High Probability Reversal Patterns.

One of the keys to success in the Forex business, is having the ability to identify high probability reversal patterns on the chart.

There are many reversal patterns that present themselves on the chart every day, but not all of them are high probability. I am going to talk about some of the better patterns and how you can use them in your trading.

The Engulfing Candle.

engulfing candleAn engulfing candle or outside bar as its sometimes called, represents a complete change in trader sentiment. The way an engulfing candle forms is probably one of the biggest clues that a reversal or a potential reversal is on the cards.

Engulfing candles often form at the end of a trend and can be great reversal signals. The logic behind the engulfing candle is very powerful indeed, and the candle will change bulls into bears and bears into bulls in a very short space of time.

An engulfing candle is a very basic price action set up, but works very well at key reversal levels in the market. For more information on how to trade engulfing candles click here.

The Inside Bar.

inside barAn inside bar is basically a candle that forms inside another candle. Inside bars represent indecision in the market, and can be good indications of a potential reversal. They are not as powerful as engulfing candles, but when traded at good levels, they can produce a successful trade.

Inside bars can also produce a nice breakout trade. Breakouts work best when you have a multiple inside bar set up. A multiple inside bar set up can sometimes be called a flag, or a pennant. Multiple inside bar set ups will produce a much stronger breakout trade than a one bar set up, purely because the volume of orders in the market will be much larger, and as the price breaks out, and the stops are hit the move will be more powerful.

For more information on how to trade inside bars click here.

The Head And Shoulders Pattern.

The head and shouldlers, or inverse head and shoulders pattern, is also a very good reversal pattern and you will often find them at the end of trends, and at major turning points in the market. The head and shoulders pattern can be a very profitable pattern if you know how to trade it correctly.

Below is a picture of a head and shoulders pattern. You can also see that the right shoulder is made up of an engulfing candle, which makes the set up even stronger.head and shoulders

This set up works well when the left shoulder and the right shoulder are at the same level, but this does not always have to be the case for a head and shoulders reversal to work, but the head always has to be above the left and the right shoulder.

These are just some basic price action reversal patterns that you can use to help you in your trading. If you want to learn more advanced high probability reversal patterns please consider my Forex training course.

What Are No Supply And No Demand Candles?

How to identify no supply and no demand candles.

In past articles we have talked about pin bar reversal candles, and outside bars, as potential areas in the market where price can reverse. I now want to look at another candle formation that can also be an indication of a potential reversal signal.

No supply and no demand candles take into consideration the buying and selling volume within the candle formation. By studying the volume within a candle, you can establish where buyers and sellers are active or inactive in the market.

No Supply Candles. (No Sellers)

No supply candles indicate a potential long trade. The criteria for a no supply candle is as follows.

The Volume within the candle formation has to be lower than the volume of the previous 2 candles.
The candle has to close bearish (red body).
There has to be some sort of rejection (pin or wick) at the low of the candle.
If the candle closed at the bottom it would not be a no supply candle.

Below is an example of a no supply candle on a daily chart. The dotted line highlights the bearish candle with rejection at the low, and lower volume than the previous 2 candles.

As you can see it was a nice reversal level in the pair, and went on to produce some nice pips.

no supply candle

No Demand Candles. (No Buyers)

No demand candles indicate a potential short trade. The criteria for a no demand candle is as follows.

The Volume within the candle formation again has to be lower than the volume of the previous 2 candles.
The candle has to close bullish (green body).
There has to be some sort of rejection (pin or wick) at the high of the candle.
If the candle closed at the top it would not be a no supply candle.

Below is an example of two no demand candles on a daily chart. The dotted lines highlight the bullish candles with rejection at the high, and lower volume than the previous 2 candles.

The two no demand candles both produced nice trades, but more importantly they also formed a double top in the market, which is another good reversal signal in itself.

no demand candles

If you look at the second no demand candle, you will also see an inside bar next to it, which is a sign of indecision in the market. A nice 50% retrace entry on that too before the sell off πŸ™‚

Using no supply and no demand candles as potential reversal points within supply and demand areas is a trading strategy that can produce some nice results.

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Thanks for visiting and have a great day. πŸ˜‰

Forex Candlestick Patterns. How To Trade Inside Bars.

How to trade inside bars.

Of the numerous price action Forex candlestick patterns that present themselves on a daily basis, inside bars are probably seen more often than any other pattern. Knowing how to trade inside bars will give you an edge in your Forex trading.

So what is an inside bar?

price action inside barsIts a pretty simple answer. An inside bar is a candle that forms inside another candle. If you look at the picture on the right you will see an example of a bullish inside bar. For a candle to qualify as an inside bar, it has to be inside the candle to its left, as per the picture. The red candle to the left of the green inside bar is commonly called the mother candle.

If the green candle was to the left of the mother candle it would not qualify as an inside bar. An inside bar has to be to the right of the mother candle. A mother candle that has an inside candle to its left is called an outside bar. An outside bar is a totally different candlestick pattern to an inside bar, and has a totally different meaning. You can find information here on how to trade outside bars.

So what does an inside bar signify?

An inside bar can mean one of 2 things primarily. In a trending market it can mean a reversal is likely, or it can mean a trend continuation is likely. The concept behind an inside bar is the market is showing indecision or consolidation after a big move. The red candle is a big move down and sentiment has changed from bearish to bullish. This could be a temporary change in sentiment, which would result in a trend continuation, or the start of an overall change in sentiment, which would lead to a reversal.

The candles preceding the inside bar are a good indication of whether a trend continuation or reversal is likely. Also the level at which the inside bar presents itself is also a good indication of what the likely outcome will be.

Trading guidelines for inside bars.

The general rule on how to trade inside bars would be to enter the trade at the breakout of the red mother candle. If you are trading the reversal, you would trade the breakout of the mother candle to the upside in this instance. If you were trading a trend continuation move, you would trade the breakout to the downside.

I don’t generally trade breakouts, but if i was trading this set up i would personally like to see a convincing breakout of the mother candle, and then a retest of the inside bar before i would take the trade. I like to enter my trades at the best possible price, and when you are trading breakouts you do often see a little retrace, or re test of the breakout area, before a continuation, and that is where i would like to get in, as you are getting a discount to the price paid by the breakout traders. This strategy does run the risk of missing the breakout though, as the price does not always come back for the re test.

For more information on how to trade inside bars please consider my price action Forex training course.

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