Price Action - determining reversal and correction
There is a popular expression among traders: “price is the most valuable indicator.”
Displaying charts in the form of Japanese candlesticks allows every trader to experience the benefits of this approach to analytics. For example:
1. If the opening price is identical to the closing price of a graphical element, then this indicates uncertainty among large trading participants.
2. An intense surge in quotes indicates the imminent appearance of a local correction, since most likely the asset will be overbought or resold, which will provoke the opposite effect.
Subsequently, a trend may form in the direction of the price surge.
The Price Action candlestick analysis system is based on identified patterns in the behavior of currency pair charts.
Almost every novice trader has heard about Price Action at least once, but almost no one has tried to understand the intricacies of its application.
The complexity of candlestick analysis is deceptive. In fact, everything is not only simple, but also profitable. It is not necessary to study all the patterns.
It is enough to spend a few hours and consider only 2 of them, but the most effective ones. We are talking about the "Rails" and "Pin Bar" patterns.
Review and practical application of the "Rails" pattern in Price Action
It represents a strong signal indicating a trend reversal or the beginning of a deep correction.
Visually, the model can be identified by its characteristic external feature: the body of the candle completely covers the body of the previous price element. An important condition is that both candles must be of the same range. Deviation of no more than 2-3 points is allowed.
The image shows the formed “Rails” pattern.
After closing the last candle of the pattern, it is important to wait for the final confirmation candle to be built. Only after this is it permissible to open an order.
The pattern can be used in practice both when working with currency pairs on Forex and when trading binary options (expiration period no more than 5 candles). The higher the time interval of the chart, the stronger the reversal signal.
When working with the H4 timeframe, the potential profit is at least 50 points in the event of a reversal and at least 30 in the case of a correction. Pin Bar Pattern
The easiest to identify and most effective reversal pattern .
When working with H4 or D1 charts, the forecast signal based on this candle is processed in 98% of cases. Important condition: the pin bar must be located in the local level area. Visually it is a candle with a small body and a long shadow. In some cases, the body may be completely absent.
If the shadow of the candle is directed upward, then this indicates the possibility of a downward trend, if downward, an upward trend.
Identifying these reversal patterns on a price chart is not difficult.
It is important to know that the formed reversal patterns on charts from M30 and below have no practical value, since they may be the result of market noise. The optimal time frame for searching for signals can be called H4.
Mastery and correct application of reversal patterns of the Price Action system is the basis of profitable trading and the key to success in a trader’s career.
You can make a trader’s work easier by using indicators:
Pattern Recognition - http://time-forex.com/indikators/pattern-recognition
Japanese candlestick indicator - http://time-forex.com/indikators/ind-ypon-svechey