Pattern rails trading rules. Rails pattern - reversal candlestick pattern
The Rails pattern is one of the simplest and most effective, since it consists of only two candles and allows you to open trades with a large reward / risk ratio. Therefore, as part of today's review, we will talk about how to work with this model.
In one of the previous articles, I already gave an example ideal pattern Rails, so it is not at all difficult to guess why it was given such an interesting name - two adjacent candles, approximately equal in size, are very similar to a railroad track.
A similar model is formed in situations where the demand for an asset from amateurs increases (or decreases) many times at the very end of the trend. In other words, in this case, we see traces of irrational euphoria or panic on the chart, which is always observed before a trend reversal.
Characteristic features of the Rails pattern
Unlike many Price Action patterns, the classic version of this pattern has a clear and unambiguous outline, in particular, a candlestick combination must meet the following requirements:
- High and Low of neighboring bars are at the same level (a small error is allowed within a few points);
- The body range of each candlestick is at least 70% of the entire range;
- Bullish Rails pattern is formed after a downtrend, while its minimum is a local bottom (ranges of adjacent candles should not overlap with the pattern);
- The bearish pattern is always at the local top, and its maximum rises above the extremes of all neighboring bars.
Of course, the ideal Rails pattern is rare, so you should analyze several of its additional variations that can be considered acceptable for trading. However, all do not often appear on the price charts in the reference form.
The first such model assumes that the maximum / minimum of the shadow of one of the previous bars is above / below the extreme values of the signal candles.
Here you should pay attention to the fact that the considered assumption is true for High / Low shadows. And if the previous bars closed below (above) the expected signal, then it should be recognized as false, since in this case it indicates an ordinary consolidation and does not carry any meaning.
Within the framework of the presented model, it is recommended to set stop loss above / below the extreme quote of the entire last trend.
Next signal is a special case of a classical formation, since its main criteria are fully consistent with the above basic principles. However, certain proportions between shadows and bodies help to more accurately assess the reliability of the figure, in particular, the probability of the Rails pattern being worked out increases if its second candlestick opens with a gap.
A similar situation in the Forex market can occur only after the weekend, since currency transactions are carried out around the clock five days a week, as a result of which the quotes change smoothly and continuously.
Extreme variant of the Rails pattern
In addition, some speculators distinguish a figure in a separate subtype of Rail, in which the “extreme” Open and Close are at the same level, but the last price of the body of the second candlestick is above / below the corresponding quote of the first bar. It sounds a little confusing, so I suggest you familiarize yourself with an example of what a similar situation looks like.
If a similar model has formed in the market, we can say that the balance of power has already changed to the opposite. In other words, if the classic Rails pattern only indicates a possible change in sentiment, then the formation considered above states an already accomplished fact of a change in mood.
As for the rest of the nuances that play an important role when working with Rails, here I would like to remind you of a few points:
- Stop loss is always set for the last price extremum (it should not be on the quote that the price recently tested);
- Take profit can be calculated by multiplying the value of the stop order by a fixed coefficient (as a rule, it is equal to 2 or 3), more precisely, the potential for movement is estimated based on the dynamics of volumes;
- Speaking of volumes, the higher they are on the Rails pattern candlesticks, the more reliable the formed Price Action figure is.
Special attention should be paid to the combination candlestick analysis with horizontal levels. The fact is that any reversal formation is worked out much better if it is located, since in this case it is reinforced by pending orders that are placed by other traders.
On this note, the description of the "railway" pattern can be completed, since it is elementary in its essence and does not require more detailed explanations.
Any trader would like to learn how to detect market reversals in time, which would allow him to increase his capital well. A large number of indicators have been created to detect a trend reversal, but many of them, unfortunately, give out signals with some delay. Today you will learn about another Forex reversal pattern called Rails. The figure of the rails indicates that the trend will soon change its direction.
What the Rails figure looks like on the chart
The Rails pattern includes 2 candles with long bodies and short shadows, and most importantly, they must be in different directions. You can see how this pattern looks on the chart in the next picture.
