Posted by forex at 5:53 AM
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Engulfing Candles
1. Identify 'engulfing' candles. Such a candle is the opposite color of the candle that immediately precedes it. Additionally, the length of the engulfing candle is greater than the length of the previous candle, with the high and low prices extending beyond, or 'engulfing,' the high and low prices of the previous candle.
2. Buy into the Forex market if the engulfing candle is green, with its closing price higher than its opening price. This suggests the market is strongly biased toward further upward movement, since the price action took out the prior candle's trading range while also closing near its highest price.
3. Sell into the Forex market if the engulfing candle is red. This is opposite of a green engulfing candle and suggests a strong negative or 'bearish' bias. Engulfing candles often appear at major trend reversals, or after a pause in an existing trend.
Pin Bars
4. Identify candles where the open and closing prices are near each other, but a long candle wick or shadow extends in one direction from these prices. Such candles resemble 'push pins' or 'tacks,' hence their name. A pin bar visually demonstrates considerable volatility even though price ended nearly unchanged from their start.
5. Buy into a Forex market if the candle's shadow extends below the body. Such a pin bar demonstrates that while prices traded down considerably, the market rejected the trading range and was unable to remain at those prices. Such price rejection is likely to continue, leading away from that area.
6. Sell into a Forex market if the pin bar's shadow extends above the candle's body. This may occur near the end of a major up trend. The pin bar shows that the market rejected rising prices and closed close to the low of the day. This may signal a continuation to lower Forex prices.