Bar chart trading patterns
Trading specific candlestick patterns seems to be an intuitive exercise for most traders. Technical traders are particularly interested in using candlestick patterns as a trigger for their trades or a confirmation factor for either a trade opportunity or for general directional bias. Within candlestick patterns, perhaps the most common and widely used pattern is the hammer or the pin bar, one of the most effective patterns to denote market turnarounds.
Pin bars are among the top choices for most technical traders that follow price action signals, but few do more than just take it as a fact. Understanding why they are important for order flow and market dynamics goes a long way in ensuring you use this bar chart trading patterns pattern to its full effect.
Ideally, we want the body to be small relative to the size of the wick. The small body and the large wick play a big role in terms of why the pin bars can be effective. In an uptrend you would normally expect candlesticks to comfortably close well higher than their open, possibly close to or at the high itself — that bar chart trading patterns leaving little to no wick on the upside.
Such candlesticks are termed as generally bullish and indicate the continuation of the trend. On the flip side, there is much to conclude from a candlestick that opens and bar chart trading patterns higher, only to close back down either below the open or close to it — creating the characteristic large wick and a small body of the pin bar.
For bar chart trading patterns, depending on where the pin bar is actually located on the chart, it could be an indication of price hitting a large bar chart trading patterns of opposing orders. That is because price essentially was able to initially head in the direction of the trend and then fall just as much within the candlestick period alone. At key locations such as horizontal support and resistance levels this information can be gold. Imagine a pin bar chart trading patterns wick protruding into a key resistance level.
Now that you know a pin bar can underscore a major order flow tip over, can you guess which points on a chart would suit the pin bar pattern more than other locations?
When you go back to your markets and charts to start hunting pin bars, you might straight away notice how frequently you may be seeing candlesticks that can be termed as pin bars — that is, having a small body and a relatively longer wick protruding on one side.
In this section, we look at where to find them for maximum bar chart trading patterns. As a rule of thumb, we are looking for bullish pin bars pin bars with a large wick to the downside at swing highs and key resistance levels.
Bearish pin bars with wicks protruding to the upside are best found at swing lows and key support zones. Note that while we are looking for a small body on a pin bar, the color of the candlestick itself close lower than open versus higher usually does not make the pin bar bullish or bearish. Rather that conclusion derives from the direction that the wick protrudes in. This means that a bullish pin bar may have the close lower than the open, although one that has a close higher than the open that is an overtly bullish appearance may be considered a stronger more visually bar chart trading patterns bullish pin bar.
The case will hold vice versa for a bearish pin bar too where a close higher than the open is acceptable but less desired than a bearish close. Here is a quick visual example of bar chart trading patterns pin bar piercing an important level bar chart trading patterns raising its importance.
Notice that the bullish pin bar forms at key support here marked by the prior swing low. Also, notice how the wick actually pokes past the swing low itself. In another article, we explained in elaborate detail why price momentarily moving past key support and resistance levels and failing is often a key factor in determining market sentiment.
It is better to have that phenomena merge in with the pin bars. To further validate this point, refer to the same chart and you might notice a bearish pin bar pattern that actually failed. You may realize bar chart trading patterns the wick actually never pierced the resistance at the former swing high at all and formed under it.
It also helps to locate pin bars with wicks that protrude away from the candlesticks in the vicinity. It serves as a valid visual aid to ensure your pin bars are located at potential swing points rather than in sideways market action or periods of consolidation where their impact might be constrained by nearby support and resistance levels.
In the chart above we point to two bullish pin bars. Notice how Pin bar 1 actually forms at a minor pullback to the downtrend. That is, we had three candlesticks prior to it pulling back into the downtrend. As a result, we have a wick that is large enough but does not protrude far enough outside the vicinity of the most recent price action. Notice how it also fails to pierce the swing low a little farther away to the left.
In hindsight, we can see that the first pin bar failed yet the second one did help reverse the bearish momentum. Take the above chart for example. We have a strong looking bearish pin bar at a swing high. However, instead of forming at the key resistance level, it forms above it, such that price could potentially be expected to hold as support at the bar chart trading patterns resistance — which in hindsight, it does.
The market merely closed the gap and price reversed back above the When looking for pin bars at key levels in the market, it pays to foresee where the price would be headed if you do decide to trade or otherwise follow the pin bar as a valid setup. If there are key levels falling immediately in the way, it can sometimes stack the odds majorly against the direction you would expect the price to take in lieu of the pin bar formation.
