When using Price Action, you will inherit the classic candlestick patterns that the predecessors studied. Just like you see how Warren Buffett invests and do the same thing and you will succeed (just kidding, haha).
However, you don’t have to work hard to find something super to make a profit. Just knowing the 5 candlestick patterns of Price Action will surely make you successful when trading in Olymp Trade.
5 patterns include:
- Reversal Bar
- Key Reversal Bar
- Exhaustion Bar
- Pin Bar candlestick
- Two-Bar Reversal candlestick
We will go through all 5 of these classic Price Action patterns in turn. It is important that you understand the meaning of each pattern, not memorize it mechanically.
Reversal Bar pattern
The Bullish Reversal Bar pattern had a lower low than the previous candle but closed up. Conversely, the Bearish Reversal Bar has a higher high than the previous candle but closes down.
For the Bullish Reversal Bar, the market found the support below the bottom of the previous candlestick. Not only that, but this support is also strong enough to push the price to close up. This is the first sign of a bearish-to-bullish reversal.
For the Bearish Reversal Bar, the market was pushed down by the resistance above the previous candle’s top. And this resistance was strong enough for the price to close down.
How to trade with Reversal Bar:
Open an UP order when the top of the Reversal Bar is broken up in an uptrend
Open a DOWN order when the bottom of the Reversal Bar is broken down in a downtrend
Key Reversal Bar pattern
The Key Reversal Bar is a type of reversal pattern as above. But its reversal signal is clearer and more reliable.
The Bullish Key Reversal Bar opens lower than the opening price of the previous candle. But the close is higher than the close of the candle before it.
The Bearish Key Reversal Bar opens higher than the opening price of the previous candle. But the close is lower than the close of the candle before it.
That means the next candle engulfs the previous one, similar to the Engulfing pattern.Pic: Key Reversal Bar
How to trade with Key Reversal Bar
Enter an UP order at the top of the Bullish Key Reversal Bar. To be sure, you can wait for the price to close above this level before placing an order.
Enter a DOWN order at the bottom of the Bearish Key Reversal Bar. To make sure, you can wait for the price to close below this level before opening a DOWN order.
Exhaustion Bar pattern
Bullish Exhaustion Bar opens with a gap down. But it closes lower than the previous candle even though it was a green one.
Bearish Exhaustion Bar opens with a gap up. But it closes higher than the previous candle, even though it was a red one.
In both cases, the gap is not filled, and the volume spike usually occurs at the Exhaustion Bar.
The name said it all. This candle shows the exhaustion of the market when creating gaps. And the price closes higher on the Bullish Exhaustion Bar, which shows that the market has not been able to fall any lower. Or a lower close in Bearish Exhaustion Bar shows that the market cannot move higher.
How to trade with Exhaustion Bar
Open an UP order at the highest level of the Bullish Exhaustion Bar.
Open a DOWN order at the lowest level of the Bearish Exhaustion Bar
Pin Bar candlestick pattern
Pin Bar is a candle trusted by many famous Price Action Traders in the world. It looks like a pin when it has a long tail. The longer it is, the more effectively it works. The other tail of the Pin Bar should be as close as possible to the real body.
For the Bullish Pin Bar, the lower tail takes up most of the candle length. With the Bearish Pin Bar, the upper tail takes up most of the candle length.
The tail of the Pin Bar shows a very strong price rejection. When forming this tail, the price has temporarily broken a support or resistance level. But the force of buying up or selling down was stronger and enough to push the candle to close to the other side.
How to trade with Pin Bar pattern
Enter an UP trade when the top of the Bullish Pin Bar is broken from below.
Enter a DOWN trade when the top of the Bearish Pin Bar is broken from above.
The above is just basic knowledge on how to recognize and trade when encountering Pin Bar. However, in practice, you need more conditions to make profits.
There are many cases where the price forms a Pin Bar but could not make a reversal. You should dive deeper into Pin Bar to gain in-depth trading skills if you love this pattern.
Two-Bar Reversal pattern
The Two-Bar Reversal pattern consists of 2 strong, short-tailed candles that close in opposite directions.
Bullish Two-Bar Reversal consists of a strong bearish candle followed by a strong bullish candle. The Bearish Two-Bar Reversal is the opposite.
Two-Bar Reversal pattern is the simplest form of the reversal candlestick. All reversal patterns work according to the following principles.
If it is a bullish reversal, a bearish candle appears first. After that, a bullish candle will pop up, erasing the previous candle’s decreasing force.
A bearish candle shows selling force. But then the market bounces back and closes higher, showing that buyers are in.
How to trade with Two-Bar Reversal pattern
With the Bullish Two-Bar Reversal, open an UP order when the highest high of the 2 candles is broken from below.
With the Bearish Two-Bar Reversal, open a DOWN order when the lowest low of the 2 candles is broken from above.
So, I have introduced all 5 Price Action candlestick patterns for beginners. Take your time to learn and understand it deeply. These will be the tools to help you make a stable profit in Olymp Trade. Good luck and happy trading.
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