Areas of market consolidation near the resistance and support levels and how to use them in trade.
“The third candle” strategy
As you know, three is a magic number, so there is a forex strategy named “The third candle” that proved to be rather efficient. We suggest you learn it and add to your ammunition to earn more money while trading. The strategy can be applied to any currency pair on any timeframe. In order to use it you should plot stochastic indicator (5, 3, 3) on your technical chart.
How to use it
1. Select the first candle. Its maximum and minimum should be located higher than that of the previous candle. The color of the previous candlestick does not matter.
2. Wait until the second candle closes in the red zone, the closing price of the previous two candles should be lower. If the second candle opens above the closing price of the first candlestick, the bearish signal is particularly strong.
3. Open a short position at the opening of the third candle. The signal must be confirmed by Stochastic indicator.
4. If the bodies of the first and second candles are very small – you shouldn’t enter the market, because quotes failed to get momentum and bears are losing their strength.
5. Stop loss should be placed a few pips above the high of the first candle.
6. Take-profit is usually plotted at the close of the third candle.
7. If you set a take-profit target at a certain mark, but the price is moving sideways, it is advisable to close the position at the fifth candle once the order is open.
And one more thing to bear in mind: don’t use this strategy in a highly volatile period of trading.