Back to Basics: Trading the Markets Using “Price Action” Signals (part 2)

Filed under: Learn Forex Trading |

(Continued from yesterday’s article…)

Inside bars

Inside bars are characterized by price being squeezed. It is a two-candlestick pattern; the first of which is called the ‘mother-bar’, for obvious reasons. The mother-bar is always bigger than the second bar and engulfs it from top to bottom. It suggests that price is having trouble breaking out of a range, so it is consolidating and uncertain about which way to go. The thing to note is that, once price does finally break out, that break could be explosive  – and that only means one thing… profit!

 

Engulfing patterns

The engulfing pattern is one of my personal favorites. It is again a two-candlestick pattern and it is similar to a pin bar in a way, but it does not happen quite so quickly. They are very easy to spot on a chart because of the opposite colors of the candles (white or blue shows that price is moving up, and black or red shows that price is moving down). What happens is that price moves one way, and then in the next session it moves the other way – and then some! Therefore, the second candle always completely engulfs the first candle.

 

Using the patterns in context

These are just a few examples of price action patterns, and you should not use them just anywhere. All of these patterns are best used after either a strong bull trend (when price moves up), or a strong bear trend (when price moves down). The patterns tip us of to the fact that the market sentiment may be about to change; and if we can get in on a new trend early, we can make some good money. Try to spot these patterns at significant areas of support and resistance for the best probability setups. Trading the markets is a game of probabilities, and if you can tip the odds in your favor, then in the long run, you will come out on top. Who knows, you might even end up trading for a living. So take a look at price action trading – it could be the edge that you are looking for.

 

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