Let's discuss the trading rules based on this pattern. Pay attention to the fact that a long upward candlestick with short shadows appeared at the beginning, which means that buyers are winning in the market, who have won before. After that, a descending candlestick with a long body and short shadows appeared on the chart, which indicates that the sellers won.
This was an example of a trend reversal from up to downtrend. If the first candlestick was black and the second one was white, then it would indicate that the downtrend is changing into an uptrend.
Confirmatory signals
A rail pattern in Forex can appear both before a global trend change and before a rollback from the main movement, after which the market trend will continue. In this regard, it is recommended to confirm this using additional tools.
To increase the profitability of trading, experienced traders are advised to stick to following rules:
- Enter the market only in the direction of the trend.
- Use only those patterns that have emerged near important support and resistance levels.
It is also important in the course of trading to use only those figures that differ in the purity of the formation. That is, it is recommended to use only those models that have sufficient body length and short shadows. At the same time, it is desirable that these candles stand out for their length in comparison with other bars, which confirms the increase in activity during this period of time.
How to enter the market correctly
It is recommended to enter the market when this pattern appears using pending orders, which are placed behind the opposite side of the setup.
Trades are opened with stops that are placed on the opposite side of the pattern. These patterns are strong when they appear after an extended trend and near important support and resistance levels.
Immediately after the appearance of the pattern, a Buy Stop order is placed at the top of the pattern, and the stop for the order is located below the minimum of this pattern.
When a pattern appears that foreshadows the inception of a downtrend, the Sell Stop order is set a couple of points below the low of the candles, and the stop is a couple of points above the high of the candles.
As for take profits, they should not be excessively large, since the second candlestick is already a strong impulse, which, according to the laws of the market, will soon begin to fade. For this reason, it is advisable to use a small fixed take profit that can be placed near the nearest support or resistance level. Take can be a maximum of 1.5 times the size of the stop. Experienced traders in this case, it is not recommended to use a ratio of 2 to 1.
Market entry examples
I want to note right away that it is not so difficult to identify the rail pattern on the chart. To do this, it is not at all necessary to enlarge the chart, since the candles should stand out strongly on the chart with their sizes. If this condition is not met, it is best to refuse to enter the market.
Let's take a look at an example of opening a trade on the pound / dollar pair on the daily chart. Note that the rail pattern in our example appeared after a long uptrend, which means that the price is likely to change its direction.
Please also note that this pattern appeared near the support level, which increases the reliability of this pattern. The model is not badly formed, although ideally the shadows should be a little shorter. So, we open a pending sell order slightly below the lows of the candles, set the stop a couple of points above the high of the pattern.
The take for a trade is located at the nearest important level, which in our example can be clearly seen on the chart.
Please note that after the order was triggered, the price passed 70 points, which is negligible for daily charts. I repeat that when opening orders, you do not need to set too large targets.
Now I bring to your attention the Rails pattern, which does not need to be used for trading.
Pay attention to the highlighted area in the previous picture. You see a pattern of rails, with candles whose bodies are shorter than the adjacent candles. This suggests that this pattern emerged in the presence of low activity in the market, in this regard, it is best to refuse to open deals according to this pattern.
A strong pattern should stand out clearly on the chart and have candles with long bodies. In general, a trader should always remember the meaning of a given pattern.
In the next picture, you can see an example of a pattern emerging after a long downtrend. Despite the fact that the price reversed after its appearance, it was not necessary to use it for entry, since the candlestick bodies, as in the previous example, do not stand out for their size compared to the rest of the bars.
In such situations, you need to be very careful, otherwise you risk getting a large number of erroneous signals. When a rails pattern appears on a chart with small candlestick bodies, the price can either reverse or continue its previous direction. In such situations, it is recommended to use additional indicators to find suitable points to enter the market.
In the next picture, you can see another example of a market entry when a rail pattern appears. Notice that a pattern with large candles appeared after the downward movement. This model can be used to enter the market.
Immediately after the close of the second candle, a pending sell order is placed a couple of points below the low of the pattern and with a stop a couple of points above the high of the pattern. Take profit is placed at the nearest support level.
The picture below shows another example of this pattern.
