3-Bar Reversal Forex Trading Strategy

Just as the name sounds, the “3-Bar Reversal Forex Trading Strategy” is a price action pattern that can be found on charts on all tradable forex instruments.

The strategy entails a sequence of three bars of the bullish/bearish pattern.

Chart Setup

MetaTrader4 Indicators: Breakout-zone.ex4 (default setting), Bands.ex4 (color & width modified)

Preferred Time Frame(s): Any

Recommended Trading Sessions: Any

Currency Pairs: Any

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Buy Trade Example (Click the picture for full size)

3-bar-reversal-forex-trading-strategy

Fig. 1.0

Strategy

Long Entry Rules

Enter a buy in the market if the following conditions or rules are true:

  1. If the candlestick patterns forms a 3-Bar Bullish Reversal price pattern i.e. Candle 1, 2 & 3 as shown on Fig. 1.0, as it therefore suggest a turning point in price action.
  2. If price breaks above the outer upper horizontal line of the Breakout-zone custom indicator, it indicates price pressures to the upside i.e. adding more weight to the bullish sentiment.
  3. If price breaks above the middle lime colored line of the Bands custom indicator, it is a trigger to go long.

Stop Loss for Buy Entry: Place stop loss below support.

Exit Strategy/Take Profit for Buy Entry

The following chart or indicator patterns are indicative of an exit or take profit:

  1. If the candlestick patterns forms a 3-Bar Bearish Reversal price pattern (refer to “Sell Entry Rules”), it is a trigger to exit or take profit on position(s).
  2. If price dips and falls below the outer upper horizontal line of the Breakout-zone custom indicator, it signifies a trigger to exit or take profit accordingly.
  3. If price breaks below the middle lime colored line of the Bands indicator, it is a trigger to exit or take profit.

Sell Entry Rules

Place short position(s) if the following chart or indicator patterns are in display:

  1. If the candlestick patterns forms a 3-Bar Bearish Reversal price pattern, a seen on the chart on Candle 1, 2 & 3 on Fig. 1.1, it is a trigger to sell.
  2. If price is driven lower below the lower horizontal line of the Breakout-zone custom indicator, it shows that price is experiencing bears pressures, thus giving more weight to short entry.
  3. If price breaks below the middle lime colored line of the Bands custom indicator, it is an invitation for traders to sell.

Stop Loss for Sell Entry: Place stop loss above resistance.

Exit Strategy/Take Profit for Sell Entry

The following chart patterns will define our exit or take profit stance:

  1. If the candlestick patterns forms a 3-Bar Bullish Reversal price pattern (refer to “Buy Entry Rules”), it is a trigger to exit or take profit on position(s).
  2. If price breaks above the outer lower horizontal line of the Breakout-zone custom indicator, it signifies a trigger to exit or take profit accordingly.
  3. If price breaks above the middle lime colored line of the Bands indicator, it is a trigger to exit or take profit.

3-bar-reversal-forex-trading-system

Fig. 1.1

Free Download

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About The Trading Indicators

The 3-Bar Reversal Forex Trading Strategy can form as a bullish/bearish reversal pattern

The breakout-zones custom indicator draws medium term support and resistance lines on the chart window.

The Bands custom indicator is a modified Bollinger Bands plotted on 20-period Simple Moving Average as its middle line, along with 2.0 standard deviation away from the middle line.

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