Here’s a simple short-term forex trend reversal strategy based on a Piercing line pattern.
A Piercing candlestick pattern occurs when a green bullish candlestick (close above open) on the second day closes above the middle of the first day’s bearish candlestick (close below open).
Piercing Pattern Setup
Indicators: 100 Period Exponential Moving Average, Candlestick_Recognition_Master, Slow Stochastic (Stoch 5,3,3)
Preferred time frame(s): 5 min and up
Trading sessions: London and New York for 5 min, 15 min and 30 min charts. No restrictions for timeframe’s above 30 min.
Preferred Currency pairs: majors and crosses
Example: GBP/USD H4 Chart
As shown in the GBP/USD 4 hour chart: price above the 100 EMA + Piercing line candlestick (P_L) + slow Stochastic oscillator back above 20 from below = qualified buy signal.
Qualified Buy Trade:
- Price above the 100 EMA (uptrend)
- Slow Stoch back above 20 from below (oversold market conditions)
- Candlestick Recognition Master indicator shows P_L symbol (Piercing Line pattern)
==> Open long trade and place a protective stop-loss below the low price of the Piercing Line pattern.
Price Target: I suggest a risk-to-reward of at least 2, which means you are only risking one dollar for every two dollars of profit potential, or any other profit taking method you feel more comfortable with.
Qualified Sell Trade:
No sell trades from the Piercing Line pattern.
Turn off all Candlestick Recognition Master indicator alerts (set to false) except the Piercing Line pattern.