of the candlestick body

The size of the candlestick body shows the difference between the opening and closing price and it tells us a lot about the strength of buyers or sellers.

Below, the most important characteristics of the analysis of the candlestick body are listed.

A long candlestick body, that leads to quickly rising prices, indicates more buying interest and a strong price move.

If the size of the candlestick bodies increases over a period, then the price trend accelerates and a trend is intensified.

When the size of the bodies shrinks, this can mean that a prevailing trend comes to an end, owing to an increasingly balanced strength ratio between the buyers and the sellers.

Candlestick bodies that remain constant confirm a stable trend.

If the market suddenly shifts from long rising candlesticks to long falling candlesticks, it indicates a sudden change in trend and highlights strong market forces.

Figure:Left: Long candlestick bodies during the downward and upward trend phases. Sideways phases are usually characterized by smaller bodies. Right: Rising candlesticks are stronger in the upward trend. At the peak, the ratio tilts and a sideways phase is characterized by smaller candlesticks.

Element 2: Length of candlestick shadows

The length of shadows helps in determining the volatility, i.e. the entire range of price fluctuations.

Characteristics of candlestick-shadow analysis:

Long shadows can be a sign of uncertainty because it means that the buyers and sellers are strongly competing, but neither side has been able to gain the upper hand so far.

Short shadows indicate a stable market with little instability.

We can often see that the length of the candlestick shadows increases after long trend phases. Increasing fluctuation indicates that the battle between buyers and sellers is intensifying and the strength ratio is no longer as one-sided as it was during the trend.

Healthy trends, which move quickly in one direction, usually show candlesticks with only small shadows since one side of the market players dominate the proceedings.

Element 3: Body to shadow ratio

For a better understanding of price movements and market behaviour, the first two elements must be correlated in the third element.

Important factors in this context are:

During a strong trend, the candlestick bodies are often significantly longer than the shadows. The stronger the trend, the faster the price pushes in the trend direction. During a strong upward trend, the candlesticks usually close near the high of the candlestick body and, thus, do not leave a candlestick shadow or have only a small shadow.

When the trend slows down, the ratio changes and the shadows become longer in comparison to the candlestick bodies.

Sideways phases and turning points are usually characterised by candlesticks that have a long shadow and only short bodies. This means that there is a relative balance between the buyers and the sellers and there is uncertainty about the direction of the next price movement.

Figure: There are almost no shadows during the left rising phase, confirming the strong trend. Suddenly long candlestick shadows are visible in the sideways phase; these indicate uncertainty and an intensified battle between the buyers and the sellers. When candlestick shadows increase, it can foreshadow the end of a trend.

Element 4: Position of the body

As far as the position of the candlestick body is concerned, we can distinguish between two scenarios in most cases:

If you see only one dominant shadow which sticks out on one side and the candlestick body is on the opposite side, then this scenario is referred to as rejection, a hammer or a pinbar. The third and the seventh example in figure 10 show such candlesticks. The shadow indicates that although the price has tried to move in a certain direction, the opposition of market players has strongly pushed the price in the other direction. This is an important behaviour pattern which we will analyse in detail later.

Another typical scenario shows a candlestick with two equally long shadows on both sides and a relatively small body. The fifth candlestick in figure 10 shows such an indecision On one hand, this pattern can indicate uncertainty, but it can also highlight a balance between the market players. The buyers have tried to move the price up, while the sellers have pushed the price down. However, the price has ultimately returned to the starting point.

Figure: From left to right: The size of the candlestick body describes the strength of the price movement. The longer the body, the stronger the impulse. If the candlestick shadows are longer, there is a balance between the sellers and the buyers and the indecision increases.

Chart examples

Now that we have covered the individual elements, we can put things together and see how we can use our knowledge to dissect price charts.

Example #1

Let’s follow price in the chart below and I share what we are seeing here in the candlesticks:

During the downtrend, the candlesticks are only red (bearish) and long with very small or no wicks >> this shows strength

At the bottom, we see a rejection. This is not enough yet to call a reversal but on the next candle we then start seeing bullish candles

Example #2

Below we see a typical range behavior and we can see how the candles tell us what is going on:

Price trends lower on the left with strong bearish candles and no bullish candles in between

Then suddenly the bodies become smaller and the wicks longer, showing that the momentum is fading

Price trades back into a previous support and it now becomes resistance and we see a small rejection candle

At the support of the range, we see that candles are becoming smaller and have more wicks, confirming the indecision. It also makes a break of the support unlikely

Just before the support breaks, price is only starting to make bearish candles and we can see how momentum is picking up

Example #3

In the final example, we can see a classic pattern at the end of a trend. This is also often one of the building blocks to the trading strategy which you can learn in our pro area.

