Indicator-Free Forex Trading Strategies! Trading with Graphical Patterns!
Greetings, friends, it’s John Foster. I’ve described several indicator-free forex trading strategies in my previous articles, and now I want to explain another one. To be more accurate, our today article will be dedicated to several strategies may be combined. Principles described below are extremely simple and comprehensive for everybody. Novices and pro-traders work with them. The former use just 1-2 rules, and the latter can use up to 20 different patterns while trading.
1.What Are Patterns and How to Use Them?
2.Indicator-Free Forex Trading Strategies! The Most Common Patterns:
3.Which Timeframe to Use for Trading?
4.Alternative StopLosses Setup!
5.When to Leave the Market?
6.How to Gain Maximum Profit?
7.Are Patterns Often Noticed?
What Are Patterns and How to Use Them?
A graphical pattern is the combination of chart bars, which signalizes about the change of the trend, correction beginning or that the current trend continues. There are extremely many patterns nowadays, and every one of them is very understandable. “Price Action” strategy, described before, uses 2 patterns, and another model called the Inside Bar is used in the same-called strategy – “Inside Bar”. I am to explain the principle of how some patterns work.
I must mention that patterns emerge not as often as traders working without indicators would love them to. As a rule, patterns’ signals act with good accuracy, but you may not be able to enter the market too frequently. That’s why one’s recommended to combine several patterns to gain enough without violating money-management rules. Trading with the one pattern, you can gain about 30% of the initial deposit per month, and it will suit beginners. But if you want to trade more profitably, you will have to improve and adjust your system, becoming experienced, adding new rules in it. Thus, I’ve written this article, for you to choose the most comprehensive tools and start making money with them.
Indicator-Free Forex Trading Strategies! The Most Common Patterns:
- So, let’s start with models called “falling star” and “hammer”, which you can see in this para. Actually, despite of different names, these patterns are inversed copies of each other.
- The “falling star”. If there is a bar with a small body and big tail (shadow), pointed up, during current uptrend after a bullish bar, then we should wait for the turn of the trend. With that, the body color of a bar with long tail doesn’t matter – the main thing is that the body must be 3 and more times smaller than the tail. If the next bar closes in the bearish position after the next signal appears (as in the image), we enter to sell. StopLoss must be set at maximum of the signal-bar with a big shadow (at the edge of its tail).
- The “hammer”. The principle looks like that of the “falling start”, but the pattern is inverse. If there is a big-tail bar pointed down after the bearish bar is closed during downtrend, the tendency is likely to change to uptrend. Enter to buy once the next bar is closed in the bullish position. StopLoss should be set at minimum of the signal-bar.
We’ll further talk about hot to set TakeProfits and when to leave the market.
- One of the most common patterns – “Harami”, which can be either bullish or bearish. The essence of the model is that firstly there is a big bar toward the current trend, then – a smaller one, with not that big body and shadows, but against the trend. “Harami”, like in the previous case, signalizes about the upcoming trend change. Conditions for the pattern:
- The body of the second bar is 4 and more times smaller than the body of the first one;
- The first bar doesn’t have elongated shadows;
- Shadows of the second bar are not bigger than the body more than 2 times (if they are, it’s also a signal for the trend change, but the pattern will be called “Harami Cross”)
Enter the market when the third bar is opened after the signal-one. StopLoss must be set at maximum of the signal-bar, if we buy, and at minimum, if we sell. Below, there is the image of the bullish “Harami” and also the level where the StopLoss for buying should be set.
- The following pattern looks like the previous one, and it’s called “Harami Cross”. There is a bar with a yet smaller body, but long tails, as it’s in the image, instead of a bar with a not very big body and tails. The principle of trading is the same as of the previous pattern. There is an illustration of the model.
- Bullish or bearish merger are patterns opposite to Inside Bar model used in the system “Inside Bar”. Nevertheless, the principle is the same.
- If a medium-sized bullish bar appears at uptrend, and then there is a big bearish one, and if maximum of the second one is higher than that of the first one; and minimum is lower, the trend is likely to change. You can see how a bearish merger looks like in the image of the para. Enter the market once the big bar against the trend is closed, the StopLoss must be set at maximum.
- The bullish merger is similar to the bearish one. If another bearish bar is “merged” by a bullish one at downtrend, as it’s in the image, we enter to buy when the bigger bar (container) is closed. StopLoss is set at its minimum.
- The last pair of patterns I am to described contains “Hanged” and “Turned Hammer”. The model shows that activity of bulls or bears leading at the moment starts falling, and initiative is grabbed by the opposite site.
- If there is a bearish bar after a bullish one at uptrend, which has a small body and a long tail pointed down, we must get ready to enter to sell. Open a bearish order when the next bar is closed, as it’s in the image. StopLoss should be set at maximum of the signal bar with a long tail.
- If there is a bullish bar with long shadow pointed up after another bearish one at downtrend, and after the former there is another bullish candlestick, we open a buying order. With that, the tred will be likely to change the direction, as the activity of bears fell. StopLoss should be set at minimum of the signal-bar.
Which Timeframe to Use for Trading?
This question is asked by backers of indicator-free pattern-using trading. Actually, there is no correct answer, as you may use any chart, from M5 do D1. The only thing is that I don’t recommend M1, as patterns of that are quite unclear and often give false signals. Using weekly and monthly also doesn’t make sense, as there, you will enter the market once a year at best, and if you choose them, you will have to engage fundamental analysis only.
