Trading strategy 3 Bar Buy/Low Set Up
Traders often choose one specific method of market analysis, be it indicators or candlestick analysis, volume or other approaches.
But as practice shows, using one type of analysis is not enough, so most strategies consist of several indicators, which in turn try to cover each other’s weaknesses.
In today's article I would like to tell you about a combined trading strategy for Forex that includes both indicators and the use of Japanese candlestick analysis . No, of course, you won’t see any complex patterns, but you will learn how you can build a unique profitable trading system with a simple combination of candles and a couple of standard indicators.
The 3 Bar Buy/Low Set Up trading strategy is based on two standard ADX trend indicators with a period of 14, a moving average with a period of 50. Before starting work, turn on any time frame on any currency pair, but preferably from n1 and switch the chart type to candlestick.
You can trade any pairs, so the choice of pair is yours, but as you know, candlestick models and candlestick analysis remain relevant on any pair and on any time frame.
So, as I already said, the strategy is based on a simple candlestick pattern. However, first we must determine the current trend in the market. It is determined by the moving average. If the price is above the moving average with a period of 50, then the trend is bullish, if below, the trend is bearish.
Next, if we have decided on a trend, we need to wait for the candlestick pattern, which should consist of three candles opposite to the trend. For example, if the trend is bullish, then three bearish candles should appear in a row.
If the trend is bearish, then three bullish candles should appear in a row. Simply put, you should be observing a pullback that has formed three candles in a row in the same direction. To confirm the signal, the ADX indicator is used, its blue line should be above level 25. To enter a position, pending orders . And now there are clear rules for entering each position.
In order to place a pending buy stop order, the following conditions must be met:
1. The price is above the moving average.
2. A pullback occurred and three bearish candles formed in a row.
3. Place a pending buy stop order at the top of the last bearish candle, a stop order at the low of the same candle.
4. At the moment when the pattern appears, the blue line of the ADX indicator should be above level 25, and the green line should be above the red one.
We set profit at the top where the rollback began. For a better understanding, look at the example in the picture below:
In order to place a pending sell stop order, the following conditions must be met:
1. The price is below the moving average.
2. A pullback occurred and three bullish candles formed in a row.
3. Place a pending sell stop order at the low of the last bullish candle, and a stop order at the high of the same candle.
4. At the moment when the pattern appears, the blue line of the ADX indicator should be above level 25, and the green line should be below the red one.
We set the profit at the minimum where the rollback began. For a better understanding, look at the example in the picture below:
Strategy signals occur extremely rarely, but as a rule, most of them are in profit. You may also have psychological difficulties when working with the strategy, since it is extremely difficult to look for an entry into a decline when three candles in a row are growing in front of you, because it immediately gives you the idea that this is a trend change.
But you must understand that this is just a pullback that has temporarily moved away from the global trend. The entry rules for the strategy are very simple, but at the same time, I did not recommend this strategy to beginners, since it is aimed more at an experienced and psychologically stable trader!