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Main » Articles » Trading Strategy

Candlesticks Reversal Strategy

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

  1. 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).
  2. Long position is initiated when the price breaks 2-3 pips above the candlesticks pattern.
  3. 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.
  4. 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

  1. 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).
  2. Short position is initiated when the price breaks 2-3 pips below the candlesticks pattern.
  3. 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.
  4. 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

Indicators Chart

http://forexsb.com/strategies/candlesticks-reversal.html

Category: Trading Strategy | Added by: forex-market (2009-10-15)
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