The Candlesticks charts were used in Japan during the XIX-th century for
analysis of the rice prices. They are different form the western style bar
charts. The Candles have volume and this makes easier the analysis of the price
action and the identification of price patterns. These patterns are for
continuation or for the reversal of the trend. For our strategy we will use
only reversal patterns and mainly doji, hammer, shooting star, bullish and
bearish engulfing, piercing pattern, dark cloud cover. For better results you
should watch for at least 15-20 pips price move before the pattern is formed.
The rules of the strategy are as follows:
Rules for long position
- On 15 minutes chart (you can use other time frames depending on your
trading style) bullish candlesticks reversal pattern is formed on the lower
Bollinger band. (You can add an indicator (ex. Stochastichs or RSI) for
identifying an oversold condition).
- Long position is initiated when the price breaks 2-3 pips above the
candlesticks pattern.
- After the position is open an initial stop loss order is placed 2-3 pips
below the low of the candlesticks pattern or at fixed distance from the
entry point.
- A limit order is placed according to our Money management rules. The
position could be closed when the price reaches the mid or the upper
Bollinger band.
Rules for short position
- On 15 minutes chart (you can use other time frames depending on your
trading style) bearish candlesticks reversal pattern is formed on the
higher Bollinger band. (You can add an indicator (ex. Stochastichs or RSI)
for identifying an overbought condition).
- Short position is initiated when the price breaks 2-3 pips below the
candlesticks pattern.
- After the position is open an initial stop loss order is placed 2-3 pips
above the high of the candlesticks pattern or at fixed distance from the
entry point.
- A limit order is placed according to our Money management rules. The
position could be closed when the price reaches the mid or the lower
Bollinger band.
Charts
Indicator chart
 http://forexsb.com/strategies/candlesticks-reversal.html
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