The only prerequisite of the strategy is to have a clear understanding of the patterns before reading about the strategy. The strategy is suitable for trading in all currency pairs. However, it is suggested to look for the trading opportunities in major and few minor currency pairs only as the patterns are more reliable and evident in these pairs.

The strategy begins by identifying three main points. For example, in an uptrend, when the market hits a new high, label that point as 1. We then wait for the price to pull back to a short-term support area. This point is labeled as 2. Finally, when the price moves up to an area between points 2 and 3, we label this as point number 3. We then take an entry at a suitable location, which we will address in the later part of the strategy. The pattern is complete when the price stays below point 2.

The strategy is to sell the currency pair on the break of point 2. The take-profit of the strategy is placed at a point that results in a risk-to-reward ratio. The stop loss is put just above point 3, whereas a more conservative stop loss is placed just above the move, in order to maximize the risk to reward.

The trader will be able to make this choice by trading the pattern again and again. Let us understand the step by step process of the strategy. In this example, we are applying our strategy on the 15 minutes time frame and during one of the major trading sessions.

The first step of the strategy is to look for point 1, which is essentially the highest point of a trend. In our example, we can see that the previous lows have been tested multiple times, and thus we have chosen the highest point as our point number 1.

The next step is to mark the point number 2. When the market pulls back to the recent support or resistance area after reacting from point 1, we mark this as point 2. Remember that the price should not only reach that area but also react and move higher for uptrend or lower for downtrend. This confirms the key technical level. The formation of the pattern is complete after identifying the third point.

When the market moves in the area between points 1 and 2 and later comes goes back to point 1, the point from where the market reversed becomes our point 3. The first one is an aggressive way to take an entry on a break of point 2, and as the market starts moving in that direction. This gives additional confirmation that the market is ready to go in a favorable direction.

In this case, we have entered the market right after point 2 is broken, which is a little aggressive. Finally, we need to determine our stop-loss and take-profit levels for the strategy. The take-profit is placed at a point where the resultant risk to reward is at least However, if there is a hurdle in between, profits can also be taken at such points.

The pattern is a major trend reversal pattern is one of the best strategies for trend reversals. One can trade using this strategy on any time frame. The strategy is based on the idea that the market is losing momentum in the direction of the major trend and could reverse any moment. The probability of this strategy is high and does not require knowledge of technical indicators.

It then reverses down again and begins a trend in the new direction. Trade Entry: The pattern is complete when the price trades below point 2. At a top, the strategy is to sell on a break of point 2.

The measuring objective is the distance between point 2 and point 3 projected below the break at point 2. The stop loss is set just above point 3 but a more conservative stop loss is above the start of this move, at point 1. This is a choice that the trader must make and only by trading it over and over again will the trader feel comfortable with the choice of a stop loss.

Also watch for reversal candlestick patterns at point 3 to trigger the entry. This Figure summarizes the top and bottom trade. We just looked at scenario 1 which is the top. Now we will discuss the opposite scenario of a bottom.

Scenario 2: At a bottom, the market hits a low at point 1, trades up to point 2, trades back down to point 3, and back up through point 2 to begin a new uptrend. We have just completed the section on the reversal pattern as confirmation of the end of the trend. However, while the end of trend top and bottom is a great entry method for taking reversal trades, most of your trades as swing and day traders will be trying to get into a trend move — getting into the trend in the middle of it.

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by TradingStrategyGuides Last updated Apr 30, Forex Strategies , Trading Survival Skills 10 comments. All I did was search the Internet for a good Forex strategy. Then I found the candlestick pattern and I never had to look for another strategy again. Actually, all I was interested in was trading entries. I looked at hundreds of different strategies, well, entries.

I even spent some money on a few of them. But I rejected all of that. I had a good handle on my emotions and was a disciplined individual.

Let me tell you now. I started doing that in Then I met Casey at Trading Strategy Guides. All I had learned in those five years came back to me in a flash. I guess I was paying closer attention to it than I realized. Then I became a profitable trader in just a few months.

I said all that to say this. As I mentioned, entries are only a small part of a successful trading strategy. If you get the entry right half the time. You get the other things right? You can still make a lot of money as a trader. You see, losing is part of your job. What is predictable are human emotions. should I get out? I still use some indicators, though.

They can give you a feel for the direction of the market. But only the price action can show you how our emotions are affecting the market. We also have training for a million USD forex strategy. A Reversal is simply a picture of that emotion on a candle chart. In the Forex market, everything that happens in an uptrend can happen in a downtrend. This is because currencies are traded in pairs, one against the other. At the same time, the US Dollar is in a downtrend against the Euro.

That may be different in futures or equities markets because many uninitiated traders think that you can only trade long buy. This is also called the reversal pattern. Once you learn how to find it, you will see a rapid increase in your trading success. Here you can learn How to find opportunity in Forex. The first element to look for in a high is a strong uptrend.

