Trend Line Candlestick Pattern Strategy

Trend Line Candlestick Pattern Strategy

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The trend line candlestick pattern strategy is a two step low risk forex trading method that works for all currency pairs and time frames. It’s a simple yet profitable strategy to trade the forex market.

How it works? The first step is to determine the primary trend by drawing a trend line. The second step is to look for a bearish or bullish candlestick pattern to pinpoint entry and stop loss levels.

Trading rules in rising markets:

  • Look for a price pullback towards the rising support trend line.
  • Look for a bullish candlestick pattern.
  • Go long and set stop loss 3 pips below the bullish entry candle.
  • Target: risk/reward ratio 1:2 or better.

Trading rules in falling markets:

  • Look for a price rally towards the falling resistance trend line.
  • Look for a bearish candlestick pattern.
  • Go short and set stop loss 3 pips above the bearish entry candle.
  • Target: risk/reward ratio 1:2 or better.

FAQ: Why use risk to reward 1:2?

No single forex trade is worth the risk unless the reward is much larger. Many experienced forex traders use a reward/risk ratio 2:1, which simply means the possible gain is twice the maximum loss. Never risk 100 pips to make 30 unless you have an extremely high ratio of profitable trades!

Let’s take a look at the following USD/JPY daily chart:

Trend Line Candlestick Pattern Strategy

As you can see in the chart above the trend is obviously down.

Step 1: Look for price rallies towards the falling trend line.
Step 2: Look for any bearish candlestick patterns that might develop.

Here is an actual close-up picture of a bearish USD/JPY setup based on the chart above:

Trend Line Candlestick Pattern Strategy

We identify a evening star candlestick pattern (bearish) near the falling trend line and go short at 92.61. The stop loss is set 3 pips above the entry candle at 94.09. Total risk is 148 pips. Target objective is twice the risk taken: 296 pips at 89.92. It took the dollar/yen 3 days to reach our price objective.