The Acceleration Candlestick Pattern
2016 has been a volatile year, with most asset classes moving in sharp bursts. Most traders stay away from such markets, however, I want you to capitalize on this. Hence, in this article, I will teach you how to enter and exit a fast moving market with a low-risk setup.
As always, we will formulate certain entry rules to avoid getting whipsawed.
What is momentum trading
Momentum trading is piggybacking on a market moving strongly in one direction. The sharp move can either be because of a news, an event or earnings release. Usually, most traders miss getting in at lower levels and are afraid to enter fast-moving markets.
Without a proper strategy, momentum trading can be detrimental to your trading …show more content…
For long positions, we enter a buy a tick above the high of the pin bar.
2. If the next bar to the pin bar doesn’t trigger the trade, we abandon the setup, because, may times, a break in momentum can lead to a consolidation or a reversal. Hence, we want to enter only when the momentum reasserts itself.
3. The initial stop loss for the trade is just below the low of the pin bar.
4. As the markets continue in our desired direction, we keep trailing the stop loss higher, just below the low of the next bar, as shown in points 1-11 in the chart below.
5. We exit our trade when the low of the bar is violated, as shown in the chart below. Why does this trade work?
As the pair moves sharply in one direction, as shown in the chart above, the aggressive bears consider the pin bar as the point where the buying momentum is waning. They enter shorts believing that the move will retrace or reverse. However, the bulls use the small dip to buy.
As soon as the buyers push prices above the high of the pin bar, the bears scramble to cover their shorts providing fuel to the rally.
As this is a momentum trade, we want to remain in the trade as long as the next consecutive bar continues making a higher low. We exit only when the higher low pattern is broken, as shown in the chart …show more content…
The buy order is filled, but, after two bars, the low of the bar gets violated hitting our trailing stop loss. The trade ends flat without a significant profit or loss.
A quick round up
This is a strategy best suited for momentum markets. Its best feature is a small stop loss and a large profit potential as the markets overextend when in momentum. Our rules help us to enter only the best trades.
1. Select the markets in momentum with an ADX reading of 30 or higher.
2. Look for pin bars. This is our signal bar; we are ready to enter a long if the next bar moves one tick above the high of the pin bar.
3. Many times, the order doesn’t get filled, at such times, we abandon the signal bar and start afresh.
4. However, if the buy order is filled, the stop loss is placed one tick below the low of the pin bar.
5. We trail the stop loss higher, placing the stop loss one tick below the low of the consecutive bar.
6. We exit when the series of higher lows gets broken.
This trade is suitable for both long and short positions. Practice and try to locate the pattern on the charts, in no time you will be jumping on and off the momentum markets, when the other traders helplessly sit and watch the markets run
2016 has been a volatile year, with most asset classes moving in sharp bursts. Most traders stay away from such markets, however, I want you to capitalize on this. Hence, in this article, I will teach you how to enter and exit a fast moving market with a low-risk setup.
As always, we will formulate certain entry rules to avoid getting whipsawed.
What is momentum trading
Momentum trading is piggybacking on a market moving strongly in one direction. The sharp move can either be because of a news, an event or earnings release. Usually, most traders miss getting in at lower levels and are afraid to enter fast-moving markets.
Without a proper strategy, momentum trading can be detrimental to your trading …show more content…
For long positions, we enter a buy a tick above the high of the pin bar.
2. If the next bar to the pin bar doesn’t trigger the trade, we abandon the setup, because, may times, a break in momentum can lead to a consolidation or a reversal. Hence, we want to enter only when the momentum reasserts itself.
3. The initial stop loss for the trade is just below the low of the pin bar.
4. As the markets continue in our desired direction, we keep trailing the stop loss higher, just below the low of the next bar, as shown in points 1-11 in the chart below.
5. We exit our trade when the low of the bar is violated, as shown in the chart below. Why does this trade work?
As the pair moves sharply in one direction, as shown in the chart above, the aggressive bears consider the pin bar as the point where the buying momentum is waning. They enter shorts believing that the move will retrace or reverse. However, the bulls use the small dip to buy.
As soon as the buyers push prices above the high of the pin bar, the bears scramble to cover their shorts providing fuel to the rally.
As this is a momentum trade, we want to remain in the trade as long as the next consecutive bar continues making a higher low. We exit only when the higher low pattern is broken, as shown in the chart …show more content…
The buy order is filled, but, after two bars, the low of the bar gets violated hitting our trailing stop loss. The trade ends flat without a significant profit or loss.
A quick round up
This is a strategy best suited for momentum markets. Its best feature is a small stop loss and a large profit potential as the markets overextend when in momentum. Our rules help us to enter only the best trades.
1. Select the markets in momentum with an ADX reading of 30 or higher.
2. Look for pin bars. This is our signal bar; we are ready to enter a long if the next bar moves one tick above the high of the pin bar.
3. Many times, the order doesn’t get filled, at such times, we abandon the signal bar and start afresh.
4. However, if the buy order is filled, the stop loss is placed one tick below the low of the pin bar.
5. We trail the stop loss higher, placing the stop loss one tick below the low of the consecutive bar.
6. We exit when the series of higher lows gets broken.
This trade is suitable for both long and short positions. Practice and try to locate the pattern on the charts, in no time you will be jumping on and off the momentum markets, when the other traders helplessly sit and watch the markets run