During the uptrend, the candles are very long and have very small wicks only

Then suddenly we see two long wicks to the downside. This shows that price tried to push lower but it did not yet have enough selling pressure

But the candles are becoming smaller and smaller after the failed sell-off attempt which indicates that the trend is running out of steam

Then suddenly we see a strong bearish candle which confirms the new downtrend

Conclusion: No Need For Candlestick Patterns

With this article we want to show you that you do not have to remember any candlestick formation to understand price. Quite the opposite. It’s very important on your path to becoming a professional and profitable trader that you start thinking outside the box and avoid the common beginner mistakes. Learn how to understand how buyers and sellers push price, who is in control and who is losing control.

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brandonfullers · 6 years ago

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1-to-1 Pinbar Scalping Forex Trading Strategy

There are two aspects of a trade entry that should be considered, first, the trade direction, then the entry itself or the timing of the entry. Both are equally important, but one is trickier than the other.

First, trade direction. Trade direction refers to whether you would be buying or selling. This is determined on whether you think price would go up or down. This is very important. If you get this wrong, then the whole trade would already be wrong, and it would be very hard to salvage that trade. However, this is a bit easier to decipher. In fact, majority of traders get this right. It’s the second thing that usually messes up a trader’s profitability.

So, what about trade entry and timing? Why is it so hard to determine? This is because, when in trade direction, you only have two options, up or down, in timing the entry, you’d have many different options, in fact, each tick that the market makes is an option. Not only is it difficult, it is also critical in order for a trader to have a positive reward-risk ratio. Those who haven’t got the skill of timing an entry down often resort to hedging strategies that are a bit risky and doesn’t allow a trader to predetermine the risk.

Indicator Based Entry Timing Versus Candlestick Pattern Based Timing

There are many different ways to time an entry. It could be based on whether price reached a certain area or breaks out of one. It could be based on patterns or it could be based on a specific set of rules. But I think there are a couple of ways to time a trade that could be very specific, it seems surgical.

One way would be based on a confluence of reversal conditions coming from indicators. It could be a crossover of an oscillator, an overextended market scenario, Heiken-Ashi reversal, etc. This is a great way to surgically time an entry because it takes subjectivity of decision away from the trader. Every decision is based from an indicator, which is mathematically derived from price movement itself. This allows us to statistically test whether our entry works or not. The setback though is that it often is a bit more lagging compared to observing price movement itself.

Another way to time entries would be through the use of candlestick patterns. There are candlestick patterns that have been proven to have a positive expectancy of yielding a profitable trade. One of the most popular is the pinbar pattern.

A pinbar is basically a reversal candlestick pattern with a small body and a long wick. The long wicks signify price rejection. Whichever way the wick is pointing, the market is rejecting that price. Whichever way the small body is on, the market might be going towards that direction.

Below is an example of a bearish pinbar with a long wick on top.

Next, we have an example of a bullish pinbar with the wicks below.

Trade Strategy Concept

Knowing that pinbars are commonly recurring, higher probability reversal patterns, we will be trading based on this strategy and allow the probabilities of this pattern to work on our favor.

But we can’t take just every pinbar pattern that presents itself. We will have to filter it based on the general direction of the longer-term trend. So, we will be trading pinbars that agree with the direction of the market based on the 200-period Exponential Moving Average (EMA). What this does is that it allows us to take trades just as the market is about to end a short-term retracement on a long-term trend.

Also, since we are relying solely on the pinbar and the long-term trend, it might be good to have conservative targets for a scalp. We will have a 1:1 reward-risk ratio based on our stop loss and take profit targets.

Timeframe: 1-minute, 5-minute, and 15-minute chart

Currency Pair: any major currency pair

Session: Tokyo, London and New York session

Buy Trade Setup

Entry

Price should be above the 200 EMA (gold) indicating a long-term bullish market

Enter a buy market order on the close of a bullish pinbar

Stop Loss

Set the stop loss at the low of the candle

Take Profit

Set the target take profit at 1x the risk on the stop loss

Sell Trade Setup

Entry

Price should be below the 200 EMA (gold) indicating a long-term bearish market

Enter a sell market order on the close of a bearish pinbar

Stop Loss

Set the stop loss at the high of the candle

Take Profit

Set the target take profit at 1x the risk on the stop loss

Conclusion

This is not a high reward-risk strategy as we are limiting it to 1:1. This strategy is also not a high probability strategy because its entry is based on a confluence of only two conditions. Where this strategy shines however is in the volume of transactions that you could have and that is very important for scalpers who take minimal profit per trade. This allows for the statistics to work on our favor. It would be very tedious and brutal at times, but the law of large numbers could be on your side.

Forex Trading Systems Installation Instructions

1-to-1 Pinbar Scalping Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.

The essence of this forex system is to transform the accumulated history data and trading signals.

1-to-1 Pinbar Scalping Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.

Based on this information, traders can assume further price movement and adjust this system accordingly.

