If you are already involved with forex trading, you must have heard of fractals trading. This is a popular trading strategy used by many massively successful traders and can deliver deep insights to base your trading decisions on.

For those who are interested in using fractals to improve their forex trades, having a clear understanding of what fractals are and how you can use them in trades is important. So in this article, we explore deep into the topic of fractals, fractal patterns, fractal indicators, and more. 

What is fractals trading? 

While it may seem like the market and the price movements are completely random, this is not the case. Most of the time, with correct observation, you can quickly identify patterns constantly occurring within the market. 

When you understand the said patterns well, speculating the future price movements becomes a breeze.

One of the basic types of patterns that take place in the markets is fractals. When a trader is able to identify a fractal pattern, it allows them to predict a high probability of a reversal pattern. 

With the correct implementation, fractal patterns can enable traders to predict recurring patterns over a large price movement period. 

Like many other indicators, fractals also act as indicators on candlestick charts that are able to identify reversal points in the market. 

They analyze the daily randomness of the market with the use of technical analysis. In addition, fractal trading also examines the investor horizons and asset liquidity to make accurate speculations. 

Among the many pattern indicator methods, fractals trading is one of the few that can effectively function on stable trends. Stable markets appear when the market has various investors that follow the same information stream. One thing to keep in mind here is that this method can be less profitable on a less stable wide fiat.

Fractals trading started as a set of strategies that were crafted with the stock market in mind. When compared with the forex market, the stock market tends to be less volatile and more predictable. So, when integrating fractals trading with the forex market, there is a tendency to be a bit less ideal than in the stock market. 

Fractals trading: What is the Fractal Indicator? 

The fractal indicator is one of the many technical indicator tools that traders use to identify price movements and trend reversals. These come with a minimum of five candles that can indicate a bottom or top. 

The renowned trader Bill Williams is the man behind the fractal indicators, thus giving it the name Williams fractal indicator. He wrote a book, "Trading Chaos", explaining the fractals trading theory and its origin, which has a link to the mathematical chaos theory. 

In simple terms, mathematics explains fractals as recurring patterns. And in the case of trading, fractals are recurring patterns of price movements. 

When we take the potential shape of a fractal pattern, it can appear to resemble a "V" or "U" shape on the chart. This V/U shape tends to form if the market is bullish. And if the market is bearish, these can turn upside down and appear inverted. 

As we mentioned before, fractal indicators are also all about pattern recognition. 

So, like with any other pattern indicator, traders can base their buy or sell decisions according to the discoveries they make from the pattern. Furthermore, this can help traders to identify entries, and exits, stop losses, and gain profits — But with less accuracy than when used in a stock market environment. 

Fractal patterns 

The fractal pattern is something traders can identify on both candlestick and bar charts. These generally depict the asset price action over a time period with the help of five candlesticks. 

The formation of a fractal pattern directly correlates with the period that the chart is focusing on. For example, if the chart is on an hourly basis, it can take up to five hours for a fractal pattern to form. 

There are a few factors to consider when identifying such a pattern to implement fractals trading. Understanding what qualifies as a fractal pattern helps traders to more accurately predict and adapt to the changes in the market. 

So let’s look at the fractal qualifiers. 

Types of fractal analysis (fractal patterns) 

Understanding all of the aspects of fractal trading is important in making more accurate trading decisions. When talking about fractal pattern analysis, there are two forms that every trader should be aware of. They are the fractal reversal patterns and the multiple time frame analysis. 

Let's take a deeper look at each of these for a better understanding. 

Fractal reversal patterns 

On the fractal reversal side of things, there are two major patterns. They are, and their features are as below. 

The middle candle is the lowest of lows, and the first two candles come with higher lows than the middle candle. The two final candles also have higher lows than the middle candle. Once these form on a chart, it indicates the end of a downtrend and the beginning of a new uptrend. 

With this information, traders can decide either to exit a short-term position or to enter a long-term position. To even further confirm the information, you can use oscillators like the RSI or the stochastic. 

The middle candle is the highest of highs, and the first two candles come with lower highs than the middle candle. The two final candles also have lower highs than the middle candle. Once these form on a chart, it indicates the end of an uptrend and the beginning of a new downtrend. 

With this information, traders can decide either to exit a long-term position or to enter a short-term position. Just like before, use oscillators like the RSI or the stochastic to confirm this signal. 

Fractal: multiple time frame analysis 

Another type of analysis to pay attention to is the multiple time frame analysis. Here, traders tend to use a much more fractionalized timeframe than the one they were using to generate much more accurate information. 

When using the multiple timeframe analysis, traders get to look at the market from a different point of view. This provides traders with new information that they can use to make decisions. 

For instance, for a trader who uses a daily chart, looking at it from hourly periods will allow a new perspective. While the daily chart is capable of providing a bigger picture view of the market, the hourly view can help them fine-tune their entry and exit points. 

Let's take a look at the fractal trading strategy example. 

Understanding and Using Fractals in trading  

To get the most out of fractals trading, traders must first understand what these are and how to use them. Since we already talked about how to understand and identify a fractal pattern, all we have to do is learn how to use them in real-world trading scenarios.  

When a fractal pattern forms in a market chart, it signals a high probability of a market reversal. 

This can be either a downtrend turning to an uptrend or an uptrend turning to a downtrend. So, in other words, the fractal patterns allow traders to identify the level of price support or price resistance. 

The best way to use the fractal patterns is by looking at them in relation to other technical indicators. A great example of this is the daily pivot points. 

By doing this, traders can evaluate the strength or probable reliability of the fractal pattern. In addition, this can act as a confirmation method for the trend reversal shown by the fractal pattern. 

Fractal Indicator – Pros and Cons 

As with anything, traders can expect both pros and cons while using this method of fractals trading. So let's take a look at some of those to further extend your knowledge of the subject. 

Fractal Indicator Caution 

You can never be too safe when talking about matters regarding your financial security. Therefore, even with a good understanding of the indicator and its pros and cons, there are a few instances where you should proceed with caution when using a fractals trading indicator. 

Here are some words of caution if you are considering using the fractal indicator. 

Summary  

FAQs 

Conclusion  

Having a good understanding of the trend movements and reversals in the market is ideal for any trader. To aid this process, traders can choose from a plethora of tools from both the fundamental and technical analysis sides of things. Among them, one of the better technical indicator tools is the fractal indicator. 

With the help of fractals trading, traders can easily predict market behaviors and calculate entry and exit points. Its easy-to-identify nature and timeframe flexibility make it a good choice for beginner traders. Finally, do your own research in addition to this article and find out more ways that you can integrate fractals trading into your trading activities. 

The definition of RNS (RNS Meaning) is crucial to know if you are involved in any type of forex trading. There are many terms and phrases that every forex trader should know about, and RNS is one of them. When used correctly, the RNS can help you understand the markets better. 

But what does RNS mean?

How does it help in your trading strategy?

In this article, we discuss it all. 

What is the RNS (RNS Meaning)? 

RNS definition stands for Regulatory News Service. This is the official news provider that is directly under the Financial Conduct Authority (FCA). The service is responsible for sharing regulatory and non-regulatory information about publicly listed UK companies and businesses. 

Moreover, the Regulatory News Service acts as a part of the London Stock Exchange (LSE) and provides the necessary information to the parties in need to ensure that they are true to their disclosure obligations. 

The Regulatory News Service takes it upon itself to publish important information like share issues, board of director changes, and company performance. With information such as these provided by the RNS, traders and business owners can then proceed to make insightful decisions that align with government regulations. 

Furthermore, the information stated on the Regulatory News Service has a large influence on the markets like stock and forex. So, keeping up with the RNS news is vital to becoming a better trader. 

As the RNS definition suggests, regulatory news is the main focus of this service. So keeping a constant eye on what's being shared is a good way to avoid any unwanted and unexpected new regulations. 

Further, Regulatory News Service is the origin place for most of the regulatory and price-sensitive UK company information. This service also operates 24/7, and that allows traders to keep themselves updated at any time of the day. 

History of RNS - Why was the RNS created? 

Launched in 1988 to replace the Company News Service (CNS), Regulatory News Service quickly became the official news outlet of the London stock market. 

Back in the day when CNS was in charge, they used full-text reports to share news and new announcements. But after the replacement of CNS for Regulatory News Service, they used more elaborate ways to convey messages of both regulatory and financial announcements. 

The service started with just sharing regulatory news. But after a while, the Regulatory News Service decided to share regulatory, non-regulatory, and financial announcements for UK-listed and AIM-listed companies. This allowed the RNS to quickly rise to the top and become a globally recognized provider of regulatory news. 

As the RNS definition suggests, sharing news is the gist of what they do. Therefore, the news originating from the RNS tends to get published in over two million terminals, databases, and financial websites around the world currently. 

This vast reach of RNS has allowed companies to share their news and announcements quickly and on a larger scale. In addition, this provides a platform for individuals to get vital information on UK companies. 

The role of the RNS 

The role of Regulatory News Service is a bit complex and deep subject and goes further than what meets the eye. 

First and foremost, the Regulatory News Service helps international financial companies and firms comply with the EU transparency directive. Further, this, in turn, demands companies to disclose information about their activities, announcements, and new developments constantly through various means. 

While doing this information disclosure, companies must share their annual and half-yearly financial reports and management statements. As a result, this helps to push financial transparency and consistency of the financial institutes within the EU. 

In addition, this also includes 20-digit alphanumeric Legal Entity Identifiers (LEIs). This code provides a way for companies to identify legal entities that are participating in financial transactions. 

Because the RSE is owned by the LSE(London Stock Exchange), providing accurate market information is a must. In the beginning, this was carried out as a paper bulletin twice a week. As of now, this has upgraded into a flow of electronic messages that exceeds 1000 announcements per day. This leads Regulatory News Service to deliver over 300 000 announcements per year. 

The RNS definition and the way they provide services was established as their own service back in 1988. With this establishment came a new digital submission method as the Direct Input Provider (DIP). 

This allows financial institutes to deliver announcements via Regulatory News Service electronically to be conveyed to the masses. Currently, RNS provides multiple ways for companies to deliver their messages to their target audience. 

Who uses the Regulatory News Service? 

