Having seen a familiar model on the chart, you can confidently open a deal
The appearance on the chart of a bar with a widespread gives reason to think. It is not always a question of the total superiority of “bulls” or “bears”. It is possible that a major player believes that the current movement has no potential and begins to exit the deal because when everyone buys, there is a great opportunity to sell. To sail Forex for a long time and successfully, it is best to be in the same boat with professionals, and not with the market crowd. If, after the formation of a bar with a wide price range, signs of weakness of buyers (sellers) appear, a reversal formation occurs. A typical example is the price action PPR pattern.
PPR or Pivot Point Reversal – a model consisting of three or more bars that allow you to identify the pivot reference point. The first of them is a bar with a widespread (No. 1), the second is a bar that managed to rewrite the extremum (No. 2), the third is a bar, the location of opening and closing on which differs from the previous ones (No. 3).
If at the first stage of the pattern formation the quotes of the currency pair move down, it is considered to be “bullish”, as the downward trend risks changing to an upward one. Conversely, a “bearish” PPR is a model, the first two bars of which close higher than they open. At the second stage, one or several bars may appear, the extrema of which update the lows or highs of the previous bar with a widespread. The ideal option is a long shadow. At the third stage, we have a bar opposite in direction, whose body absorbs the body of bar No. 2.
On the daily USD / CAD chart, several PPR patterns appeared in the fall at once. The first of them, consisting of 4 bars, appeared in the first half of September and allowed the bulls to try to restore the uptrend. The second, October (the classic version is three bars) led to its reversal. I draw your attention to the fact that the bar with a widespread in both cases did not differ in increased volumes, there was no continuation of the movement, which is a sign of weakness of the “bears” in the PPR pattern No. 1 and the “bulls” in the PPR pattern No. 2.
The classic approach involves opening a position on the bar next to the model being studied. If we are talking about a “bullish” graphic configuration, then the length should be formed at the maximum level of bar No. 3, if the “bearish” – short at the minimum level of bar No. 3. A protective stop order is placed near the previously formed extremum, exit from the position is based on the personal preferences of the trader. Following these rules would make money on both PPR patterns that arose on the USD / CAD chart.
If you are familiar with the trading system “ Two screens of graphic models ”, then you can use its advantages and enter the deal a little earlier than the classical approach suggests. In most cases, this will increase the profit factor. If in the future on the daily chart the model does not meet the requirements, it is advisable to close the deal “on the market”. In the case of the September PPR pattern, the Double Bottom appeared in the lower time interval. The return of quotes to the correctional highs of the popular model allowed the trader to enter the long 25-30 points lower than the classic requires.
Thus, along with patience, vigilance is an important quality of a successful Forex player. His task is to make out the familiar configuration on the chart and act according to the plan within the existing knowledge base.