Trading does not always use tools such as technical indicators. There are many trading systems, and the most popular of them is "Price Action". In this method, traders work only on candlestick patterns, patterns and configurations. The system is based on price indicators, as a result of which candlestick patterns are formed on the chart. With their help, you can determine financial risks, the direction of the market movement and even future profits.
Trading on candlestick patterns is the basis of technical and graphical analysis. It doesn't matter what time range a trader uses, since all patterns work the same on any timeframes. Experts have specially developed automated assistants for stock speculators who can independently determine the pattern and give a signal. It is these indicators of patterns that will be discussed in this article. The reader will learn what tools exist for identifying candlestick patterns, how to place them on a chart, and how touse them.
Functions of Price Action indicators
This indicator is perfect not only for experienced traders, but also for beginners. Novice traders have such a problem - they cannot always see and identify patterns on the charts. The fact is that they simply do not have enough experience yet and, as they say, their eyes are not full. The more time a beginner devotes to trading, the more experienced he becomes and the better he can identify candlestick patterns on charts.
However, the advantage of this system is full automation. A trader, of course, must know the types of patterns, under what conditions and how to act, but he will no longer have to determine them on his own, since the pattern indicator will do it for him. As a result, trading becomes more comfortable and easier for a trader.
Three main indicators for identifying candle patterns:
The first indicator can find the "Inside bar" reversal pattern on the chart. This is one of the most frequently repeated patterns that appears on the price chart. The second indicator helps identify the Pin Bar pattern, which is a very strong signal to reverse the market movement. The third indicator finds on the chart and signals to the trader about engulfing patterns, such as Bearish Engulfing or Bullish Engulfing.
Instructions for installing indicators on MetaTrader
Best to installall three Price Action indicators on the chart at once, which will greatly facilitate the tasks for the trader to find patterns.
Installation is easy:
- Download indicator from selected source.
- Unpack to any convenient location.
- Enter the MetaTrader trading platform. Select, in the tab "File" "Data directory".
- Next, open the MQL4 folder with two right mouse clicks.
- Then go to the Indicators folder and use the mouse to drag the previously unpacked indicator file. You can just copy and paste.
Such actions must be repeated with each indicator.
The settings of the indicators discussed in this article are very similar to each other and quite simple, which even a beginner can handle.
Main parameters of the indicator pattern:
- dist - you can select and adjust the distance between the squares in the table;
- oX, oY – indents in the information window are configured;
- barsback - you can set the number of candles to be analyzed;
- arrows - enable or disable signal arrows, and the arrowsize parameter - set their size;
- beararrow and bullarrow - color choice for arrows, for the downward and upward direction of the market;
- paintbar – setting to turn pattern painting on and off;
- bearishcol and bullishcol - color selection for patterns;
- alarm - a sound signal when a candlestick pattern occurs;
- M5 -D1 and so on - chart timeframe.
For beginners, it is recommended not to change the initial settings of the indicators and use them by default from the developers. In the future, of course, if desired and necessary, you can add something or, conversely, remove it.
Types of patterns
All patterns are divided into two main groups:
- Trend continuation patterns.
- Reversal patterns.
Although it seems that there are few groups, only two, there are several hundred types of models themselves. Professionals advise beginners to study at least a few dozen of the most common patterns, but you don’t even have to do this with pattern indicators, since these tools independently find them on charts and give signals to traders.
The most common patterns every beginner should know.
Besides patterns in trading, there are combinations of patterns that form figures. For example, using the "Triangle" pattern indicator, you can timely identify such a combination on the chart. In addition, the figures of the "Triangles" are different:
- The Ascending Triangle occurs when the market moves up.
- A descending triangle is formed when market prices are down.
- Expanding triangle. Its feature isgradual expansion of the price range.
- A contracting triangle, the movement is exactly the opposite.
And also other types of triangles are formed on the charts. How to work with this information? When the market is in any price range, forming a triangle, and Japanese candlesticks break through the borders of the triangle upwards, this means that an upward movement is formed in the market.