Most of the customer base of the Regulatory News Service originates from financial institutes that are on the UK exchange’s list. Some of them are companies like, 

Moreover, companies and financial institutes have the freedom to use the Regulatory News Service to develop relations and communicate with European and American investors. 

To do this, the party who is willing must use the major financial news networks which are available within the RNS definition. In addition to the above-mentioned parties, regulators and corporate advisors can also make good use of the RNS service. 

Where can you find the RNS?

 To see what the RNS is posting, interested parties will have to access its announcements. While there is no definitive location that the companies can visit to get the information, there are a few easy sources where anyone can get direct access to the Regulatory News Service news and announcements. 

They are 
The London Stock Exchange’s website 
This is the official website of the London Stock Exchange. Here, anyone interested can gain free access to the RNS and its information. 

Investegate 
This is a dedicated website that aims to offer comprehensive and timely details of regulatory and non-regulatory announcements. This is a free third-party service, but the news from Regulatory News Service gets frequently delayed. 

SharePad 
This is a platform that anyone can access to get in-depth data on most of the financial markets within the UK. Even though this provides accurate and timely news from the RNS, this is a paid service. You can get started with SharePad with a free one-month trial. 

Why and when is the RNS important to investors? 

Since you are aware of the RNS definition as of now, understanding why the RNS is important to investors is not so hard. 

With the help of Regulatory News Service, traders, investors, and financial institutes can make better decisions with a good understanding of the current, past, and future state of the market. The insights and the information that comes with the RNS are valuable for any type of investor, regardless of their experience level. 

One of the biggest benefits of using RNS is the ability to create more informed strategies that are market compatible. With the information RNS provides, traders can get a good idea about the assets, shares, and market direction and devise strategies accordingly. 

Besides that, having a stream of accurate and up-to-date market information is never a bad thing. When an investor or a financial institute has their hand on such information, it allows them to easily stay a step ahead of their competition. 
In addition, the information and news provided by the RNS are available 24/7. This allows investors from all over the world to access this information whenever they require it. The flexibility of this aspect of the RNS allows traders to be more efficient with their decisions. 

RNS’s influence on the market 

The influence the RNS has over the financial market is a bit difficult to explain. 

At the core, what the RNS do is share the information that comes their way. This information is what investors, institutes, firms, and traders can use to make their financial decisions. 

While this might not seem like something massive, it goes far beyond that. 

If taken individually, the ones who use the information from the RNS do it with the thought of appealing to the market, thus raising their profit-making chances. But if we take all of these parties and look at them from a collective point of view, they make up a large sector of the market. 

As the RNS definition suggests, the primary goal of this service is to share important news among its user base. This includes things like stock prices, company results, market performance, and staff changes, which are all capable of influencing the market. While this information has a minimal effect on the bias of investors and traders, it can influence their actions. 

Making decisions without a firm grasp of the market conditions can have negative effects on the outcome. Because of this, investors and traders pay close attention to the RNS to get an edge in their trades. 

For instance, if the RNS informs about a performance drop in a company, shareholding investors will take action to sell their shares. If the RNS did not inform such an event, investors won't know what hit them. This explains the complex influence that the RNS has over the market and its future cause of action. 

How to use RNS in Fundamental and technical analysis? 

Fundamental and technical analysis are tools that are capable of raising the profitability of any trader who uses them. Before understanding how you can use RNS in fundamental and technical analysis, let’s look at what these two analyses are.

The fundamental analysis mainly considers aspects like financial statements, market developments, and news. On the other hand, technical analysis focuses more on past and present price movements to predict future price movements. 

Information you obtain through fundamental and technical analysis helps you identify market trends and make suitable decisions. 

In simple words, these analysis methods can allow traders a level of insight that is not available in any other way. So for traders who use either technical or fundamental analysis, this can open a whole new field of opportunities. 

Any successful trader or investor will tell you that the proper usage of these analysis methods is a must in this field. 

Just as the RNS definition states, it is where the regulatory news is mainly shared; at the same time, it has a significant influence on the market price. Thus RNS is considered a vital part of the analysis process. 

RNS Reach 

The RNS Reach service is primarily based on the existing RNS UK-Regulatory service and offers the same level of efficiency. The investor communication service focuses on assisting listed and unlisted companies to deliver non-regulatory news. These can include things like corporate information, product information, marketing messages, and announcements. 

With the help of Reach, even foreign-listed companies get the opportunity to share their news with the UK populace. Everything that is directed to Reach is primarily on the Market News section of the London Stock Exchange corporate website. With this service, companies can share announcements such as, 

FAQs 

Conclusion 

Information is key in a field where your finances are on the line. To ensure your financial security, you will have to make educated decisions within the market. This is where the RNS comes in. 

Having a proper insight into the market, its news, and new development is a great way to stay one step ahead every time. With the information gained by RNS, traders and investors alike can make much more profitable trade decisions. So, make sure to get the most use of RNS and the information it provides to get better at adapting to the market. 

We hope this article will give you a clear idea about the definition of RNS and how it influences the market, and how you can use it to improve your trades. 

Pennant patterns are used to predict the future market movement across many markets. Once you read this Pennant Guide, you will know how to identify and trade with this pattern. 
 
Having a good understanding of all of the chart patterns is vital for your success as a forex trader. These patterns are the key to accurately predicting asset price movements and trends within the market. Pennant is one of these key chart patterns that you can use in your forex trades.
 
In this Pennant guide, we will take a deeper look at the Pennant pattern and its characteristics. 

Pennant Guide: What is a pennant Pattern?

Pennant is a type of continuation chart pattern that tends to form after strong trend moves. Traders tend to go into consolidation after a big uptrend or a downtrend. Due to this trader consolidation, the price also usually consolidates and forms small symmetrical triangles. These are the patterns that we call Pennants. 
 
The converging trend lines of the Pennant triangle contain information about the price action. These also have the potential to form under both bullish and bearish conditions in the market. We'll talk more about bullish and bearish patterns in this Pennant guide in a bit. 
 
When compared with most of the other chart patterns, Pennants tend to be more reliable at providing accurate information. So with correct implementation, Pennants can offer traders a solid risk/reward ratio to benefit from. 
 
A forex market is a place where traders do not gain access to information about accurate market volumes. When traders who prefer the underlying trend of the market trade enter the market, they can use momentum indicators along with the Pennant patterns to get a better understanding of the price chart and when to trade. 
 
However, on markets like stock, where the traders can see the volume figures clearly, Pennants alone can help them to analyze the breakout. 
 
Identifying a Pennant pattern on a chart is not a hard task. They are fractal in nature and can appear at all degrees of trend. With the possibilities of potential breakouts, accurately spotting a Pennant pattern becomes important. 

Pennant guide: 3 Elements of a Pennant Pattern

Since it's important to understand Pennant patterns early, the next section of our pennant guide focuses on its key characteristics. There are three main characteristics that anyone can spot when looking at these patterns. They are, 
 
Flagpole: When a pennant pattern appears, it always begins with a flagpole. This flagpole is what differentiates pennants from other patterns like the symmetrical triangle. The initial strong move preceding the symmetrical triangle is what the flagpole represents. 
 
Breakout levels: Every pennant pattern has two breakout levels. One breakout is at the flagpole end. And the other is after the consolidation period, where the uptrend or the downtrend continues. 
 
Pennant: When the market consolidates, it creates a triangle between the flagpole and the breakout. This is the pennant. The two converging trend lines from the flagpole and the breakout levels form the triangle. 

Bullish Pennant 

As you know by now, with this pennant guide, pennants appear after consolidation periods. In the case of a bullish pennant, it is a bullish continuation pattern that signals the extension of the uptrend at the end of consolidation. 
 
When we take a look at the characteristics of the bullish pattern, we can see some clear differences from the bearish pennant. On the flagpole front, the bullish version shows a series of higher highs and higher lows. The pattern activates when there is an upper trend line while a break of the supporting line invalidates the pattern. 

What does a Bullish Pennant mean? 

The bullish pennant, just like the bullish flag, comes with two phases which are a strong uptrend and consolidation. But unlike in the flag, the consolidation of the pennant takes the form of a triangle. If the consolidation phase does not start from an uptrend, it is not considered a bullish pennant. 
 
The asset price usually starts to consolidate below the highs after the establishment of a short-term peak. Until the two converging lines connect the higher lows and the lower highs, they keep going. When this happens in a chart pattern, it indicates a certain breakout. 

Bullish Pennant – Strengths and limitations  

Just like any other continuation pattern, the bullish pennant also helps the uptrend to reach higher. Since the pennant makes it easier to identify the trade stage, traders can easily trade the pennant. 
 
The correction at the end is also important here. It indicates a stronger uptrend and the final breakout as the correction gets smaller. 
 
The biggest drawback of a bullish pennant is its dependence on consolidation formation. The time it takes to form a consolidation can be long and undependable. Within this time, there is the possibility of reversals forming in the trend. So, the best cause of action is to enter the trade before the breakout occurs. 

Bearish Pennant 

When we are talking about a bearish pennant, it is a bullish continuation pattern that signals the extension of the downtrend at the end of consolidation. 
 
When we take a look at the characteristics of the bearish pattern you can see some clear differences from the bullish pennant. On the flagpole front, the bearish version shows a series of lower highs and lower lows. The pattern activates when there is a lower trend line while a break of the supporting line invalidates the information.

What does a bearish Pennant mean?  

The bearish pennant, just like the bearish flag, comes with two phases which are a strong downtrend and consolidation. But unlike in the flag, the consolidation of the bearish pennant takes the form of a triangle. If the consolidation phase does not start from a downtrend, it is not considered a bearish pennant. 
 
The asset price usually starts to consolidate below the lows after the establishment of a short-term low. When the sellers are able to secure a breakout, it ends the consolidation period. 
 
When the pattern shows that the upper and lower trend lines are converging, it means a breakout is about to follow. This does not occur in the bearish flag, as the consolidation can last for a long time. 

Bearish Pennant |Strength, and limitations  

Just like any other continuation pattern, the bearish pennant also helps the downtrend to reach even lower. Since the bearish pennant makes it easier to identify the trade stage, traders can easily trade the pennant. The correction at the end is also important here. The smaller the correction is, the stronger the downtrend and the final breakout usually is.  
 
The biggest drawback of a bearish pennant is its dependence on consolidation formation. Just like the bullish pennant, this also can take a long time to form a consolidation. 
 
