Rail pattern – signal of market reversal
Today I want to tell you about the candlestick model, which shows a high percentage of workouts. Its appearance on the price chart is a chance for a trader to enter the market at the beginning of a new movement. Pattern rails signals a possible change in the market trend. Whatever trading strategy you use, using candlestick models will improve the quality of signals and the trading result.
What is this rail pattern
This pattern consists of two candlesticks that have different directions. In addition, they should have large bodies of about the same size and small shadows.
Ideally it looks like this:
The first of the two candlesticks is called the forming candlestick, and the second candlestick is called the signal candlestick.
This is the technical side of the pattern. What’s going on at the market? As a rule, rails are formed on the chart when large players leave the market after a strong trend movement. In this regard, the trend is abruptly interrupted and the price dynamics changes its direction, because there are participants with opposite orders in the market. In addition, limit orders can cause a sharp change of trend. In this case, of course, we are also talking about large market players. They’re the only ones that can have such a significant impact on the market.
How to trade on rails
Trade rules are very simple. Track the pattern on the chart. And then we consider the possibility of opening a trading position in the direction of a signal candle. But to reduce the risk of entering the market by a false signal, one should pay attention to additional factors.
The quality of the signal increases if:
Pattern formation was preceded by a strong and long-term trend;
Size of the bodies of the pattern candlestick is larger than the body of the previous candlestick;
Model formation occurs on the background of large volumes;
rails appeared near a strong support or resistance level;
High market volatility.
For fans of aggressive trading, the market is entered at the stage of completion of the signal candlestick formation. For those who prefer more careful trading, the best option is to open a trade after closing the second pattern candlestick at the opening of the next.
Stop-loss should be placed a few points below/above the minimum/maximum of the pattern price.
Well, there are various ways to fix the profit. Classic variant: set take profit, which is three times higher than SL.
All in conclusion, I suggest you see how rail pattern looks on the real chart: