The Price Action Signals
Pin Bars, Engulfing, Inside Bars
In today’s lesson we’ll see what we mean in technical analysis for operational forex trading price action signals
A trading signal is a market situation, a pattern, which tells us to get into the market with a trade.
The most used price action signal are basically 3. The engulfing pattern, the inside bar, the pin bar.
Pin Bar price action
This type of pattern is a candle which has a long shadow above or below, this simply means that the price took a direction, and then the market has reversed and pushed with great force the quotation in the reverse way even far beyond the starting point.
Let’s see a few examples of short and long pin bar.
As in these examples, it is always better to trade price action signals in favor of the trend, which as we have seen in this lesson, it is possible to identify with moving averages. How should we enter this type of signals? On this type of signals entering at the violation of the maximum pin, or a 50% retracement. This is because statistically due to the formation of a pin, very often the price tends to be retraced accurately, even up to 50% of the body of the pin bar, so we can take advantage of this phenomenon to enter a more favorable.
The stop loss is usually put on the minimum or maximum of the shadow, in some cases if the shadow should be particularly pronounced and long, we will be able to place the stop loss to 75% or 50% of the same.
Here’s an example:
Engulfing Pattern Price Action
How does it look like this price action pattern?
Practically the next candle, the second candle, after violating the maximum or the minimum of the previous go back and completely absorbs all the previous candle, violate even in the opposite direction. The situation is clearly visible in 2 examples above and below. Usually you enter by placing a limit order in minimum or maximum of the first candle.
Engulfing Pattern is the traditional name comes from the classical technical analysis, some trader has changed its name to the signal and claims to have invented him, well believe me, in the technical analysis no one has invented nothing, these things are 100 years old!!!
The inside bar is a smaller candle just contained in an earlier larger candle, it means uncertainty, but in the case of clear trend retracement and lightweight you can use it to your own trading. The largest candle its call, outside bar the smallest , inside bar. Usually you enter a maximum or minimum infringement of the outside bar, stop loss obviously to the opposite side.
Well with this third price action signal, we saw the 3 most important price action signals:
pin bar, engulfing pattern, inside bar.
Have a good trading!