Within this time, there is the possibility of reversals forming in the trend that can affect the trades. So, the best thing to do is to enter the trade before the breakout occurs. 

How to use Pennant Chart Pattern in technical analysis?

With the help of this pennant guide, we hope that you now have a deeper understanding of the pennant. But that alone won't cut it. To become a good trader, you will need to devise a strategy that works. 
 
Since pennant is a continuous pattern, it should not retrace more than 50% of the previous price leg. If this value breaches the 50% threshold, there is only a small chance for a rebound in the direction of the prior trend. Besides these, there are a few rules that make up a viable pennant strategy. 

When entering a long position, 

When applying the same strategies to a short-term position, all you have to do is follow the above steps in reverse. That will set the perfect strategy to make short-term trades more profitable. 

How to trade Forex using Pennant Chart Pattern? 

The good thing about pennant patterns is that trading using either the bullish or the bearish is similar and the same approach works on both of them. The only difference here is while bullish pennants will have a long bias, the Bearish Pennants tend to have a short bias. 
 
After a sharp move in the asset price, the pennants indicate a high probability of a breakout and a continuation of the trend in the same direction. This is the perfect opportunity for traders to enter a trade. 
 
When placing stop losses, the ideal location is the low of the breakout candle. Because the forex market is highly volatile, taking risk management steps like this is very important. 

Pennant Patterns vs. Flag Patterns 

Both flag and pennant patterns are continuation patterns with few small differences among them. The most obvious difference is the shape of the two patterns. While the pennant displays a triangular formation, the flag displays a zig-zag formation. 
 
The other major difference is within the consolidation period of the two patterns. When displaying the consolidation period, flags use parallel trendlines, while pennants use converging trend lines. 

Summary 

Now let's summarize what we learned throughout this pennant guide. 

FAQs 

Conclusion  

Many traders employ pennant patterns in their trading strategies. It may be applicable to a wide range of financial markets, including Forex, and can be found at various levels of trends.
 
This is a pattern that is very easy to spot on a pricing chart if you have trained eyes to analyze price charts. However, there are also some complexities that come when it comes to trading effectively with the pennant pattern. 
 
Although it’s easy to spot this pattern, there are many things you need to know to identify the potential of the breakout and when to enter a trade to maximize your profits. We hope this article will help you improve your trading with pennant patterns.   

 

Forex is one of the biggest financial markets in the world, and there are many trading strategies to trade forex. One of these methods is forex scalping. This refers to the skimming of small profits from a large number of forex trades. 
 
In this beginner guide, we share how you, too, can start scalping trading the right way. From scalping strategies to scalping indicators, we cover all the basics that you need to know before trying this method of forex trading.

What is scalping in forex trading? 

When doing forex scalping, traders tend to make profits from buying and selling assets in a short period. Most of the time, scalpers tend to use real-time analysis to aid their trades. The trades they take part in are always short-term and always tend to end within a few minutes or so. 
 
At the first glance, scalping might seem very similar to forex day trading. They are both involved in short-term trades and always close any open positions before a trading day is over. When compared to other strategies, scalping tends to be more intense as traders must make multiple trades during a single session. 
 
Unlike the day traders, forex scalpers focus more on the one-minute, five-minute and tick charts. These types of charts are capable of allowing traders to catch high-velocity movements to make scalping profits. 
 
As you should know by now, a pip is the unit of measurement of the asset price in forex. When scalping, scalpers only target to earn just a few pips at a time. Since the average value of a pip is $10 per standard slot, scalpers do not make much money from an individual trade. As a result, forex scalpers tend to do a large number of trades to earn a respectable amount. 
 
One of the best features available for forex scalpers is the availability of leverage. Leverage allows traders to use borrowed funds to increase their trading position. 

Is forex scalping profitable? 

When done correctly, making profits by forex scalping is a simple task. Not only these are short-term trades, but they also allow traders to gain a return on a daily basis. 
 
All you have to do is be consistent and use the best indicators for scalping to stay one step ahead. 
 
But you should keep in mind that the profits that scalpers earn depend on their experience, trading strategy, and the currency pairs that they trade. 
 
One thing that traders should be aware of is that scalping is not easy as it seems on the surface. 
 
To become a successful scalper, you will need to put in a lot of work and also have a good understanding of the market price actions. In addition, a viable trading strategy also plays a large role in your chances of success. 
 
When scalping, all the trades that you take part in won't go your way. To manage situations like that, you will need to have a solid risk management strategy. Having a good risk management strategy will allow scalpers to strengthen their financial stability in the long run. 
 
Another factor that can affect profitability is consistency. It doesn't matter what strategy you use; you will need to be consistent in order to maintain your profits. Keeping your trading consistency up is the best way to ensure that your scalping is profitable as you intended. 
 
Discipline is also something that you need to master to raise your profitability to the highest possible level. Further, a viable trading plan is also important to forex trading and your financial stability. 
 
While all of these are true, practice is what makes things perfect. So, make sure to use a demo account to practice what you have learned before going to actual trading. This will allow any trader to become better at trading as well as scalping. 

Pros and Cons of trading forex with a forex scalping strategy 

Two ways to forex scalping  

When going about forex scalping, there are two ways that traders can follow. Scalpers can follow either signals or price actions to improve their chances of success. Each method comes with its own ups and downs, and let's take a closer look at each one of them. 

Price Action Scalping 

For most scalping endeavors to succeed, they need to get help from the best indicators for scalping. But the good thing about forex price action scalping is that it does not depend on indicators. 
 
Technical analysis charts are the main focus here, and price action scalpers tend to use candlestick charts a lot. These allow scalpers to easily identify support and resistance levels and trendlines, just like any indicator. When doing price action scalping, traders tend to ignore fundamental analysis and all other external factors. 

Forex Signal Scalping 

Unlike price action scalping, signal scalping involves heavy usage of the best indicators for scalping. Traders use indicators to identify entry points and exit points to gain the most profit. 
 
Signal providers always target a certain number of pips to allow scalpers to spot potential tradeable opportunities in volatile or quiet markets. These signals are mainly based on forex scalping indicators and economic events like inflation, economic growth, supply and demand, trade status, interest rates, and account balance. 

Best Indicators for Forex Scalping 

Now you have enough knowledge about scalping and scalping strategies, it's time to move on to the best indicators for scalping. Below are some of the most used indicators for scalping. 

Moving averages (MA): Best Indicators for Forex Scalping 

With MAs, traders can easily identify emerging and common trends in markets. These are mathematical formulas that come as a single line showing average values. Simple moving averages (SMA) and Exponential moving averages (EMA) are the two main types. SMA adds a set of numbers and divides by the number of values in that set, while EMA reacts to more recent price changes.  

Bollinger bands: Best Indicators for Forex Scalping 

With many considering it as one of the best indicators for scalping, Bollinger bands indicate the areas of market volatility. These use SMA with a standard deviation set above and below to display the volatility. If the bands are narrow, it shows the market is stable and signals an upcoming breakout, while wider bands indicate increased volatility and an upcoming retracement in the market. 

Relative strength index (RSI): Best Indicators for Forex Scalping 

This is a momentum indicator that is capable of signaling if the market’s current direction might be about to reverse. RSI uses levels of support (30) and resistance (70) to provide information about the market direction. If the RSI goes above 70, the market is overbought and short positions are ideal, and if the RSI goes below 30, the market is oversold, and long positions are ideal. 

Stochastic Oscillator: Best Indicators for Forex Scalping 

This is one of the best indicators for scalping that scalpers use to predict when a trend may turn bullish or bearish. A stochastic Oscillator falls under the technical indicator category and compares the current value of an asset to its recent market activities. This also uses a scale of 0 to 100. If the value goes above 80, it shows an overbought amount, while values below 20 indicate oversold amounts. 

Forex scalping strategy – Best Pairs 

To do forex scalping, high liquidity is necessary. This makes all the major currencies ideal for forex scalping such as

• U.S. Dollar (USD) 
• European Euro (EUR) 
• British Pound (GBP) 
• Canadian Dollar (CAD) 
• Japanese Yen (JPY) 

Here are some of the forex pairs that scalpers can use to earn more profits. 

• Major pairs: EUR/USD, USD/JPY, GBP/USD. 
• Minor pairs: EUR/AUD, EUR/JPY, GBP/JPY. 
• Exotic pairs: USD/SEK, USD/MXN, ZAR/JPY, USD/ZAR, USD/TRY. 

Forex scalping strategy – Best Time  

Volatility plays a large part in the profits that a scalper can earn in a short period. This makes the opening of the trading session the ideal time to do scalping trading. There are three main sessions that the forex market takes part in. 

• The London session 
• Asia-Pacific session 
• North-American session 

These market sessions overlap and create overlapping trading sessions. This is where the trading activities and the volatility are the highest. So, make sure that your location and the pairs traded align with these sessions to get the most out of your opened positions. Trading at the same times of day as institutional traders, such as banks, when the volume is high is the best way to ensure high volatility. 

How to build a profitable forex scalping strategy? 

If you are thinking about doing forex scalping, having a good scalping strategy is mandatory. There are a few aspects that every scalper should consider when developing the strategy. This includes

Time: Time your trading time to match with the session ending or closing to get the best volatility. 
Risk management: A good risk management strategy is necessary since scalping involves high volatility. 
Discipline: Good discipline is necessary to avoid risks and maintain the longevity of your scalping career. 
Volatility: Trading with volatility is the best way to maximize the profits that a trader can earn from scalping. 
Broker: Check and see if the chosen broker is capable of providing a suitable scalping environment for you. 

Forex Scalping Tips 

• The best way to ensure your success is with the help of the best indicators for scalping. These will provide you with clear entry and exit points when used correctly. 
• Always trade high liquid currency pairs to maximize your profits. 
• Focus on one currency pair at a time when scalping. This will allow traders to easily monitor technical charts and take necessary actions. 
• Patience and concentration are the keys to scalping success. Take your time and avoid making hasty decisions with the hope of making a profit.

Conclusion 

Forex Scalping is a great way to make short-term trades in the forex market. If you are interested in using scalping in your strategy, you need to be well aware of how it’s done and come up with a solid strategy that can maximize your profits for the minimum risk. Here choosing the right currency pairs to trade and broker is also important. 
 