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Forex Metatrader 4 Trading Platform

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How to install 1-to-1 Pinbar Scalping Forex Trading Strategy?

Download 1-to-1 Pinbar Scalping Forex Trading Strategy.zip

Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /

Copy tpl file (Template) to your Metatrader Directory / templates /

Start or restart your Metatrader Client

Select Chart and Timeframe where you want to test your forex system

Right click on your trading chart and hover on “Template”

Move right to select 1-to-1 Pinbar Scalping Forex Trading Strategy

You will see 1-to-1 Pinbar Scalping Forex Trading Strategy is available on your Chart

Click here below to download:

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bobjlower · 7 years ago

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How To Trade Linecharts To See The Obvious

Sometimes in my trading career, I have been lost among the trees. My charts were so cluttered I could not make one clear decision, yet produce one valid trade idea that I liked. Everything was gibberish, paralysis through analysis. Whenever I got a signal in one direction, other things I learned and watched gave me a signal into the other direction. It was time to weed out. And I am not even talking about indicators here. No, I am talking about the thing that everyone so religiously loves – candlesticks. It seems there has been a cult around these ever since Steve Nison, or whoever claims to have brought them to the West first, introduced them to us. Price action is king, yes of course it is. But to me, seeing the open, high, low, and close was just too much information to digest sometimes. So I started to play around a bit with different chart tips, tick bars, volume bars, renko bars, and so on. But it wasn’t until I switched to a simple line chart that suddenly I could see clearly again. A standard line chart shows us the close of each bar – basically, it is a simple moving average with a period 1 applied to the close. All candlesticks fanatics always preach to wait for the close of the bar, so why not only look at the close of the bar?

It’s weird how clearly chart formations, patterns, highs and lows, and even the direction of a chart, can be much easier read on a line chart – at least for me. Since then, I always have a line chart open whenever I trade candlestick charts, and I have even developed a strategy based solely on line charts, which is performing nicely for me. I know a lot of traders that have a massive problem defining the highs and lows that are important and ignoring the smaller swings in between, let alone determine trend direction or detect patterns like 1-2-3’s and I am pretty sure a line chart could help them a lot. Let’s take a look at what I mean.

Looking at this chart, I have trouble finding something tradeable. My eyes just don’t like it, maybe it’s just me, I don’t know. Sure, there are some things, but nothing that stands out, although price has been moving 500 pips and more in that period we see here. What can we see on the line chart, however?

Firstly, the head and shoulders formations are much easier to spot. But that’s not all. 2B-patterns (bull/beartraps) and 1-2-3’s, among others, are much easier to spot as well.

These are just a few of the ones I spot at the glimpse of an eye on this chart. Last but not least, even trend direction and the most important S&R levels and/or trendlines are easier to spot for me on these line charts.

Now when we switch back to candlestick charts, you will see that you see that every pattern I drew here actually cut through the wicks of the candles. This is how I have been drawing my S&R levels anyway, however doing it with the line chart makes it so much more obvious and easy on the eye. Sure, trained eyes will spot 1-2-3’s and the like just as easy as I do on a candlestick chart, but I never actually SAW these patterns on the candlestick chart UNTIL I saw them first on a line chart – that’s when they actually started to make sense to me. Other trades would point their patterns out to me and I would be saying ‘what, where? I don’t see a thing!’.

See what I mean? Maybe, at least I hope so. Now combining the power of the candlestick charts with pinbars, outside bars, strong bearish/bullish closes, rejection wicks, etc. with the power of the simplicity of line charts and their much easier pattern and trend recognition, is what really pushed my trading to the next level.

But to be honest, you don’t even need candlesticks to trade profitably – well, of course not, as there are a thousands ways to skin a cat. Take a higher timeframe line chart and when it points down, and your lower timeframe line chart points down as well, try to get in on a 1-2-3 or 2B pattern, and you have a (obviously discretionary) winning strategy. But that is a topic for another post.

Will switching to line charts make you a winning trader? No, of course not. But they will bring clarity and simplicity to a chart if you, just lile me, cannot handle the information overload of opens, closes, highs and lows, wicks and bodies, strong closes and weak closes, and so on.

Candlesticks, like any other visualisation of price, are an indicator – too many indicators simply will clog your thought process. I look for multi-bar patterns on the line chart, and get confirmation from single candlestick patterns on the candlestick chart – this makes trading so, so much easier. I dare you to give it a try because most likely you are way overestimating your information processing power and are just as slow as me. Trading is about pattern recognition, after all, and patterns are the easiest to see on line charts. There is a reason, why traders like Peter Brandt often post line charts on their blogs, drawing H&S, wedges, triangles, and what not on them.

What do you think, are line charts as visually appealing to you as they are to me, or are we missing out on vital information by trading them? Let us know in the comments below!

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