A bar with a wide range, as a rule, means that Forex is dominated either by sellers if it closes below, or buyers if the closing price is above. However, everything can turn upside down in the market in a matter of moments: yesterday’s triumphs at the risk of realizing that they were lured into a trap the next day, and will be ready to throw a white flag. On the chart, such situations are displayed as a reverse bar. Its body (spread) in size corresponds to the previous bar, and the closing and opening prices are mirror opposite. In price action, such a combination is called “Rails”. Its occurrence is the first signal that the current movement of the currency pair quotes on Forex can be reversed.
For convenience, replace the bars with candles. Different colors of their bodies facilitate the process of finding a pattern. “Bearing” Rails – graphic configuration, the second candle of which closes below, “bullish” – above. Ranges of candles should highlight the model on the chart. She simply must catch the eye.
On the daily USD / CHF chart, the Rails pattern appeared three times in the fall. At the beginning and at the end of September, he made it clear that the correction to the existing uptrend is rapidly depleting. The Bears are weak and unable to switch to a full-fledged counterattack. The initiative quickly returned to the “bulls”, and the studied model could be used to form a long position in the direction of the prevailing trend. When September exceeded the equator, the Rails started to roll back. If the formation of the model is contrary to the trend, it makes sense to set moderate targets.
Rails on the USD / CHF chart
The strategy for working with the Rails pattern is simple: a long position opens at the maximum of the second bar of the graphics configuration, short – at the minimum of the second bar. Protective stop orders are placed at the opposite end of the model. If the Rail is being developed within the framework of the prevailing trend, the golden principle of trading is “ keep losses to a minimum and let profit grow ”, if not, the trader must overcome his greed and be ready to exit the transaction at any time. Of course, this rule has exceptions: sometimes Rails lead to a trend reversal, but a novice trader should still focus on finding points of depletion of the corrective movement.
Rails Pattern Strategy
In the future, as you gain experience in trading on a pattern, it makes sense to combine it with other technical analysis tools. In particular, the interaction between the Rail and Bollinger Bands gives good results. The formation of two multidirectional bars with wide spreads near the moving average or at the top (bottom) of the dynamic trading range enhances the analytical value of the studied graphic configuration.
In the first and third cases, during the formation of the Rail on the daily USD / CHF chart, there were failures from the moving average within the Bollinger Bands. This confirms the idea of a quick exhaustion of the “bears”. In the second, the “bulls” were not able to advance the quotes of the pair above the upper limit of the dynamic trading range.
Rails and Bollinger Lines
Thus, if two bars stand out on the chart that stands out compared to all the other bars, whose closing prices are mirrored to each other, it makes sense to analyze the possibility of concluding a deal. The direction will tell the second bar of the “Rails” pattern, while the trader should have an idea of the prevailing market trend.