Icon FX is one of the best brokers for scalpers and offers many other benefits such as innovative trading tools, cutting-edge trading platforms with high liquidity, and so much more. Check out more about IconFX and see if it’s the forex broker for you.  

FAQs

Understanding what a pullback means in trading can help you trade against the trend. Many trading experts advise beginner-level traders to trade with the trend just to be safe. But for those who want to get the best opportunities even against the trends, pullback trading is a great option. 

So what's the definition of a pullback? How does it work? What does it tell you? and how do you trade with a pullback? In this article, we discuss it all. 

What is a pullback? 

Pullback meaning implies that it is a moderate drop or a pause in the price of an asset. Unlike a reversal, pullbacks are temporary moves against the current trend. In most cases, pullbacks show similar behavior to retracement or consolidation, which can be used interchangeably. 

As the pullback meaning suggests, it shows a temporary reversal in the price action of an asset. These tend to be short and last only a few consecutive sessions. When the chart displays a longer pause before the continuation of the uptrend, it shows a consolidation. 

These market pullbacks are also referred to as price corrections. When one appears on a chart, it provides traders with an entry point. 

While the pullback can show this entry, most of the other indicators will stay bullish. With that in mind, let us see what pullback tells you when it appears on a chart. 

What does a pullback mean? 

To get a better understanding and make better trade decisions, one must know what a pullback means. When a pullback appears on the chart, it usually implies that there is a pause in the overall market trend. 

So get a glimpse of a pullback, and traders see a buying opportunity. 

These temporary pauses form due to factors like momentary loss of trader confidence after certain economic announcements. 

Even though the pullback implies a buying opportunity, traders should be careful not to buy into a pullback too early. Even if the chart shows signs of a pullback, there is a slight possibility of turning into a reversal — Which is why you should not trade with such opportunities without any risk management strategies in place. 

This is where the importance of using other indicators comes in. To confirm the pullback signals, you can use other indicators like moving averages and pivot points. 

Since these indicators tend to highlight support levels, they are ideal for confirming the pullback. If the indicators show that the pullback is breaking through the support level, that has a high potential to become a reversal. 

CFDs are something that can be very advantageous for traders in this scenario. This is mainly because CFDs enable traders to go short and speculate on markets declining. 

In addition, they also allow traders the freedom to go long and speculate on markets rising. 

What triggers a pullback?

Since we already know the pullback meaning in trading and what it tells us, it's about time that we learn what triggers a pullback. 

There are a few reasons that can trigger a pullback. To speculate the formation of it, first, you must understand the fundamental analysis. 

• The main reason for the appearance of a pullback is the change in the market sentiment. 
• News that affects the weakness of the base currency. 
• Economic events mentioned in the calendar affect the strength of currencies. 

On the forex front, as mentioned above, news or events that affect asset prices are the main triggers of pullbacks. So this shows that fundamental analysis is what we can turn on to get an insight into pullbacks. 

How to spot a pullback?  

After understanding the pullback meaning in trading and what triggers them, the next step is identifying or spotting a pullback within a market. Spotting a pullback as early as possible can be very advantageous for any trader. 

Usually, pullbacks appear when the price of an asset moves against the current trend temporarily. Traders also can spot pullbacks in both uptrend and downtrend charts. 

On the uptrend price action, the pullback will come as a move lower. But on the downtrend, the pullback will appear as a move higher. 

Pro Tip: The best way to ensure that you are witnessing a pullback and not a reversal is to use confirmation indicators. With the help of these signals, traders can separate a pullback from a reversal easily. 

Example of a pullback 

If you are not entirely sure of the pullback meaning and how it functions, let's try to clarify things with an example. 

One of the prime examples of this is the recent events that came with the covid-19 pandemic. Here is why. 

With the massive unemployment that came with the pandemic, the US government decided to offer a stimulus check for their citizens. Most young Americans took this as an opportunity to invest in stock markets and make an income with that.  

While all of this was happening, a sports betting company named DraftKings saw massive rises in their stocks in the early February of 2021, after consolidating for the next two months. With this rise, they presented traders with an opportunity to take part in pullback trading. This persuaded the ARK ETF to add DraftKings to their holdings. 

The traders who were smart enough to buy during the consolidating period were able to sell their stocks at a much higher value. This is considered one of the most profitable pullback opportunities in recent times. 

Pullback in Forex 

Forex is one of the biggest and most liquid financial markets in the world. Traders trade global currencies to make a profit depending on the foreign exchange rate. Due to Forex being a market that sees a lot of actions, the appearance of pullbacks is a common sight here. 

When a forex trader sees a pullback on the chart, they tend to open positions at the best price levels. 

With the help of this strategy, traders can enter a position during an uptrend at the lowest possible price. This is a good way to ensure that you gain the highest profit possible. 

However, to take such actions, traders must know how to spot a pullback as early as possible. Spotting a pullback correctly is very important, as the charts might look like a reversal of the overall trend. 

How to use a pullback in forex trading?

As we talked about earlier, fundamental analysis is the key to speculating pullbacks. So, the easiest way traders can identify a pullback is by keeping a close eye on the trendlines. 

If you are not aware, trendlines or the best-fit line display the trend of the asset. These trend lines appear when the price of a currency hits the same line on a chart thrice in a row. If the price of an asset keeps pulling back to the same line more than twice, one has a trendline. 

With this information, traders can enter the market using the dips, as shown in the trend lines. 

But there is one issue with this type of trading activity. When traders follow this method, they face the risk of missing out on the dip. If the trader sells the asset before it can swing back up again, this can cause them to lose funds. 

When taking part in pullback trading, traders can follow either the aggressive or the conservative approach. 

The aggressive approach involves opening positions when the asset price returns to the pullback point. 

The conservative approach, on the other hand, involves opening positions when the asset price has continued the trend and broken into a new low value. Of these two, the aggressive approach has the highest risk/reward ratio. 

Different strategies to trade with pullbacks  

Having a good understanding of the pullback meaning in Forex and the strategies that traders can use to trade with this signal can improve your forex trades significantly. There are a few different strategies that are ideal for any forex trader, such as

Breakout strategy 

These are the most common type of pullback strategies, and these occur at market turning points. These mainly include the breakout of asset price out of consolidation. If you want to implement this strategy, keep in mind to never move a stop loss so that you can break even. Since breakouts occur often, these are risky and unprofitable. 

Horizontal steps strategy 

These types of strategies are ideal for use if you miss the first entry opportunity with a breakout strategy. This strategy is capable of finding alternative entry points. The horizontal steps strategy is also great for placing a stop loss behind the trend. 

Trendline strategy 

This strategy revolves around the formation of a trendline. When the market displays three contact points, traders can identify this as a trendline. Traders also should be aware to only trade on the third, fourth or fifth contact point. This makes this strategy one of the more time-consuming strategies as it takes time to form a trendline on a chart. 

Moving averages strategy 

This is a technical indicator that is very useful in many scenarios, and in this case, as a pullback strategy. The moving averages trader uses change depending on whether they are short or a long-term trader. 

Fibonacci strategy 

The best scenario to use this strategy is when a new trend emerges. With the arrival of the new trend, traders can then use the A-B Fibonacci tool to draw from the origin to the trend end. If the Fibonacci retracement ends up at the same place as the moving averages, it signals a strong pullback. 

Pros and cons of pullbacks 

Understanding the pros and cons of the pullback is also as important as learning the pullback meaning. 

Reversal vs Pullback – What's the difference?  

If we just consider looks, both the pullback and the reversal look very similar. However, on deeper inspection, you will see that the pullback meaning is very different from the reversal meaning.  

Reversals signal a change in the overall asset price trend, while pullback indicates a temporary counter-move within a larger trend. Traders will need to take different steps in each of these scenarios, and having the ability to separate one from another is very beneficial. 

Summary 

FAQs 

Conclusion 

Pullback trading is a tested and proven trading strategy in Forex that many traders across all experience level use. With the correct implementation, you will be able to make trades on temporary price reversals. Even beginner-level traders can trade with pullbacks if you use a good strategy and risk management plan. 

When trading with a pullback, you need to know how to identify a pullback as you can easily mistake it for a price reversal which can blow all your invested money. Also, it’s important you use other indicators to confirm the pullback signals you get from the price movement. This is why you need a good pullback trading strategy. 

Before you start trading with pullbacks, make sure to do your research on the topic and understand the scenarios where the pullbacks are most profitable. 

Japanese candlestick trading is one of the most popular ways of forex. No matter what type of trading strategy you follow, these candlestick pattern charts can provide you with much useful information to predict future price action.

Different types of candles and candlestick patterns can make you think understanding them is complicated. But this is far from the truth. However, you need to make sure you are learning about them from the very beginning and in the right way. 

So to help you get started, we created this Japanese candlestick trading guide which covers the basics of Japanese candlestick trading. 

What is Japanese candlestick trading?  

For a trader to be successful, they need to accurately speculate on the price direction in the market. Since just guessing the price fluctuations is not good enough, traders use both fundamental and technical indicators to do their guesswork for them. 

Among the several technical indicators, Japanese Candlestick charts are some of the most widely used indicator patterns.  

Japanese Candlestick patterns are a type of technical indicator tool that signals asset price movements with the help of candlesticks on a chart. With these, traders can analyze and chart the opening, closing, high, and low-price points for each given period. Apart from that, the price movement indications are shown in the chart depending on the past patterns of the same asset.

Even with the availability of High-Low Open Close (HLOC) charts, technical traders tend to lean more toward the Japanese Candlestick charts. The main reasons behind this are their easy readability and faster analysis. In addition, the flexibility of being able to use it in any timeframe is also a plus.
  
Japanese Candlestick patterns track asset price movements by displaying candles for each period. Further, these past candles, when combined, form patterns that inform traders with clues on where a market’s headed next. Understanding these patterns is the way traders can speculate on market movements with ease. 

History of Japanese candlestick

Japanese candlesticks are a technical indicator tool that dates back to the 17th century. During this period, Japanese rice farmers started using technical analysis to help their rice trades. The origin of the candlestick patterns is still a mystery, even though there are lots of signs pointing toward the legendary rice trader Munehisa Homma as the creator of these patterns. 

