The three candlestick pattern is a simple and effective strategy, which is why it is especially popular with novice traders. Another advantage of this strategy is its versatility.
19 march 2019
The three candlestick pattern is a simple and effective strategy, which is why it is especially popular with novice traders. Another advantage of this strategy is its versatility. Three candles are a profitable pattern that can be used against any currency pair. However, the greatest benefit can be obtained on currency pairs with high volatility.
The essence of the strategy is three candles
The pattern is formed from three candles, and the direction of the trend serves as a reference point. When the trend is up, the candlestick in the middle of the other two should be the highest. When the trend is in a downtrend, the same candlestick should be at the lowest point.
The second candlestick confirms this pattern. The third candlestick is a guideline for the take profit. The process of its development allows you to follow the trend during trading.
When trading this strategy, it is worth considering some peculiarities. If a pattern is forming on the chart, but candles # 1 and # 2 are small, and large traders are not interested in this currency pair, then this signal should not be considered.
There is a high risk of losing investments, when candles # 1 and # 2 have a body size several times larger than candle # 3, this serves as an indicator that a rollback has probably already taken place, so it is not advisable to enter the market.
When entering the market, it is worth considering its trend direction. It happens that a buy signal appears at the high of an uptrend. In this case, it is best to ignore it. The three candlestick strategy is to trade in the opposite direction of the trend and catch a short correction.
The easiest way to trade the three candlestick pattern is during the American or European session.
Signals based on which you can buy an asset:
- When the next candlestick closes, look at how the next three candles behave. The body of the extreme will be larger than each of the previous ones.
- The penultimate candlestick closes below the previous value.
- The last candlestick closes with a price higher than the previous one.
If these signals for the opening of the next candle coincide, we make a purchase. Stop-loss should be placed above or below the high or low points of the 1st candlestick. Take profit is set relative to the selected currency pair and timeframe. Or you can exit after the first profitable candle.
Signals when you need to sell an asset:
- When the current candle is closed, we look at the three extreme ones. The body of the extreme should look larger than each of the two previous ones.
- The penultimate candlestick has a closing price higher than the opening price.
- The last candlestick closes with a price lower than the previous candlestick.
If the situation develops according to these signals, then at the opening of the next candle, you can open a sell deal. Stop-loss is placed with an indent of 3-5 points from the high or low of the 1st candle, taking into account the trend. Take profit is placed relative to the timeframe and the selected currency pair. The safest thing is to exit the 1st profitable candlestick.
If after entering for five candles the price practically does not move, you need to exit the position. Trading is predicted for short-term impulses and if they are not confirmed, then it is better to abandon the transaction.
When trading occurs within the day, you should not trade half an hour before and after the release of important news. This is the time when the market is volatile and it is difficult to predict where the trend will turn.
Experienced traders advise buying assets no more than 2-3% of the deposit amount.
You can trade the three candlestick strategy on any timeframe. But based on the practice of experienced traders, it is better to choose an hourly timeframe or higher for entering the market.
Although the pattern appears on the chart quite often on timeframes below the hourly, it is quite difficult to determine the trend. The spread relative to the estimated profit on higher timeframes is much lower, which reduces the percentage of losses. The older the timeframe, the lower the probability of false triggering of the stop loss.
The three candlestick strategy is one of the simplest and most profitable patterns. Traders like it because it is formed quite often and does not need to be painstakingly drawn on the chart by yourself, unlike other patterns.
Double Top shape pattern
There are many profit-making models for trading in the Forex market. One of these is the double top reversal pattern and its opposite, the double bottom.
This pattern is formed when its value reaches a high and then shows a decline for a while. Then it rises to about the same level again and turns to decline. A double bottom is formed according to the same principle only with a downtrend. The price drops to a minimum, and then rises for a while, but then drops again to approximately the same minimum and the trend reverses in the direction of growth.