Simple But Effective Candlestick & Price Action Patterns
There are probably as many trading patterns as there are traders, however this video goes over a few of our favourites and how we use them.
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
-----
We have a question from Patrick asking whether we use any specific candlestick patterns or price action formations for entries with pullbacks or reversals or continuation trades.
Thanks for the question Patrick. I think the first thing that I’ll say about all the various patterns out there is that there are so many of them out there, I think there is probably as many patterns out there as there are traders, so I’’ be more than happy to share the ones that I use the most but don’t take this as a complete or comprehensive guide to technical patterns because with all the various ones out there this is just the tip of the iceberg.
In terms of candlesticks, I do use candlestick patterns but I do tend to pay less attention to them that I would other patterns, just because there are so many caveats with candlesticks, for example my broker uses liquidity provider A and yours uses liquidity provide B and just because of differences in the GMT or liquidity feeds candlestick charts can look different from each other, or from one timeframe to another the candlestick can look vastly different and might tell you two completely different things, so with all that in mind…
There’s two candlestick formations that I usually find useful from a trading point of view as you said with pullbacks or reversals or continuation trades etc and they are just plain pin bars and engulfing candles, I find the two of them are candle formations that are a regular occurrence and they tend to give you a pretty good idea of the type of price action around key levels or trendlines etc.
For example, let’s take the EURUSD this morning, we knew the Dollar had a high probability of continuing that recent technical bounce, so we had that downside bias already, then the EURUSD retraced into the 1.180 level, now I would have from there anyway without any patterns or formations because it was a key level, but the fact that we also had that nice pinbar looking rejection right at the level gave us some nice insight into the type of PA at the level.
The other one is an engulfing candle, whether this happens with a reversal is when most people pay attention to them because they are usually a strong reversal signal, but personally I find that I use them far more for continuation patterns, as a guide of where the impulsive moves in the market is going, where we can see evidence for strong buying or selling interest stepping into the market.
In terms of other formations or patterns, the one that I use the most, almost literally daily, is the false break pattern, not a false break of a level, but specifically a false break pattern. We actually had a great one on the GBPUSD today when we tested that trendline we marked up earlier.
I probably use this more than anything else and it’s useful whether you are trading reversals or continuations, the key is that you are at a key level, whether that is a support and resistance level, or whether it’s a trendline or psychological level doesn’t matter, the key is you are at a level and you are waiting for the market to show you whether the level will hold or reverse.
Now on that, another classic one I like is just a plain and simple break and retest of a level, this is obviously one that you will use mostly for continuation trades, once you breach a key level you wait for a retest, now you can combine any of your other candlestick patterns etc in with this if you want but usually I just trade them as is from key levels.
So, hope that helps Patrick, any other questions please don’t hesitate to let us know.
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://bit.ly/2HFykNd
-----
We have a question from Patrick asking whether we use any specific candlestick patterns or price action formations for entries with pullbacks or reversals or continuation trades.
Thanks for the question Patrick. I think the first thing that I’ll say about all the various patterns out there is that there are so many of them out there, I think there is probably as many patterns out there as there are traders, so I’’ be more than happy to share the ones that I use the most but don’t take this as a complete or comprehensive guide to technical patterns because with all the various ones out there this is just the tip of the iceberg.
In terms of candlesticks, I do use candlestick patterns but I do tend to pay less attention to them that I would other patterns, just because there are so many caveats with candlesticks, for example my broker uses liquidity provider A and yours uses liquidity provide B and just because of differences in the GMT or liquidity feeds candlestick charts can look different from each other, or from one timeframe to another the candlestick can look vastly different and might tell you two completely different things, so with all that in mind…
There’s two candlestick formations that I usually find useful from a trading point of view as you said with pullbacks or reversals or continuation trades etc and they are just plain pin bars and engulfing candles, I find the two of them are candle formations that are a regular occurrence and they tend to give you a pretty good idea of the type of price action around key levels or trendlines etc.
For example, let’s take the EURUSD this morning, we knew the Dollar had a high probability of continuing that recent technical bounce, so we had that downside bias already, then the EURUSD retraced into the 1.180 level, now I would have from there anyway without any patterns or formations because it was a key level, but the fact that we also had that nice pinbar looking rejection right at the level gave us some nice insight into the type of PA at the level.
The other one is an engulfing candle, whether this happens with a reversal is when most people pay attention to them because they are usually a strong reversal signal, but personally I find that I use them far more for continuation patterns, as a guide of where the impulsive moves in the market is going, where we can see evidence for strong buying or selling interest stepping into the market.
In terms of other formations or patterns, the one that I use the most, almost literally daily, is the false break pattern, not a false break of a level, but specifically a false break pattern. We actually had a great one on the GBPUSD today when we tested that trendline we marked up earlier.
I probably use this more than anything else and it’s useful whether you are trading reversals or continuations, the key is that you are at a key level, whether that is a support and resistance level, or whether it’s a trendline or psychological level doesn’t matter, the key is you are at a level and you are waiting for the market to show you whether the level will hold or reverse.
Now on that, another classic one I like is just a plain and simple break and retest of a level, this is obviously one that you will use mostly for continuation trades, once you breach a key level you wait for a retest, now you can combine any of your other candlestick patterns etc in with this if you want but usually I just trade them as is from key levels.
So, hope that helps Patrick, any other questions please don’t hesitate to let us know.
-----
If you find this content helpful, you’ll love Forex Source.
There’s a link below were you can learn more about it
https://bit.ly/2HFykNd