The original idea of the Munehisa Homma stood the test of time and was reinvented to suit the current market environment. The Candlestick patterns of Homma made their way to the US around 1850. And with their help, journalist Charles Dow was able to further develop the price action and the technical analysis tools. 

When talking about the history of price action, we have to talk about Charles Dow a bit more. Not only was he a journalist at that time, but he was also the founder of the renowned Wall Street Journal. Furthermore, he also is the founder of the Dow Jones Industrial Average. 

Another important figure in the history of Japanese Candlesticks is Steve Nison. He is the one that wrote about it and introduced the candlestick patterns to the western world, and gave them the name "Japanese Candlesticks". So if not for Steve Nison, we might not even have heard about it. 

Anatomy of Japanese candlestick

Since now you know about what Japanese candlesticks are and their history, it is about time we dive deeper into the topic. To read and understand a candlestick pattern, first, you must know the anatomy of the candlestick. 

Each part of the pattern depicts different information. So understanding them is the key to making the best use of them in your trading. To make the process of understanding a little bit easier, let's refresh our memory on the components of a candlestick. 

Body: Indicates the opening and closing prices of the asset. In a bullish market, the close will stay above the open, while in a bearish market, the open will stay above the close. 
Shadow/wick: Indicates the intra-day high and low points of the asset price. If the high or low coincides with the open or closing prices, shadows become invisible. 
Color: Indicates the market direction of the asset. Green or white color signals a price increase, while a black or red color signals a decline in the price. 

Now let's move on to the Japanese Candlestick patterns. 

Japanese Candlestick patterns

By observing the above two diagrams, you can see that there is a bullish green candlestick and a bearish red candlestick. The green bullish Japanese candlestick closes higher than where it originally opened. On the other hand, the red bearish Japanese candlestick closes lower than where it originally opened. 

When observing a candlestick pattern information of a market in a certain period of time, you will be able to notice that the market doesn’t always open exactly where it closed in the previous session. 

The reason behind this is the events that occur over the weekend when the forex market is closed. This instant price fluctuation can be harmful to traders. Thus traders tend to avoid holding positions over weekends. 

Important: The flexibility that comes with Japanese candlesticks allows them to be used in any given timeframe. Even if you use the Japanese candlestick on a daily or hourly chart, the output will always be a collection of bullish and bearish candles. 

How are Japanese candlesticks calculated?  

Japanese Candlestick charts are very good at providing a graphical representation of the price movements within the market. With their help, traders can get an insight into the supply and demand behind the asset price action. There are lots of things that a trader can calculate just by observing a Japanese Candlestick pattern. 

As you know by now, a green candlestick shows a bullish price action, while a red candlestick shows a bearish price action. Moreover, in cases where the shadow is taller than a long-bodied candle, it indicates high market volatility, with bulls having the edge. 

For another instance, if a candle comes with a short red body with a long upper shadow, it depicts a bull-driven market price that was beaten back by bears before close. Further, when the shadow is invisible, it signals a high open price and a low closing price. 

By examining these candlesticks for a long time, traders have come up with various patterns that follow various market behaviors. These allow traders to accurately predict market movements, may it be a reversal, continuation, or pause. 

Keep in mind that various candlestick patterns come with a different number of candles with it. When considering this aspect, there are three types of candlestick patterns single, double, and triple. 

Must Know Japanese Candlestick Patterns 

When considering these types of patterns, there are a few that show up more on charts than the rest. If you want to become a technical trader, understanding these and what they mean can help you in many more ways than one. Here are some of the patterns every trader should know about. 

Doji 

This pattern has the same open and close prices as depicted by its candle. These show up as very thin lines that are typically less than 5% of the total range of the period. Doji patterns indicate indecision within the market. 

Dragonfly Doji 

Dragonfly Doji patterns form when the open and close prices of an asset are at the high of 
the given period. When this shows up in the market, it signals the probability of an uptrend reversal. 

Hammer 

This type of pattern forms when a downtrend comes to an end while beginning a bullish reversal. The Hammer comes with a small body and no upper shadow. But the lower shadow tends to be much longer than the body. 

Gravestone Doji 

It is a bearish reversal candlestick pattern that is formed when the open, low, and closing prices are close by. This comes with long upper and lower shadows, making it look like a gravestone, as the name suggests. 

Bearish Engulfing Pattern 

These appear when there is a bearish control present in the market. The closing price of the Bearish engulfing pattern is below the opening price. This is a double candle pattern and has a long bearish candle that completely engulfs the previous candle.  

Bullish Engulfing Pattern  

These appear when there is bullish control in the market. The closing price of the Bullish engulfing pattern is higher than the opening price. This is also a double candle pattern and has a long Bullish green candlestick that completely engulfs the bearish candle prior. 

How to use Japanese candlesticks in trading? 

The first step in using the Japanese candlestick patterns is understanding everything that there is about them. The more you know about different patterns, the easier it is for you to speculate on the direction in which the market is heading. 

If you have any doubt about your ability to read candlestick patterns, try using a demo account to test out the patterns and charts to see if your predictions are accurate. 

When you have enough confidence in yourself that you can implement these patterns in your trading, open up a trading account and start trading. When done correctly, you will see a clear difference between before and after the candle implementation. 

Pro Tip: Use another indicator tool to confirm your findings from the Japanese candlestick patterns. This way, it will leave even smaller room for error. 

Japanese Candlesticks vs Bar Charts 

The only major difference between the bar charts and the Japanese candlesticks is their graphical representation. Both of these types of charts tend to express the same information to the traders. 

However, with Japanese Candlestick charts, traders can get a clearer idea about the price action than with a bar chart. They also are able to graphically demonstrate the supply and demand factors that affect the price movements. 

In addition, while bar charts are just lines, candlestick patterns have bodies that indicate a certain period. Many believe that the lack of a thick body allows bar charts to be a bit more precise than a Japanese candlestick pattern. 

Heikin Ashi candlesticks vs traditional Japanese candlesticks 

When comparing the Japanese candlestick patterns with Heikin Ashi patterns, they both are formed with the help of open, close, high, and low prices. 

However, the main difference between the two is that Heikin Ashi candles tend to be smoother as it is an average version of Japanese candlesticks.  

Just like the Japanese candlesticks, Heikin Ashi also uses the data of the previous bar to produce the current candle's open price. Moreover, Heikin Ashi patterns display more consecutive-colored candles. 

Also, when displaying the open and close prices, Heikin Ashi candlesticks start from the MIDDLE of the candlestick before it, unlike the Japanese candles. 

FAQs 

Conclusion 

Using all the tools at your disposal is the best way to become a forex trader that can stand the test of time. Analysis tools, signal providers, and indicator tools can allow you to make price speculations that have a higher chance of success. 

Among the countless tools, traditional Japanese candlestick charts take a special position as it is the basis for many other indicator tools. With the correct understanding of candlestick patterns, you will have a deeper understanding of the market patterns, and the way prices tend to fluctuate. 

As with anything else, make sure to do your research as best as you can before incorporating candlesticks patterns into your trading strategy. That way, you can stay a step ahead of the competition and make more accurate predictions. 

Candlestick (long candlesticks/ short candlesticks) patterns are often used to predict the price movement in the market. No matter your experience level and the number of indicators you use, there is so much information about the direction of the price that you can learn from candlestick chart patterns. 

So being able to read the candlestick patterns correctly is like a superpower any forex trader can have. But what are candlestick charts that you should know about and how to use them?

We discuss it all in this article. Let's dive in. 

What is a candlestick?  

In technical analysis, candlestick charts play a prominent role and allow traders to interpret the important information of an asset quickly. These charts become much useful to traders as they provide vital information like the open, close, high, and low of the asset. 

In a candlestick formation, each candlestick shows the period of time according to the set timeframe by the trader. For instance, if we are using a candlestick chart on a daily chart, then each candlestick represents a day of the asset in the market. 

The main reason for using candlestick charts is to determine the historical price movement of an asset in a given time. 

Features of a candle 

Every candlestick chart comes with three main sections, the body, the wick, and the color. Each of these represents unique information about a particular asset. 

Body: The body of the candlestick shows the opening and closing price of the asset. In addition, the endpoints of the body show the opening and closing prices, and this changes depending if the price is bullish or bearish. 

In a bearish market, the open will stay above the close, and in a bullish market, the close will stay above the open. 

Wick/Shadow: In most cases, every candlestick chart will come with two shadows and shows the high and low price of the asset. While shadows show the intra-day high and low, in the case of high or low coinciding with the open or close prices, shadows become invisible. 

Color: Color reveals the direction in which the market is moving. While green or white arrows depict a price increase, black or red color depict a decline in the price. 

3 types of candlestick patterns  

When understanding the theory behind the candlestick charts, there are three main types of charts that you should know about. Each of these shows different behavior in the market and allows traders to take actions according to them. 

Bullish Reversal Patterns  

These types of patterns show that there is a high probability that the current downtrend is about to reverse to an uptrend. Bullish candlestick patterns can also come as multiple candlesticks or as a single candle. 

Bearish Reversal Patterns 

These types of patterns indicate that there is a high probability that the current uptrend is about to reverse to an uptrend. Bearish candlestick patterns also can come as multiple candlesticks or as a single candle. 

Continuation Patterns 

Continuation patterns indicate that there is a high probability of the asset price moving in the same direction even after this pattern ends. These types of patterns are also the exact opposite of reversal patterns. 

9 bullish reversal patterns  

As we discussed earlier, bullish candlestick patterns show a high probability of a downtrend reversing into an uptrend. In instances like this, traders must pay extra attention to their short positions. Here are some of the bullish reversal patterns traders can use to identify downtrends. 

Hammer 

This is a small single candlestick pattern that forms when a downtrend comes to an end while beginning a bullish reversal. The Hammer body is usually at the top with no or little upper shadow. These tend to have lower shadows that are more than twice the size of the body. 

Inverted Hammer 

This also is a small single candlestick pattern that forms when a downtrend comes to an end while signaling a bullish reversal. The body of the inverted hammer is usually at the bottom with no or a little lower shadow. Another feature of an inverted hammer is its upper shadow, which is more than twice the size of the body. 

The Morning Star 

These types of patterns are made up of three candlesticks and indicate a bullish reversal following a downtrend. The three candles consist of two bearish and bullish long candlesticks and a short Doji candle.  