This is because this trend will help define your target. The trend should be fairly strong without a lot of retracements and pauses. The stronger the better. If you follow trade volumes on your chart, you should also be seeing the strong volume.

I like volume as an indicator — even though the volume may not be an actual representation of the volume on a pair. To the left you see a potential setup happening. This is a strong uptrend with volume. It is not necessarily depicting a particular event.

I prefer to look at them on an hourly chart or higher. The next element to look for is an exhaustion high point — this is point number 1 of your Something like a pin bar or an engulfing bar. That would serve to demonstrate a very strong exhaustion or euphoria point and would give me more confidence. I especially like to see this happen at a historical resistance level. That just gives it more legitimacy. Again, to the left, you can see the same uptrend I showed you earlier. But this time, I included some of the candles to the left.

After the high point, your next job is to look for a pull-back. It can happen on the same candle, but I prefer to see it on subsequent candles. It just looks better to me that way. If it appears to be happening on the same candle, drop down to the next lower time frame and see how it looks down there.

This will be the number 2 point of your Read more about Candlestick Charts here. If the next high exceeds the point 1 high, then your high is blown and you can move on and look elsewhere. To the left you will see what was a potential high that is about to be blown. This was looking like a pretty nice 1 2 3 trading strategy pattern until the last few minutes when it started to test the number 1 high.

Officially, your trade entry is a break of the number 2 point to the downside. Therefore, it requires you to trade with the smallest size. As I've said, charts reflect the emotions of traders. Certain pattern strategies occur regularly on charts.

We've all seen head and shoulders patterns , various triangle and flag patterns and the more complex harmonic patterns. The reasons these patterns continue to provide trading opportunities is that the emotions that caused these patterns are consistent and happen frequently.

The patterns don't always hold - sometimes they're affected by other factors like news - but they are consistent enough that we can use them to make profits in the market. The number 1 point occurs at a place where traders who were long in the market decide they need to secure the profits they made during the trend up. That's why the initial trend is very important. It's also why you should watch for this point at a place of strong resistance.

It's the place where traders will feel that the market may stall or turn. In other words, they fear they may lose the profits they've got in place. The surge in volume is due to the "not so smart" money finally recognizing the trend and jumping on the bandwagon euphoria - "this trend could last forever, I gotta get me some".

That surge in volume usually happens when a move has reached exhaustion. The volume is a signal that the smart money is passing on their holdings to the latecomers, leaving them "holding the bag". This is the number one point. Of course, after there are no more traders to buy up the positions the latecomers entered, the price starts to drop. As the price drops, the smart money sees an opportunity to possibly make a little profit on another pop to the number 1 high, but they are less committed because most of the longer term momentum indicators are still giving overbought indications and the market has just made a big up move.

Eventually, all the latecomers that bought while the market was at the peak are experiencing fear. As the market continues to drop, they unload those positions to the smart money - who are more willing to buy as the price drops lower. Until there are no more folks wanting to sell. That's the number 2 point.

Now that the latecomer sellers are gone, prices will start to move up again. The smart money folks bought from the latecomers, so now as it starts to go up again, the latecomers figure they got out too soon and start buying again, but since they were burned before, they are a little warier, so fewer of them get involved this time.

And of course, the smart money folks are more than willing to take their profits as the market goes up. But since there are fewer willing to buy this time, when the price peaks, it often doesn't get as high as the number one point before it starts dropping again.

This is the number 3 point. As the market starts to drop from the number 3 point, the more educated, smart money traders recognize that this could be a reversal or the beginning of a trading range, but at the very least, they are willing to sell down to the number 2 point again - which is exactly what we will do. This causes prices to drop back to the number 2 point - often breaching the number 2 point by a few pips. As I mentioned before, reversals most often happen at areas of support and resistance.

They happen after a good strong trend. They can happen at any time frame on any instrument. On the shorter time frames less than one hour , you have to watch continually or you will miss your opportunity.

Often you can see one after a big news event. That's why I prefer to trade hourly or higher. I day trade periodically and will watch the 5 minute and minute charts, but I have a short attention span, so I've got to be in the right frame of mind to do that. I know folks that do it on the 1-minute charts and make lots of pips daily doing it. I just can't concentrate that much for that long. That's why trading is such a personal thing.

The probability of this strategy is high and does not require knowledge of technical indicators. That just gives it more legitimacy. Username Password Remember Me Register Lost your password? This 3-step system is highly actionable and will mechanize your trading workflow. The first step of the strategy is to look for point 1, which is essentially the highest point of a trend. Take profit: Trends are the strongest level of the market. The past performance of a strategy is not the indicative of future performance.

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