To succeed in forex trading, choosing the right forecasting method is very important. The master candle setup is an excellent example of technical chart pattern analysis in Forex. Whatever time frame you use, such as hourly, weekly, etc., the Master Candle trading can bring good profits. This more so when you are trading a break in the Master Candle weekly time frame.
About Master Candle
A master candle denotes a big body with wicks over and under it to indicate a high or low one. The range of extension of the master candle is considered over four candles or more.
As a breakout technique in trading, a trader should be able to identify the master candle pattern in the price chart. A breakout that happens in any direction will be the sign for the trader to open his position in the same direction as that of the movement.
Where To Use It
You can use the master candle on every asset or instrument. However, it is best for strong movements occurring in volatile instruments. In Forex, it is ideal for use in currency pairs like GBP/JPY.
The Importance of Trading Patterns
Trading patterns are considered significant in Forex as the charting methods used help forecast trends.
Other factors that make pattern forex strategy important include:
- The charts reflect each factor influencing price movement including economic, political and psychological;
- The patterns also indicate insider information on specific events that can influence price movement;
- Charts provide price fluctuations occurring due to change in the market participants’ moo;
- While trading models designed on primary data are too complex and subjective to errors, technical analysis models are more comfortable and help make an informed and grounded decision.
The 5 Most Powerful Candlestick Patterns
Traders prefer candlestick patterns as every bar is packed with information when compared to the line or bar chart used conventionally. The Japanese candlestick patterns are several in number.
If you are looking to master candlestick patterns, here are five crucial proven and accurate patterns:
- Doji: The closing and opening price of this pattern lies very close together, making the candle appear as a plus sign. This neutral pattern gains importance when it forms after a steady selling or buying spree.
- Engulfing pattern: This involves two candles and occurs when the second candle overshadows or engulfs the first candle. It implies buyers have overpowered the sellers or the opposite. It is of Bearish and bullish types.
- Morning star: This is a bullish pattern of 3 candles formed near the bottom of a downward curve. The first one signifies the bearish candle, the second a Doji candle, and the third is a bullish candle.
- Evening star: Like the morning star, this pattern is found near the top part of the upward movement and consists of three candles. The long bullish candle is the first one with a Doji candle in the middle, and a long bearish candle is the third, which indicates the bullish movement’s completion.
- The Master Candle: This has a candlestick of range 30 – 150 pip, which engulfs the subsequent four candlesticks. Breakouts are traded here if the range break occurs in the 5th, 7th, or 6th candlestick.
Candlestick Pattern Reliability
While there are several candlestick patterns, all of them do not work equally well. This is because hedge funds and the related algorithms have deconstructed the reliability. The use of software to capture participants eyeing high odds bearish or bullish outcomes by hedge fund managers have reduced their reliability.
But reliable patterns are still present that you can use to make long term and short-term profits regardless of the size of the trade. You can form high probability trading patterns by combining candlestick and chart patterns such as bear flag, Vtop, and double top. When using high probability chart patterns, make sure you go with the trend, trade at value points, identify an entry point, set stop loss, and plan your exit correctly.If you like this strategy, you might also be interested in this Discover the Triple Screen Trading System
Of the various trading patterns used, the Master Candle trading strategy is popular as it has clear patterns and helps identify breakout points. This makes it ideal for long term profits. When you follow proper rules such as not trading in the Support Resistance zone and trading only when the candle breaks high or low of the Master candle, you can make excellent profits. Although the master candle is a simple trading strategy, it is wise to use only after you gain a thorough knowledge of it and refine your skills.