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
Download
Download the 3-Bar Reversal Forex Trading Strategy
Buy Trade Example (Click the picture for full size)
Fig. 1.0
Strategy
Long Entry Rules
Enter a buy in the market if the following conditions or rules are true:
- 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.
- 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.
- 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:
- 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).
- 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.
- 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:
- 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.
- 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.
- 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:
- 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).
- 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.
- If price breaks above the middle lime colored line of the Bands indicator, it is a trigger to exit or take profit.
Fig. 1.1
Free Download
Download the 3-Bar Reversal Forex Trading Strategy
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.