Piercing Pattern 

This is another multiple candlestick patterns that forms after a downtrend signaling a bullish reversal. There are two candles within the piercing pattern. The first candle is a bearish candle that signals the continuation of the downtrend, while the other candle shows a bullish reversal. 

Three White Soldiers 

This candlestick pattern forms after downtrends and shows the possibility of a bullish reversal. Three white soldiers is a multiple-candle pattern that consists of three bullish long candlesticks with long bodies and no long shadows. 

Bullish Engulfing 

It is another multiple candlestick patterns that tends to form after a downtrend signaling a bullish reversal. This pattern has two candles; one is a bearish candle that shows a downtrend continuation, while the other bullish candle engulfs the first candle denoting the return of the bulls. 

White Marubozu 

Forming at the end of a downtrend, the white Marubozu is a pattern that indicates a bullish reversal. This type of candlestick pattern comes with a long bullish body without any upper or lower shadows. 

Three inside up

The Three inside-up patterns tend to form at the end of a downtrend signaling a bullish reversal. This multiple-candle pattern has three candles, with two long candlesticks and a small one in between them. Here the first candle is bearish while the other two are bullish.  

Tweezer Bottom 

The Tweezer Bottom is a pattern that forms at the end of a downtrend that indicates a bullish reversal. This has two candles; the first one is bearish, while the second one is a bullish candle. They both share the same low, and the bullish candle has an upper shadow. 

9 Bearish reversal patterns  

The bearish reversal candlestick patterns show a high probability of an uptrend reversing into a downtrend. In instances like this, traders must pay extra attention to their long-term positions. 

Let’s look at some of the bullish reversal patterns traders can use to identify downtrends. 

Dark Cloud cover 

This multiple candlestick pattern forms at the ending stages of uptrends signaling a bearish reversal. The dark Cloud cover has two long candlesticks. The first candle is a bullish one and the second one is a bearish candle. 

Evening Star 

This is another multiple-candle pattern that has three candles and indicates a bearish reversal after an uptrend. The first candlestick indicates the uptrend continuation; the second Doji shows the market’s indecision, and the third bearish candle signals the market reversal. 

Three Black Crows 

These types of patterns form at the end of an uptrend signaling a bearish reversal. This has three long candlesticks with bearish bodies and little to no shadows. Moreover, each candle opens within the body of the previous candle. 

Hanging man 

It is a single short candlestick pattern that signals bearish reversal after an uptrend. Further, the body sits at the top with a long lower shadow twice the body's length underneath it with no upper shadow. 

Bearish Engulfing 

With two candlesticks, the engulfing pattern tends to form at the end of uptrends signaling bearish reversals. The first candlestick is a bullish one that depicts an uptrend continuation. In addition, the second candle is a long bearish one that completely engulfs the first candle. 

Three Outside Down 

This multiple candlestick pattern comes with three candles and is a good indicator of a bearish reversal after an uptrend. Out of the three candles, the first one is a short bullish one, followed by long bearish candles that confirm the bearish reversal. 

Shooting Star

These patterns normally form at the final stage of uptrends and indicate a bearish reversal. The real body of the candle is located at the bottom and has a long upper shadow with little to no lower shadow. 

Tweezer top 

This pattern has two candlesticks, the first one is bullish, and the second one is a bearish candlestick. Both of these share the same high and form at the end of an uptrend to signal a bearish reversal. 

Bearish Harami 

This type of pattern forms after an uptrend signals a bearish reversal. Bearish Harami has two candles; the first one is a long candlestick, while the second one is a small bearish candle. Here the second candle must be within the range of the first candlestick. 

9 continuation patterns  

This type of pattern indicates that there is a high probability of the asset price moving in the same direction even after this pattern ends. Here are the candlestick patterns that fall under the continuation category that every trader must know. 

Spinning Top 

That candlesticks represent indecision in the market. These appear when the opening and closing prices are almost equal. These have smaller bodies and long upper and lower shadows. 

Doji 

Those patterns are relatively similar to spinning tops and also show market indecision. The difference between Doji and the spinning top is that Doji has a smaller body than the spinning top. 

Downside Tasuki Gap 

It is a bearish continuation pattern that signals an ongoing downtrend. There are three candles in this pattern, with two being bearish long candlesticks and the last one a bullish candle closing the gap between the first two. 

Upside Tasuki Gap 

As the opposite of the downside Tasuki pattern, this signals the ongoing uptrend. Moreover, upside Tasuki has two bullish long candlesticks and a small bearish candle closing the gap between the first two. 

Falling three method 

This is a candlestick pattern with five candles that indicates an interruption of the ongoing downtrend. This has two bearish long candlesticks on both sides and three bullish short candles in the middle. 

Rising three method 

It is the opposite of the falling three candlestick pattern and comes with two bullish long candlesticks on the sides with three small bearish candlesticks in the middle. 

Mat Hold 

It is another pattern with five candlesticks that indicates the continuation of a prior trend. Keep in mind that there are both bullish and bearish Mat Holds. For instance, the bullish pattern, which denoted an uptrend, starts with a bullish long candle followed by a gap higher three smaller candles that move lower. The final candle is again a bullish long one that moves up. 

Rising window 

This is a pattern with two bullish candlesticks with a gap in between that signals a trend continuation. The gap also shows the space between the high and low of two candlesticks. 

Falling window 

This is a pattern with two bearish candlesticks with a gap in between that signals a trend continuation. The gap is the space between the high and low of two candles. 

Why use candlestick patterns in trading?  

Candlesticks are vital to interpreting market trends as candlestick charts allow traders to determine the movement of the asset price using prior patterns. With the candlestick data, you can decide when to open long or short positions or when to exit the market accurately. 

So any trader that is keen on using technical analysis to back their trade decisions can make the best use of candlestick patterns. 

Another benefit of candlestick charts is that you can learn them easily if you are just a beginner. No matter what type of trading strategy you use, candlestick information of a market will help you well-educated trades for better profits. 

FAQs 

Conclusion 

As one of the most accurate indicators of asset price movement, candlestick patterns are something that every trader should use. 

Accurately speculating on the price movement allows traders to increase their chances of finding success in their trades — And candlestick patterns are one of the best ways to do that. 

However, even if candlestick charts provide accurate information, it is wise to use another technical indicator to confirm the findings of the candlestick patterns. This way, you won't have to second guess your positions in the market, further improving your chances. 

Three white soldiers is a popular candlestick pattern that many traders use in their trading. It is easy to identify and offers reliable insights into the market when used correctly. 

Regardless of the trading strategy you are using, being able to read candlestick charts can give you an edge on trading decisions. There are many candlestick chart patterns every trader should know of, and three white soldiers are one of them. 

So let's look at how to identify this candlestick pattern and how to use them in trading to make the best profits. 

What are the Three White Soldiers?  

The three white soldiers is a candlestick pattern that forms at the end of a downtrend in the market. 

As the name suggests, this pattern consists of three long bullish candlesticks that signal strong buying pressure. When this occurs, buying pressure tends to surpass the selling pressure by a decent margin. 

In other words, when this formation occurs, the bulls overtake bears. When bulls are in control of the market, you can see multiple long bullish candles near one another.  

So most of the time, the three white soldiers are a pattern that signals the bullish reversal probability in the market. 

However, depending on where the pattern forms, this can also act as a continuation pattern. 

For instance, if this pattern forms at the end of a bullish market, it can appear as a continuation pattern. However, when the pattern forms at the end of a downtrend, it often reverts to its original bullish reversal state. 

So with the correct implementation, three white soldiers can help traders who view the market from a supply and demand perspective to identify the shift in market sentiment. 

Characteristics of three white soldiers 

To get a better understanding of this candlestick pattern, you must understand the characteristics of the pattern. They are,

Pros and cons of three white soldiers 

To further extend your knowledge about the three white soldiers, you need to understand both its advantages and limitations. 

This can help you to be more aware of the market state and take early precautions to prevent any unfortunate events. With that being said, let's take a look at the pros and cons of this pattern. 

How to Identify the Three White Soldiers 

As we mentioned before, the 3 white soldiers pattern is one of the easier patterns to identify. This is because it comes with three large bullish green candlesticks that open and close progressively higher than the first. 

But, identifying the pattern alone is not enough. This is because every instance of this pattern form is not suitable for starting trading. 

To understand when to trade and when not to trade, there are a few requirements traders should look for in this type of pattern. Below are the criteria that you should check to understand the tradability of the formation. 

Market Context: The three white soldiers must form on a downtrend end or near a key support level. If this candlestick pattern forms in a price consolidation, the reversal signal becomes less reliable. in addition, because the pattern is about to run into a resistance level, the profit margins also become smaller. 

Candle sizes: For this to be a tradeable pattern, all three candlesticks must be bold in shape. If the candles of the pattern are larger than the candles in the recent vicinity, it is always a good signal. Moreover, the second and the third candles can't go over the middle price range of the prior day. 

Confirmation of the volume: Finally, if the pattern is to be tradeable, it should also be supported by rising volume. If the market shows an increase in volume to validate the strength of the bulls, that makes it ideal for making a trade. But if the pattern comes with a light volume, it indicates that there are no large buyers. 

Important: While you can get a good understanding of the direction and the dominating party of the market, it is wise to use other indicators as well. This helps you to confirm the market direction more accurately. 

What do the three white soldiers mean? 

When a three-white soldiers pattern forms at the end of a downtrend, it usually means that the downtrend will then follow a steady advance of buying pressure. As with any other bullish pattern, this also shows the high probability of price reversal.  

When traders see a three-white soldiers pattern, they can then decide whether to open long or short positions. 

But as we talked about earlier, every instance of the three white soldiers pattern is not tradable. Therefore, it is better to confirm the signal and check for the criteria for a tradable pattern. 

How to Use the Three White Soldiers pattern to Identify Entry/Exit Points?

Understanding the entry and exit points is crucial if you want to become a successful trader and make accurate trades. 

With the help of the three white soldiers pattern, traders can easily understand when to enter and when to exit a trade. 

There are two approaches to planning entry and exit, and they are, 

In scenarios like this, the 3 white soldiers are used to opening a long position and maintaining it. In the meantime, the traders who were on the current downtrend can use the price reversal shown by the pattern as an exit point. As for bears in the market, they tend to liquidate their short positions when this pattern forms. 