Depending on the risk appetite, there are several ways people choose to trade pin bars with varying strategies for entry and exit take profit bar chart trading patterns stop loss. Aggressive futures trading approaches call for trading the pin bar at the close and sometimes at a retracement into the pin bar to attain a better price point for the trade. These strategies assume the pin bar and the setup overall is strong enough to expect a quick and sustained move in the direction bar chart trading patterns the pin bar, as in the case with a large pin bar protruding into an extremely important long-term support and resistance zone.
Notice, however, that it also never broke the high of the pin bar either. While an aggressive trade might have taken a loss on this one, a conservative trader would have been safe as a potential stop order a few bar chart trading patterns above the high of the pin bar would have never really triggered at all.
Other times a tighter bar chart trading patterns could result from the anticipation for a quick sharp break of the pin bar due to the strength of the setup itself.
When it comes to candlestick patterns and their credibility, pin bars arguably take the lead amidst all others. There is a substantial risk of loss in futures trading. Past performance is not indicative of future results. Optimus Futures is a leading online futures broker that caters to traders seeking bar chart trading patterns execution and stable data feeds combined with aggressive margins and deep discount commissions. About Optimus Futures Optimus Futures is a leading online futures broker that caters to traders seeking fast execution and stable data feeds combined with aggressive margins and deep discount commissions.
The response was pretty good, but I think we'll get him an even greater number of comments with this article on momentum, reversals, and bar patterns. Please enjoy the article and if you haven't done so yet, I recommend you check out AJ's training videos as you'll learn a TON! So how do we know what that effect will be? Not every bar will give you clear insight into where the market is headed. But there are certain bar patterns that are more informative than others. Allow me to share a few of these bar patterns with you.
When this happens, the next trading day will usually be an up day. When this happens, the next trading day will usually be a down day. During a key reversal up, the bears try their best to push the price down. This indicates the price will go even higher on the next trading day. During a key reversal down, the bulls try their best to push the price up. But then the bears come back strong, taking back all the the price gains and then some.
This indicates the price will be headed lower on the next trading day. As you can see here, the price opened and closed at almost the same exact spot. But the price ran up quite a bit before running out of steam.
When you see a pattern like this, you can be reasonably sure the price will go lower on the next trading day. When there is very little trading volume, then these patterns are not quite as reliable. But the more volume there is, the more reliable these bar patterns become. If you enjoyed this article please take time to check out my training videos Hi AJ, Its always a pleasure to see and read your articles.
Not only are they easy to understand, but are always content rich. Thanks much for your continued contributions to the trading community.
Say for example -: For up reversal Market higher: Now, IF you analysis by data its one and same. As per the above chart, for the first example market is expected to go down for next day and for the second example it is suppose to go up.
So on what basis we should analysis about the market movement? How can one predict whether market 'll go up or down? So according to this, we could see a trend reversal signal in gold today. It has a lower low than yesterday, but we need it to close higher, on higher volume, than yesterday. The key reversals up and down are very similar to bullish and bearish engulfing signals using candlestick charts.
These signals can work extremely well after a significant run up or down, and even better when used in conjunction with another indicator such as RSI divergence or 20 day bollinger bands. For example, if I see a stock that has dropped heavily over a period of time and is a long way from the 72 day moving average with RSI divergence, a green candle outside or at least mostly outside the 20 day bollinger bands and a bullish engulfing signal then I will be on it without hesitation.
It doesn't have to have all of these requirements, but the more the better. And it works the opposite way for short trades. Color coding the Volume bars in conjunction with the Candlesticks would improve the "picture" as well. I like your reversal set up explanations, very user friendly. I do wish you had used candlesticks in your charts however.
Candlesticks are perfect for depicting in "pictures" what you have skillfully described with words. I would suggest however that candlestick charts could make these key reversals even easier to spot.
OHLC bars in my opinion are tougher for new traders. The Perfect Portfolio for 10, or 10, Dollars. Yo, Bertie In England they would say: Hello, I have a question with respect to this. Just have a look and let me know so that i can get clear picture about it. Hello, I just need more clarity on this. Say for example key reversal down Higer 40 for yesterday and today 50 Lower 36 for yesterday and today 35 key reversal up Higher 40 for yesterday and today 50 Lower 36 for yesterday and today 35 As per the above chart, for the first example market is expected to go down for next day and for the second example it is suppose to go up.
Thanks for all the nice comments. I am glad you enjoyed the post. Explained well in easy to understand terms. Easy to see and understand.
Therefore, we are watching for these signals in bar chart trading patterns, and as soon as we see an engulfing pattern with the proper setup we trade it, without letting the bar complete. Therefore, stock traders may opt to let daily bars complete. Intra-day bar timed bars, in all markets, are arbitrary. If day trading, I always trade a pattern as soon as I see it, and dont wait for bars to complete. The little horizontal red lines indicate bar chart trading patterns entry point.