A similar situation, but just the opposite, occurs with a downward movement. Candles break through the boundaries of the triangle down, and quotes move in a downward direction. According to the same system, you need to analyze other types of triangles. After the candles break through their boundaries with subsequent mandatory confirmation, you need to open a deal in the direction where the price is moving.
The "Inside bar" pattern refers to reversal patterns, the indicator can easily find it on the chart and immediately signals it. It consists of two candles, and the first bar must be larger than the second, which, in turn, must not go beyond the boundaries of the first.
Such a pattern can be used in trading only after its complete formation and confirmation. It cannot be attributed to strong signals, and therefore professionals recommend using additional filters, which can be support/resistance levels or other technical indicators. For example, "Stochastic", "Parabolic", "Moving Averages" indicator and other types.
The pattern indicator also helps to identify engulfing patterns in a timely manner. The most common on the market - "Bullish" and "Bearish absorption". These patterns consist of two candles.
- "Bullish engulfing" - the second candle completely overlaps the first from the bottom up.
- "Bearish engulfing" - there is a complete overlap, when the second candle seems to absorb the first from top to bottom.
The first type of the pattern informs the trader that the market will soon have an uptrend, in the second case - a downtrend. Most often, these patterns are formed at price peaks, as a result of which the market unfolds. But if the patterns meet in the middle of the movement, then in such cases one should expect the continuation of the trend, which depends on the type of pattern.
This pattern consists of only one candlestick. But it has its own characteristics: a very long tail (shadow), a small body of the candle. "Pin-bars" happen in bear and bull markets, and only at the very peaks of movements. This is a very strong signal that does not need additional filters and belongs to reversal patterns.
If a trader sees that a "Pin-bar" has formed on the chart, and at the very peak of the top of the market, then he can safely open a sell deal. The main thing is to wait until the signal is fully formed
This trading system hasat its core, the indicators described above, from which the template is formed. It allows you to simultaneously track the formation of patterns on different timeframes. This is very convenient as there is no need to jump from one time range to another.
A table will be displayed in the upper left corner of the price chart. Each timeframe that a trader chooses will have its own separate box in it. As soon as a signal arrives, that is, the box box turns green, you can make a decision to open or close a position. You can choose any color if you wish.
In addition, an arrow appears on the chart as a secondary signal. As a result, a trader does not need a large number of various technical indicators, and does not need to independently search for candlestick patterns on the chart. With the help of pattern indicators, everything happens automatically, and the trader only has to make a decision.
However, it is important to remember that no method guarantees 100% returns. The non-indicator Forex trading strategy is based not only on patterns, but also on price levels. Therefore, one cannot fully trust the signals of indicators, it is necessary to analyze the state and mood of the market, the direction of the trend, its strength, speed and other indicators.
A trading strategy based on the Price Action system allows you to analyze the market without any technical tools and speeds up this process. Indicators are assistants, but they cannot make decisions for the trader.
At the end of the article, some tips and tricks from professionals will be presented. They will be useful for beginners.
- When choosing a trading tool to identify patterns, you need to pay attention to the indicator of candlestick patterns without redrawing. Such an indicator does not change signals under any market conditions, which is very convenient when analyzing and predicting movements.
- The simpler the tool, the better. Firstly, it does not require much time to set it on the chart, and secondly, its signals are the most understandable.
- Before you start working on Price Action strategies, you must immediately determine the price levels and draw them with horizontal lines. In the future, support and resistance levels can be used as filters. And also with their help you can determine how strong the signals are. The closer the patterns are to these levels, the clearer the situation on the chart becomes.
- For beginners, it is recommended to draw or print a table of candlestick patterns and keep it in front of your eyes while trading.
In fact, as mentioned above, there are a lot of candlestick patterns, but you shouldn't memorize them all. It is enough just to install indicators on the chart, which will determine the candlestick patterns themselves.