What follows the three white soldiers is a significant move higher that has a high probability of leading the market to an overbought state. 

In scenarios like this, the price trends inside a consolidation. That allows traders who are interested in buying the pullback to act. If you want to know more about the overbought stats, use technical indicators for better insight. 

Risk management when trading with three white soldiers 

Risking more than what you can afford is never a good thing. So to be a successful trader, one must master the art of risk management in trading. The forex market tends to be a place with the high volatility that comes with high risks. So you must have good risk management tactics in place. 

With proper risk management tactics, traders can avoid unwanted expenses and increase financial stability and financial security. 

One of the sacred rules inside the forex market is the one that states, "don't risk more than 2% of your portfolio in any trade". Usually, the stop losses tend to be larger when the three white soldiers are in consideration.  

Even if the market is in your favor, a small trend can change everything. If the market goes against you in a risky trade, you will have bigger consequences. To avoid scenarios like that, always make sure to trade when the candlestick pattern offers you at least a 1:2 risk-to-reward ratio. 

Three White Soldiers vs. Three Black Crows 

The three black crows are the opposite of the three white soldiers' pattern. While the 3 soldiers forms at the end of a downtrend, the three black crows forms at the end of an uptrend. 

Similarly, while the 3 soldiers indicate a trend reversal from bearish to bullish, the three black crows indicate a trend reversal from bullish to bearish. 

From a visual standpoint, the 3 soldier pattern comes with three long green candles, while the 3-crow pattern comes with 3 consecutive red candles.

However, both of these patterns have relatively same-size candles that have small upper and lower shadows. 

Another similarity between the two patterns is that the second and last candle highs don't go over the middle range of the prior candle.  

When traders come across the bearish three-black crow pattern, they know that there is a high probability of a period of powerful selling pressure on the market. The main reason for it is the three black crows' pattern's prediction of the reversal of an uptrend. 

Start trading with Three White Soldiers. 

Now you should have enough knowledge about the three white soldiers' pattern to know its importance and its usage. So now all you need is a reliable forex broker that you can use your knowledge on. This is where Icon FX comes in. 

Icon FX is a highly regulated forex broker that offers many high-quality features for minimal spreads. 

With Icon FX, traders can earn up to 500x times the leverage without the need for a minimal deposit. Moreover, traders can also enjoy social trading, VPS, and a high-quality demo account to further improve their success. 

In addition to these features, Icon FX also offers top-of-the-line indicators, signals, charting tools, and analysis for its clients. This includes technical analysis tools that come with all available candlestick charts. 

To trade with all of these features, all you have to do is create an account with Icon FX for free. 

Here’s how to start trading with IconFX only with 3 steps 

1. Sign up with IconFX
2. Complete the application form accurately to get verified. 
3. Start trading and earn profits.

FAQs

Conclusion 

Technical analysis is one of the best ways to get an accurate prediction of future market price movements, and candlestick charts are one of the biggest parts of technical analysis. Among the candlestick patterns, the three white soldiers is a pattern that forms at the end of a downtrend. 

With the correct implementation, you can identify an upcoming price reversal due to the heavy buying pressure on the market. With such insights into the market, you are able to make better traders earn high profits. 

If you feel like brushing up your knowledge more on the three white soldiers pattern, do your own research and use this article as its base. Having more knowledge on a topic that can bring you profits is never a bad thing.

Trading with Heikin Ashi candles is a popular trading strategy traders use whether they are into the day trading or swing trading.

They are a reliable charting pattern and also a technical indicator that you can use to understand the price movement and predict future movement accurately.

With Heikin Ashi candles, you can determine trends as well as trend reversals in financial markets. If you are interested in short-term trading strategies, you must learn about these candlestick patterns. 

Lucky for you, you can start learning about them right here in detail. In this article, we cover it all from what is Heikin Ashi candles, how to read them, and how to use them in trading.

What is Heikin Ashi (HA) technique?  

Heikin Ashi is a technical indicator tool that uses the widely popular Japanese candlestick formations. This type of technical indicator uses candlesticks as a way to depict the price movement in the market. 

In addition, the Heikin Ashi candles use the market averages to filter out market noise, resulting in an accurate output. With the displayed information, traders can identify the trends easily and speculate on the price direction more accurately. 

Father of price action and the creator of candlestick charts, Munehisa Homma, is the figure behind the Heikin Ashi candles as well. 

While this method shares some similarities with the classic candlestick charts, it differs in the candlestick value calculation. Moreover, the Heikin Ashi pattern utilizes a modified formula based on two-period moving averages, unlike the traditional candlesticks.  

Because this technique eliminates market noise, determining the price direction becomes much easier. Furthermore, it also helps traders to understand the perfect time to trade, pause trades, or even to identify a price reversal. 

What is the Heikin Ashi (HA) chart? 

As we discussed earlier, Heikin Ashi candles are a type of price action chart that uses averages to calculate the price movement. 

Like the traditional candlestick patterns, this type of candle also shows four price levels —Which are the 

• Lowest point
• Highest point
• Open price
• Closing price 

What's special in this case is that it employs data from the current and prior sessions to derive their values. 

If you want, you can use both the traditional candlestick and the Heikin Ashi candles at the same time for a short-term trade favorable result. When compared side to side with traditional candlesticks, this type of pattern tends to provide a smoother pattern with less market noise. 

Heikin Ashi Formula 

For the calculation of the Heikin Ashi formula, use the previous period's open-close data and the current period's open, high, low, and close data. So traders can apply this pattern to any time frame and get results accordingly. Updated versions of these values are shown as candlesticks, and the formula is as follows. 

• Close formula= (Open + High + Low + Close) divided by 4
• Open formula = (Open of bar prior + Close of the bar prior) divided by 2
• High = Max (High, open, close)  
• Low = Min (How, open, close) 

Benefits of the Heikin Ashi Technique 

When compared with their traditional counterpart, Heikin Ashi candles offer a bit more. While they both might look similar, they often have their own benefits and drawbacks. 

Here are some of the benefits that traders can enjoy while using the Heikin Ashi pattern. 

Market noise filter 

Unlike the traditional candlestick patterns, this chart goes the extra mile and filters out the market noise. It does this by reducing small corrections, thus making the signals more transparent. 

When the traders have a transparent overview of the market, they can plan their entries and exits more accurately. 

Compatibility with other indicators 

It is a well-known fact that to get a more accurate signal, you will have to use other indicators as confirmation tools. The great thing about Heikin Ashi candles is that they are very compatible and work well with other technical indicators. 

Easy to read 

This pattern is one of the easiest charts to read and understand without any outside help. Moreover, traders can quickly identify market trends and take necessary actions quickly with the help of the Heikin Ashi candles. 

Better accessibility 

The Heikin Ashi pattern comes built-in to MT4 platforms. Traders who want to use this pattern do not have to follow any extra installation steps. 

How to read Heikin Ashi candlesticks?

Just like the traditional candlesticks, Heikin Ashi candles also come with three main aspects, the body, shadow/wick, and color. To get an understanding of the marketplace price movement, traders will have to pay attention to each of these aspects. 

Each of the aspects depicts different information, and below is how you can read the Heikin Ashi candles. 

• The difference between the open and close prices of the session comes from the body. 
• The top of the upper shadow shows the highest value of the candle. 
• The bottom of the lower shadow shows the lowest value of the candle. 
• When the candle is green, it means that the closing value is greater than the opening value. This is depicted at the top of the body. 
• When the candle is red, the opening value is greater than the closing value. This is depicted at the bottom of the body. 

Heikin Ashi Indicator Signals 

With the help of the Heikin Ashi candles' indicator signals, traders can get information about the current trend in the market. 

There are two main aspects of indicator signals with this type of pattern. They are the trend strength and the trend reversal. 

Let’s talk about each of these aspects in more detail. 

Trend strength  

Trend strength is something that Heikin Ashi candles pay a lot of attention to. Due to the smoothing effect of the chart, traders might not be able to identify small consolidations and corrections. 

Therefore, it is recommended that you use a trailing stop to widen the rewards of trading within the trend. Moreover, if the strength is high, traders should consider staying in the trend to profit more from it. 

Trend reversal 

With the help of trend reversal indicator signals, traders can get a better understanding of the entry and exit of trade positions — Especially when to exit a previous trend-following trade and when to enter a new trend. 

When the trader can get early insight into the trend reversal, they can enter a more profitable trend to prevent losses. 

While we are talking about the strength and the reversal of trends, it is important to understand the type of trends within the Heikin Ashi candles. 

They are, 

• Bullish trend: Appearance of multiple consecutive green candles without lower shadows signaling an uptrend 
• Bearish trend: Appearance of multiple consecutive red candles without upper shadows signaling a downtrend 
• Triangles: Triangles come in three types: ascending, descending, and symmetrical. The candles breaking the upper boundary indicate a continuous uptrend. If the candles go below the bottom of the descending triangle, it suggests a continuation of a bearish trend. 

Different types of Trend Reversal signs 

There are a few trend reversal patterns that every trader should be aware of when it comes to Heikin Ashi candles. They are as below. 

Doji 

The appearance of a Doji candle after an uptrend indicates market indecision where bulls are still decisive. You also can interpret these as a sign of supply and demand reaching an equilibrium.

In both scenarios, the Doiji candle signals that the uptrend is coming to an end. 

Abandoned baby 

The abandoned baby is a reversal pattern with three candles. The first candle is a long-bodied down candle and shows the direction of the current trend. 

The second is a Doji candle in the direction of the trend, and the price gap at the open, above, or below the close of the day prior. Its shadow cannot overlap with the candle before or after. The final candle has a long body, and its price gap is opposite to the direction of the current trend. 

Engulfing patterns 

When an engulfing pattern forms in the market, it signals a major reversal at market extremes. There are two types of engulfing patterns in the market. They are, 

Bullish engulfing

Signals a downtrend reversal and the rise of buying pressure when forming at the bottom of a downtrend. This has two candles, one small red one and a big green one. The larger green bullish candle engulfs the previous smaller bearish red candle. 

Bearish engulfing

Signals an uptrend reversal and the rise of buying pressure when forming at the top of an uptrend. This has two candles, one small green one and a big red one. Here the larger red bearish candle engulfs the previous smaller bullish green candle. 

