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The pattern of absorption and trade in the financial markets
Candlesticks and the method of Price Action pattern of Absorption is one of the Central links, as it is a fairly impressive and reliable reversal figure. Today's review will be devoted to a search algorithm corresponding formations on the chart, as well as the rules the same shopping strategy.
Let's start with theory. Absorption in Forex and indeed in trading is a situation where a new candle completely covers the previous one in the opposite direction. Sometimes in the literature one can find alternative the name of this shape – the outer bar, but in both cases we are talking about the same model. The first option is often used by authors of books on classic candlestick analysis and the second term I prefer to use Price Action supporters.
It should be noted that not every such "overlap" can be considered a pattern of absorption, since the correct figure should meet the following mandatory criteria:
it is formed only after a pronounced trend and are not within the range;
the price movement is enhanced;
the first candle of the model directed towards the previous trend, and the signal bar is always a reversal.
Absorption - the figure Forex
The picture above shows examples of patterns of absorption, most frequently occurring in all financial markets, whether Forex, stock or commodity exchange platform.
As you can see, in this case the shadow of the first candle can go beyond the range of the key bar, but there is still an ideal model, in which the body of a new candle completely covers the previous range.
The pattern of Absorption and its features
This does not mean that the graphs need to look strictly second option signals the ideal pattern of absorption often bring profit, so when they appear you can slightly increase the risks that makes all the difference.
Why and when there is Engulfing pattern
To describe the process of formation of this shape can be very simple, because here all again rests in the psychology of the bidders. Of course, the technical side of the question (e.g., algorithm information, filings of traders), also plays a role, but most often the pattern of uptake is a result of the actions of the crowd.
To all to understand, deploy one such bear figure on a smaller timeframe and denote the points of the beginning/end of two trading days on the basis of which was formed the model.
Figure Absorption on the Forex what is
Unfortunately, it is not Forex the absorption, and a similar formation on Apple shares, as foreign exchange market this situation appear much less frequently than on the "Fund," but this I will say in the last part of the review. We continue to deal with the mechanism of pattern formation.
As you can see, during the first trading session of this tool were mixed, but towards the end of trading, the bulls began to aggressively buy the asset.
The end of the trading session
The next day the market opened, was the application of some slave Amateur players who operate on the principle "all ran and I ran," resulting in strong, gap – price gap.
How is the gap
It was a great chance for a smart customers to lose part of the previously received long positions and record thereby profit. Of course, this is not always the case, because if such a gap were formed on more reasonable "fundamental" levels, the price could continue to rise in the direction of the gap, but happened what you have on the chart – the smart traders have refused to stock up on Apple shares.
Absorption on the chart
Then everything was on the thumb – some time the asset was in range, but towards the end of the session, the event broke previous day's Low, what provoked sellers to open new positions, but also led to the triggering of stop orders buyers of intraday traders.
Looks like a break out Low
The result formed the pattern of absorption, after which none of the major players have not decided on a new purchase, and the action flew down.
The use of absorption on the Forex
I just gave an example of a stock exchange, but currency market players are subject to the same rules, so this pattern can safely be used when trading popular pairs.
The only caveat, which you should take into account is the relative rarity of such figures, because FOREX runs continuously, 5 days a week, and this means that adequate gaps can be formed only after the weekend.
By the way, there is one trading strategy called "Forex engulfing". Its rules are as follows:
After the formation of bullish pattern of the same name is set pending order buy stop several pips above the High of the second candle.
If formed bearish signal "the way" sell-stop is placed just below the low of the last bar.
Stop loss is calculated on the basis of the second candle by the formula: High – Low + 5 pips.
TP is defined as the stop loss multiplied by 1.5 (or 2 if we are talking about the ideal Forex acquisition).
Bullish engulfing Forex chart
In principle, as the use of pending orders reduces the likelihood of false signals in this strategy you cannot use any additional filters and tools, but keep in mind that Forex is the absorption only works on the daily timeframe and all higher timeframes.
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| Category: Forex | Added by: (30.10.2017)
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| Views: 586
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