Trade is a combination of two simple processes (Buy-Sell). Forex is a type of trade, so Forex= Buy+Sell.
When to buy and when to sell is the core of a successful Forex trading operations.
Just about everything I do in the Forex market revolves around six buy and sell signals.
Three are candlestick patterns while the other three are chart patterns such as the head and shoulders.
You probably know I like to keep things simple. But simple doesn’t mean unreliable or unprofitable.
In fact, the simple buy and sell setups below are some of the most profitable patterns I’ve come across after more than a decade of trading.
There are many patterns of buy and sell signals. In this topic we will discuss the most important signals.
Candlestick Buy & Sell Signals
There are three types of candlestick patterns I look for during a trading week. They are the pin bar, engulfing bar and inside bar. While the pin bar can be traded on the 4-hour and daily time frames, both the engulfing and inside bars are most effective on the daily time frame and higher. If you use them on any time frame lower than the daily you open yourself up to false positives.
Note how after closing below a key level, the pair formed a bearish pin bar after retesting the area as new resistance.
Pin bar
For those who have followed me for a while now, it will come as no surprise to hear that my favorite candlestick pattern is the pin bar. These candles are characterized by long upper or lower wicks and represent a rejection of support or resistance.
That last sentence is paramount to the effectiveness of the pin bar pattern. Without having a key support or resistance area near the candlestick, the formation is rather meaningless.
Engulfing bar
The engulfing bar is a reversal pattern that can often signal exhaustion from buyers or sellers. As the name implies, it’s a candle that completely engulfs the previous one.
One critical rule of using this signal is only to pay attention to the engulfing patterns that develop on the daily chart and above. Any signal on the charts is unreliable in the sense that it could be a false positive.
Another important point is that the candlestick pattern must form at a swing high or low. Otherwise, it won’t signal the necessary exhaustion from bulls or bears that make it an effective reversal signal.
Note that the candle formed at a swing high and at a resistance level that had been in place for several months.
Inside bar
When I began trading with price action in 2010, I started with the pin bar and inside bar candlestick patterns. I figured I would learn the two signals inside and out before considering other more advanced patterns.
It was a good move. I always advocate sticking with one or two price patterns in the beginning before expanding your options. The fewer things you have to learn the easier it is to become proficient by honing in on the subject at hand.
But over the years I’ve moved away from trading the inside bar, at least to some degree. I still find one here and there that catches my attention, but for the most part, I don’t trade it.
That doesn’t mean it isn’t a profitable signal. It just means that it doesn’t suit my style as much as the other signals in this post.
With that said, for someone searching for a good trend trading signal, the inside bar is one of the best in my opinion. The key, however, is to make sure you stick to the daily time frame. Anything lower than that and you’ll end up with too many false positives.
The next topic will discuss the second part of Buy&Sell fore signals. It will be about Chart Pattern Buy & Sell Signals