Everyone knows the power of price action trading strategy. Some people often called as the naked trading system. Regardless of its name, the system is capable of generating high-quality trade signals at any market condition. Traders use reliable candlestick patterns and take their trades in the market in a very strategic way and make significant progress in their life. The new price action traders often get confused and say that they need to learn a lot about this market. But this is not all true. You can start using the price action trading strategy by using the most basic candlestick patterns.
In the CFD market, professional traders mainly rely on 4 prominent candlestick patterns. These are –
- Bullish and bearish pin bar
- Bullish morning star
- Bearish evening star
- Doji
Bullish and bearish pin bar
The bullish and the bearish pin bar can be used as a reversal and a continuation pattern. To use this system, you need to learn about the pin bar first. A pin bar has a small body and a long tail. The body of the pin bar is three to four times smaller than the wick. Usually, the price moves in the opposite direction of the wick. So, if you spot a pin bar at the critical support level with a wick facing south, you may open the long trade. On the contrary, a pin bar with a wick facing the north is an indication that the price is going to fall.
Bullish morning star pattern
The bullish morning star pattern is formed in the combination of three candlesticks. Usually, the first candle is bearish and it is a part of the long-term downtrend. The second candle is a bullish pin bar or a doji. The third candle acts as the confirmation candle and it must be bullish. Once you spot the bullish morning star pattern at the critical support level, you may expect that a bullish reversal is going to take place in this market. To get more info about the bullish reversal signal, you may visit the official website of Saxo.
Bearish evening star pattern
The bearish evening star is a bearish reversal signal. It also formed with the combination of the three candles. The first candle is bullish and it should be part of the existing bullish trend. The second candle should be a doji or a bearish pin bar. And the third candle will be a strong bearish candle which will confirm the establishment of bearish pressure in the market. After spotting such a pattern near the critical resistance level, you may take the short trade.
While trading the major reversal, you should be cautious with the time frame selection process. If you rely on the lower time frame, chances are very high that you will mess things up and blow up the account. So, try to find the trade signals in a higher time frame so that you can trade this market with strong confidence.
Doji pattern
Very few traders understand the importance of the doji pattern in the CFD market. Doji represents indecision between the buyers and the sellers. If you are smart, you should be looking for the next candle since it will act as a confirmation signal. For instance, a bullish candle formed right after a doji signifies strong bullish momentum in the market. It means the buyers have won the battle and they are ready to push the price to a new high. When you look for such a doji pattern, give priority to the higher time frame. If you rely on the lower time frame, you might not get any accurate trading signal.
Now you know about the four prominent candlestick patterns used by professional traders. Use these patterns in a very rational way and make sure you never take too much risk. Be prepared to accept few losing trades even though the price action trading strategy has a very high win rate.
