How to use the price action pattern to understand whether to buy or sell an asset?
It’s easy to say “trade with the trend”! Looking at the schedule, it is difficult to understand how stable the trend is, are the risks of a U-turn increasing, and is it worth trying to jump into the last train car? Even the proximity of the S&P 500 to historic highs does not convince us that bulls dominate the market. It is believed that global stock indices entered a bearish trend in January 2018, and the American stock market is artificially supported by the White House and the Fed. However, nothing lasts forever, and soon the S&P 500 will face a deep correction. How to act in such conditions for a novice trader?
He should be guided by signs of strength and weakness of the current trend. We analyzed many of them while studying the VSA analysis in this blog. Let’s get back to some tips today. However, the main character of the current material will be the Force-bar, which is called “bald” on the slang of traders. Its main characteristics are the almost complete absence of shadows and a widespread. The emergence of such a pattern indicates that the market is dominated by “bulls” (if the Force-bar closes above) or “bears” (if the Force-bar closes below).
Force bars on the daily GBP / USD chart
The theory states that “bald” is a confirmation of the sustainability of the existing trend. It helps the trader to determine the further direction of the price movement, but the entry points to the transaction must be sought independently. Two conclusions can be drawn from this. Firstly, at the initial stage of using the Force bar, it makes sense to ignore the kickbacks prompted by it and to open a position only in the direction of the trend. Secondly, despite the fact that the simplest strategy is to buy the maximum if the “bald” one closes at the top, and the sale of the minimum, if it closes below, the trader should have his own approach to working out the model.
Personally, I am impressed by the transition to a lower time interval and the search for entry points based on trading strategies to restore the existing trend. In the case of GBP / USD, switching to the hourly chart allowed the formation of long positions at the end of the diagonal or dynamic support lines. In the first case, the combination of the “ Three Touch ” and “ Inner Bar ” patterns worked out.
Force bar strategy
Experienced traders know that exit from a transaction is much more difficult than entering. I recommend following the first screen. It should show signs of depletion (weakness) of the bullish trend. In the case of the pound, they did not have to wait long. When the asset closes far from the maximum at higher volumes, the trader needs to be alert. As a rule, this indicates that “bears” are beginning to wake up. Furthermore: low volumes with closing up – VSA pattern “No demand”.
Signs of a weak “bullish” trend on the GBP / USD chart
As soon as such situations arise, it is necessary to close part of a long position or to fully take profit. In the example with GBP / USD, the market gave us approximately 2.5 pieces to earn, with a stop order of less than one (profit factor is about 3 to 1). Surely in the future, there will be new signals for entry, so do not cling to a deal in the market that has begun to give signals about a reversal.
Thus, the Force bar is a price action pattern that allows you to believe in the strength of the prevailing trend. To test it, you can use the two-screen system and closely monitor the appearance of signs of weakness of buyers in the bull market or sellers in the bear market.