Part-time Trading - Part 4.6

Continuation Formations:
First of all we must know that any type of continuation begins with a breakout. We learnt about Fake breakouts and reversal. If the price moves towards the support / resistance and breaks about or below the S/R without any hesitation then it is Continuation Formation. As I said before, the price MUST breakout for Continuation. There are lot of types of candlestick patters which indicates Continuation Formations. Let us learn on few types which give us good win / loss ration. Please mind these continuations can happen on Horizontal level of S/R or Diagonal Line of S/R or Range Boundaries or Fibonacci Lines.

Breakout Congestion Continuation:

In the above picture assuming the blue line as Resistance Line, you can see a Green momentum candle break beautifully and then there is a hesitation candle or sandwich candle after that a solid green candle which shows the price moving upwards. This patters may happen at all support / resistance but this specially happens on RANGE BOUNDARIES. These are best suited at flat top or flat bottom triangles for best win/loss ratios.

Breakout Congestion Continuation patters is usually made up of 3 candlesticks just like it's name, 1 breakout, 1 congestion and 1 continuation candle stick. Very important thing we must see a full length breakout candle (small wicks and very long body) on the S/R line on diagonal or horizontal line. The Congestion Candle must be a small one preferably either doji or spinning top. Please keep in mind that this congestion candle must close above the resistance line or below the support line. It must never get below the resistance line or above the support line ever. It must show you that the market is remaining above the resistance level or below the support line. The continuation candle will be our trigger candle. We will trade on this candle.

We trade here exactly like we traded our reversal formations. We wait for the congestion bar to close. We place an entry order (2 lots) 5 pips above the congestion candle and stop loss will be at  5 pips below the congestion candle. Please don't try to trade aggressive way as the congestion candle will be very small in size that's the reason why we give stop loss little higher that the usual conservative way. We are going to close 50% of the trade at the closing of the first candle and the remaining after the second candle. Off-course we are going to adjust our stop loss after closing our first 50% to break even.


Breakout Pull-back Bounce:

In Breakout Pull-Back and Bounce Formation, it is almost similar to the Breakout Congestion Continuation Formation but the Breakout candle takes the price little more higher from the breakout point so that it takes little more candles to form for the price to pull back towards the resistance level (or support level) to base our entry.It may take two candles or 3 sometimes for us to take an entry. In the above picture we see two candles are not enough to retest the breakout point. Here you can find a spinning top / doji or a hammer to confirm a trade. Hammer some time is like a fake breakout. Here please keep in mind you are not going to see doji/ spinning top and hammer together. If we see a spinning top or a hammer we trade like above, 2 lots 5 pips above the high, stop loss (5 pips below for spinning top or doji / 50% candle length of candle if it is hammer). we close 50% trade on the first candle and 50% after the closing of the second candle.

Full Swing Reversal:

This is same like the reversal formation with one key difference. In the reversal formation we use it as COUNTER TREND entry signals. But here it is a reversal to follow the trend. Again we are going to trade IN THE DIRECTION of trend in a reversal fashion. We trade in the same way like we trade the reversal formations with hammers, railway tracks, doji, spinning tops, outside bars & inside bars.

Now we learnt different types of Candlestick Patters, Different types of trading Se-ups. From the next week onwards we will start to trade on real charts.

I will post my part-time trades here. In the future we will learn about Intra-day Trading and News Trading too. For all the posts related to Part Time Trading please click here.


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Part-time Trading - Part 4.5

Fake Breakouts:
When the price tests a support / resistance three possibilities can happen. 1. Continuation 2. Reversal & 3. Fake Breakout. We learnt about reversal in the previous post. Now let us learn about Fake breakouts. If a price moves towards the support / resistance and tries to break above if it is resistance and below if it is support but cannot hold longer and forms reversal then it is fake breakout.

If you see in the previous post (examples for reversal patterns) the first example itself is a good fake breakout. Where you can see the price tries to move up wards but cannot hold longer and forms a hammer which indicates for a good short (sell) entry.

Good Luck.

Part-time Trading - Part 4.4

How to place the Trade?


Let me explain it with an example.

In the above picture, you can see AUD/USD on daily time frame. you can see that I have drawn a resistance line and the price touched there forming an inverted hammer.
Here as soon as the candle closed,what I do is I will place an entry trade for say 2 lots. I place the entry trade to sell AUD/USD 5 pips below the low of the previous candle (Inverted Hammer) and the stop loss will be 5 pips above the 50% of that candle. That is a conservative trade set up.
An aggressive trade up will be I will take trade immediately after the closing of the candle a sell trade and the stop loss will be 5 pips above the high of the candle.
To close the trade, we wait for the new candle to close (that is next day) and close 1 lot out of 2 lots (50% trade) and the rest 50% trade we will close on the end of  next candle AND here we are going to make a small change in the stop loss, i.e, we will change the stop loss to break even.

Let's take another example.

In the above picture, we see EUR/CAD on daily time frame. You can see a nice red inverted hammer on the resistance line. We do the same thing. If we want to trade conservative set up, then we place a sell order on EUR/CAD 5 pips below the low of the inverted hammer and stop loss will be at 50% length of the candle. If we want an aggressive trade then we place a sell trade immediately after the end of the inverted hammer and our stop loss will be 5 pips above the high of the candle. we close our 50% trade at the end of the present candle and remaining 50% at the end of the second candle.

Please note that the trading set up will be same on any time frame on any currency pair. But it is up to you whether to take conservative trade or an aggressive trade.

Let us see an example of outside bar candlestick pattern:

In the above picture you can see CAD/JPY on daily time frame. You can see that outside bars forming at the support line. If we took a long trade, it was very good winning trade. You can see two consecutive green long candles.

Let me just show you how railway tracks look on a real chart:

In the above chart I have marked two circles in Gray where you can see nice railway tracks. Eventhough there were no trade set ups, I thought it was good for the future reference

That's all for now, Have a great day.