The higher is the timeframe, the less is the possible quantity of market entrances, and the more accurate are signals of patterns. Respectively, the lower is the timeframe, the higher is the possible quantity of entrances and the less accurate are signals. You’d better choose the golden mean, considering not only profit, but also your preferences. I must mention now that the maximum profit can be gained with the M5 chart, via several assets, but it will take more than 4 hours per day for working. Your income can exceed 120% per month. If you feel more comfortable working 15-30 minutes per day and have 50-70%, then pay attention to long-term trading at H4 and D1 charts. For somebody, medium-term trading will be great, taking about an hour per day and giving up to 90-100% profit per month.
Alternative StopLosses Setup!
If your StopLoss set according to rules above is very little – then you may use standard rules of StopLosses setup, depending on how long you hold the order. These rules can be read in the article “StopLoss and TakeProfit: What Are They?”.
When to Leave the Market?
We entered the market. And when to close orders? It’s ambiguous, as patterns provide us with entrance, and the leaving point is defined by a trader themselves. Professionals can realize when to close the position, and beginners are usually divided into 2 groups:
- Those who are afraid and close the position too early;
- Those who are greedy and close too late, when the chart has turned in the opposite direction.
To avoid all that, one has to follow clear rules about leaving the market, as it’s just half the battle to predict the direction of the chart, as we need to fix our profit. We have two ways for closing positions opened via patterns:
- With support levels, resistance levels, bank levels, Fibonacci lines, etc. If you know how to set them up, you can close the position with them, as there is a great change for turn. For better understanding – impulse level is the straight line from which the price has bounced off more than 2 times and could not overtake it. To find such level, one just has to scroll the chart back and look how the price behaved in the past.
- The simpler way for beginners is the leaving via TakeProfits. With that, the size of a TakeProfit depends on your timeframe:
- For M1-M5 – 20-30 pips from the opened position;
- For M15-M30 – 40-50 pips from the opened position;
- For H1-H4 – 100-150 pips from the opened position;
- For D1 – 200-250 pips from the opened position.
And you should keep some more rules in mind:
- Once the price passes the half of your TakeProfit – move the StopLoss to the breakeven (on the level where we’ve opened the order).
- Don’t trade with important news (it’s about M30 and lower timeframes). News publishing can be found in the “Economical Calendar”.
- If your StopLoss is bigger than the TakeProfit – don’t enter the market, and wait for the next signal.
How to Gain Maximum Profit?
If you set StopLosses as it’s specified above, you will avoid losses of an abrupt turn of the price, but won’t be able to gain maximum profit from movement, as the continual trend at the daily chart can reach 300-400 pips, and we’ll take just 100-150. In order to save the insurance from abrupt turns, and to gain from the whole trend movement, you should do the following:
- When you notice another pattern – enter the market with 2 orders, each of them must be 2 times less than your standard order. For instance, if you usually enter the market with 2 lots, then open 2 positions 1 lot each. With that, money-management rules will not be violated.
- For the first order, set the standard TakeProfit, and for the second set the double and triple one. Once the signal works out and you get profit with one of two orders, move the StopLoss for the second one to the breakeven. Thus, even if the price turns and breaks the StopLoss, you will not only lose nothing, but also gain those planned pips, as the first order is closed in profit.
Using these rules can increase profitability of your trading more than in 2 times, as you will gain not with the part of movement, but at the whole one.
Advantages of indicator-free forex trading strategies using patterns:
- Trading with patterns is one of the simplest, so even those who meet finances for the first time, will be able to work there. Surely, not all the beginners will be able to combine several models, but everybody will manage trading with the one, and it won’t take long for preparations. The main thing is to set StopLosses correctly and properly follow rules of the strategy.
- Indicator-free forex trading strategies are the best for forecasting the change of the trend, letting you enter not in the middle of the new tendency, but in its very beginning. This way will lead to gaining maximum profit at currency exchange. My colleagues, pro-traders, have 200% and higher profits per month.
- You can use any timeframe for pattern-trading, which makes strategies based on them universal either for scalpers, or for medium-term traders, or for long-term traders.
Are Patterns Often Noticed?
Actually, patterns emerge relatively often, as practically any trend changes when another model appears. Another moment is that there are more than thousand models like these and even professional traders work with 20 of them, not more. So, there will not be so many entrance points in a single quote, by far less than working with indicators or other indicator-free analysis methods. For some, such calm trading with average profitability of 40-50% will be appropriate, and there is a solution for those who want everything in a moment – they may trade with several currency pairs. With that, one will spend more time, but profits will also be greater. I can’t limit you with the quantity of quotes to work with, the one thing – I don’t recommend working with exotic currencies from the Third World, as most patterns are designed for classical quotes like euro-dollar or dollar-franc.
So, that’s all I wanted to tell you about indicator-free forex trading strategies based on patters. I think I gave enough models to choose and start working. If not, I recommend study “Inside Bar” and “Price Action” systems and patterns described in them. The article got to be quite large, - maybe the largest on the website. If you’ve finished reading it, I’m sure you are serious about trading, and you will succeed in working at forex. Choose the strategy, the broker and make your first step to become a pro-trader at forex!
Get lucky and gain much!
Best Regards, John Foster.