Heikin Ashi Strategies 

Traders can utilize the Heikin Ashi candles in many ways to capitalize on the indicator signals that it provides. This wide flexibility is also unique to the Heikin Ashi, unlike the traditional candlestick patterns. Let’s look at how you can use Heikin Ashi patterns in trades. 

Here are some of the most commonly used Heikin Ashi Strategies.

Strong Bullish or strong bearish trend emergence 

This strategy is to identify the beginning of a strong uptrend or downward trend, and this is the most commonly used strategy for Heikin Ashi candles. 

This allows traders to hop on the trend and increase profits. When the bullish trend emerges, long position traders tend to consolidate their positions while short position traders tend to exit. 

Recognize candles with no shadows 

When a trader can identify a candle without shadows, it usually means that there is a high probability of a bullish trend starting. When the sequence of candles without shadows is extensive, the trade profitability also rises. 

If the Heikin Ashi candles show a candle without an upper shadow, it signals the probability of a new bearish downtrend. 

Candlesticks with smaller bodies 

When the pattern displays small body candles, it indicates a high probability of a trend pause or a reversal. When this occurs, traders tend to open new positions with the new trend in mind. 

Limitations of the Heikin Ashi Technique 

As with anything, Heikin Ashi candles are also not perfect in every regard. Even though the benefits outnumber the limitations, it is important to understand their downsides as well. 

Lack of price gaps 

While the Heikin Ashi pattern signals market price trend movements, it cannot indicate price gaps. But traders can counter this with the help of traditional candlestick patterns. 

Presence of a time gap. 

Due to this pattern usage of historical market price data, the calculation might take some time. This can, in turn, cause the chart to be laggy. 

Lack of full-price information 

Heikin Ashi candles do not show actual open and close prices due to their usage of averaged data. This can cause some issues with a certain group of traders. 

How to trade forex with Heikin Ashi? 

Heikin Ashi candles are one of the easiest-to-read and easy-to-understand patterns that traders can use. Correct usage of this pattern can help traders identify market reversals and to decide what to do next. 

Below is a boiled-down version of how to trade with the Heikin Ashi pattern.

1. When a red candle turns green, it indicates an uptrend. When this happens, short position holders may want to exit, while long position holders want to add to your position. 
2. Multiple green candles without lower shadows indicate a strong uptrend. In this case, stay long until the candlestick changes to red or till the appearance of lower shadows. 
3. Multiple small-bodied candles with both upper and lower shadows signal a possible trend pause or reversal. When this happens, open a position opposite to the current trend, but keep in mind there is a possibility of a pause. 
4. If a green candle turns red, it indicates a downtrend. When this happens, long position holders may want to exit, while short position holders want to add to your position. 

Multiple red candles without upper shadows indicate a strong downtrend. In this case, stay short until the candlestick changes to green or till the appearance of upper shadows. 

FAQs

Conclusion 

Just as traditional candlesticks, Heikin Ashi candles offer insights into the trend direction of the price movement.

However, they are more advanced than regular candlestick charts and showcase the smoothened volatility of a currency pair, allowing you to construct more advanced trading techniques.

So just as traditional candlestick patterns, every trader must know their Heikin Ashi candles which will come in handy in their trading endeavors. 

This article is to help you and your trading career by teaching you about one of the best technical indicators in the market.

Do your research about the Heikin Ashi candles and select a platform that supports those indicators, like Icon FX.

Market swings often present many opportunities to make a profit. However, in order to capitalize on them, you need to work with the best swing trading indicators.

There are many trading strategies out there, and swing trading is one of them. If you found swing trading interesting and have already done some research, you should know, at this point, that there are many indicators that you can use for swing trading. 

So what are the best swing trading indicators? How to use them correctly?

This article breaks down 7 top swing trading indicators to help you put together your swing trading strategy.

What is swing trading? 

Benefiting from small price moves within a more significant trend is the strategy behind swing trading. This attempt to gain short- to medium-term profits can last from a few days to several weeks. 

Suppose traders are to anticipate the price movements of the assets correctly to help the chances of swing trading. In that case, they will have to use both of the analysis methods with a heavy emphasis on technical analysis. 

Swing traders tend to focus more on the points at which price momentum switches direction and buy or sell an asset to get the most profit.  

The great thing here is that swing traders can also use the stop losses and profit targets to set an established risk/reward ratio. In addition, traders can get the help of some of the best swing trading indicators to accurately speculate on the price movements of the assets.  

When taking part in swing trades, traders are exposed to weekend and overnight risks. This occurs due to the possibility of sudden price changes that open the following session at a different price.  

Situations like this can either result in substantial losses or substantial profits to the gains of the trader. 

Two swings can help a trader to identify their next cause of action easily. They are, 

Swing trading is a strategy that traders use in many financial markets like stock and crypto, besides forex. But the high liquidity, tight spreads, and 24-hour-a-day nature of forex markets make it the ideal place for swing traders to thrive in.  

As a result, many traders who practice swing trading as their main trading method tend to flock to the forex market. 

Pros and Cons of swing trading 

Taking part in forex trading can have its own merits as well as drawbacks. While some traders prefer the swing trading environment, others prefer other methods like day trading to swing trading.

  The best way to be certain about what you want to do is by understanding the benefits it provides and the drawbacks it comes with. Here is a list of the pros and cons of swing trading. 

What is a swing trading indicator?   

To be a successful swing trader, you will need to make the best use of the technical analysis you possibly can.  

One of the most well-recognized methods is the usage of swing trading indicators. These indicators are technical analysis tools that help traders to identify new trade opportunities. 

Since swing traders rely on making a profit off of mini trends and the price fluctuations that follow them, they will need to be on top of these trends as quickly as possible.

With the best swing trading indicators, traders can identify and take steps to make the most of the mini trends that arise in the market.

 Let's take a look at some of the best swing trading indicators. 

 7 Best swing trading indicators 

The moving average (MA) is one of the oldest and most used trading indicators that has been around for decades. This indicator uses moving averages to calculate the average price movement of any given asset over a given period. So this indicator has the ability to smooth out the complexities of short-term volatility.  

There are two types of MAs, and they are simple moving averages (SMAs) and exponential moving averages (EMAs).  
The SMA focuses on past price action, while EMA emphasizes the more recent price action. With MAs, traders gain the ability to understand short, medium, and long-term MAs, depending on the monitoring period. 

 At the current times, these are a bit outdated and laggy. Therefore, the best use of MA is used as a confirmation tool for other indicators. 

These are a type of momentum indicator that traders can use to predict the price movement of any given asset. Stochastic oscillator functions by comparing the closing price of an asset to the range of its prices over a certain period.

  This indicator represents its data to the trader in the form of a chart from 0 to 100. 

 The specialty of the Stochastic oscillator is its ability to display the overbought and oversold zones. These values are noted as above the 80 lines for overbought and below the 20 lines for oversold. This also displays two lines that show the value of Stochastic and the 3day moving averages.

  This is one of the best swing trading indicators to determine the oversold and overbought levels of an asset. 

As with any other momentum indicator, RSI marks the potential oscillations within a broader trend to make them known to the swing traders. RSI functions by calculating the size and magnitude of the recent price fluctuations within the market.

  This indicator acts like an oscillator, and traders use this to understand the overbought or oversold levels of an asset. Same as the Stochastic oscillator, it offers a graph from 0-100 that shows vital information. In this case, it shows the RSI line to inform the traders of the number and size of bullish closes.

  When using the RSI, keep in mind that if the indicator rises above 70, it shows an overbought level. If the indicator falls below 30, that shows an oversold market. Traders can use this information to anticipate uptrend reversals or trend endings. 

This indicator allows a better insight into the volume with its relation to the price action. With the help of the ease of movement indicator, traders can identify whether the movements within the market are affected by a low volume of trades.

 By using the EOM, traders will be able to make better use of the advancements in the price. If the indicator states a value above 0, it shows that the market price is advancing at a steady pace.  

If this value goes below 0, then it shows that the market is falling with increasing ease.

 With the correct use of the EOM indicator, traders will have a better understanding of the market, resulting in better results for swing traders. 

Volume is an indicator that is shown directly on the main chart of the forex market by default. This shows the number of traders who take part in buying and selling a given asset at any given time. This information can be useful for traders when understanding how robust a newly formed trend is.

 All you have to know to understand the indicator is that if the volume value is high, the trend is much stronger.  
This indicator becomes much more efficient when used with breakout strategies.

  Even though this is one of the best swing trading indicators, many traders look past it and opt for other ways. So, if you are a swing trader, make sure to use the volume indicator to increase the profitability of your trades. 

This also is a momentum indicator that can be very helpful for swing traders. The indicator comes with three lines that show the moving average, positive standard deviation, and negative deviation.

 The Bollinger Band is capable of quickly detecting trends, oversold and overbought amounts, as well as volatility.

  With BB, swing traders can get a better understanding of the market situation and whether to go short or long on a trade.

 In addition, the BB indicator depicts market volatility with its width. If the lines move apart, making the BB wider, the volatility gets higher and vice versa.

 In a stable market, the BB line will move towards the center, and the changes to it show the trends that happen within the market. 

 This indicator functions by merging two regular moving averages. This is a bit more complex indicator and calculated by subtracting the 26-period EMA from the 12-period EMA.

 The parameters of the equation can be changed to suit the trader's needs.

  There are three main elements of the MACD, and they are, 

Traders tend to buy when the MACD line crosses above the signal line and to go short when the opposite happens.

  In addition, looking at the divergence between price action and the histogram shows a trend reversal. This is another one of the best swing trading indicators that can help swing traders in their trading activities.

Pro Tip: Using too many indicators will make things overcomplicated and make you overthink your every decision. So our advice is to always keep things simple.

FAQs

Conclusion

Swing trading is a popular trading method and comes with many advantages. If you, too, like to become a swing trader, the best way to go about it is with swing trading indicators. 

Swing traders rely heavily on the points at which price momentum switches direction and the best way to identify these swing trade opportunities is by using reliable swing trading indicators. These indicators allow traders to quickly identify and take necessary actions toward new trade instances. 

Swing trading indicators come in many forms, and this guide aims to help you gain a better understanding of the most used ones. Take the information here and select the most suitable swing trading indicator to help increase your chances of success.