After reviewing the above example, you may notice that after a serious decline in the price level, at the moment the foreign exchange market opens, a gap and a bearish candle with a large body appear on the chart. Further, due to the activity of buyers, the range of the previous day was bought out, which is why a large upward candlestick was formed on the chart. After the closing of this candlestick, a rails pattern appeared on the chart.
Since the candlestick combination is clear, we can create a position against the existing trend. In this case, it is recommended to use a pending Buy Stop deal placed above the maximum point of the candlestick combination. Stop-Loss should be set below the minimum of the pattern, and Take-Profit close to the resistance level.
PriceAction Is a method of market forecasting based on the study of candlestick combinations, graphic figures and important price levels... In this article, we will look at candlestick patterns referred to as Rails. This pattern generates a reversal signal and denotes a change market sentiment... You will learn how to find, mark and use this formation when trading Forex.
How to find the Rails pattern on Forex charts
PriceAction the Rails pattern is a candlestick pattern formed from two oppositely directed and similar in size candles or bars, gives traders a pivot point in a trending market. The hallmark of a strong pattern is large bodies and little or no shadows.
Each bar of the pattern has the following structure:
- forming bar - the body is 70% or more;
- forming bar - the shadow is 30% maximum;
- signal candlestick - the most similar or equal to the forming one;
- the longer the body, the stronger the signal.
The forming candles should be large and stand out against the general background of the chart. The model is suitable for all markets, assets and works optimally on daily and four-hour timeframes. The Rails formation is a multidirectional setup, after which the market reverses, but two scenarios are equally likely: movement in the opposite direction and a short-term flat, followed by signal processing.
Causes of the Rail with tz. VSA on Forex
When some of the major players abruptly leave the market, the current trend is instantly interrupted and changes direction. At such moments in the Forex market, the chart will display two large bars, which are called rails. From a position, in most cases, such a scenario develops due to a sharp preponderance of the remaining market participants with opposite deals. Another driver of a sharp change in direction is the limit orders of strong participants in a range of price levels.
All forces from the previous impulse (forming candlestick) are put into the signal candlestick, so it is easy for the price to form a retracement movement in a new direction. The market starts developing a new trend due to opposite forces or enters the flat stage and waits for new players who are ready to change the balance of power.
Reversal pattern in the forex market Rails appears less frequently than or and has the same definition rules on charts. If the pattern is not visually striking, it means that the seen candlestick combination can hardly be called Rails and it is not recommended to trade it.
How to mark Rails in MetaTrader
Most often, patterns can be seen up close strong levels... The appearance of the rail indicates imminent instability in Forex. To designate the model, in select Insert - Shapes - Rectangle.
The marker is applied to multidirectional and it is convenient for traders to follow the development of the market situation. Same way designation of patterns on forex charts helps to track statistics signal processing.
Forex Rails Trading Rules
The direction of entry along the rails is determined by the second candle . If it is transparent (green), then you need to prepare for a buy entry, if the signal bar is white (red), then market participants predict imminent sales. Optimal entry times start at H1 and end at MN. On smaller timeframes, the profit potential is low and the model often shows a false signal.
In pure form a pattern called rails helps prepare for market changes or wait for an opportune moment for a timely one. It is considered secondary and without additional triggers on the chart is used in the case of an ideal structure.
Additional factors that increase the reversal signal on the rails:
- long-term unidirectional trend;
- increased on the forming candle;
- the pattern ran into a significant Forex level;
- the bodies of the setup candles are larger than the previous candles;
- level change.
If these graphical triggers are observed in conjunction with the pattern, forex traders can safely place orders and expect a trend reversal.
Entry, Stop and Profit Points on Rails for Forex Traders
Preparation for placing an order for aggressive traders begins at the stage of the end of the formation of the signal bar body, the entry is made at the market with a Buy or Sell order. If the body of the second candlestick is larger than the first one, the pattern will be rebuilt into a model that also predicts a chart reversal. The conservatives' tactic implies placing a pending Stop order after the body of the reverse bar is closed.
Optimal the strategy of trading on rails in Forex is to open a market order on the next candlestick after the signal one. is set 10 four-digit points above / below the extreme of the model. The profit potential for the pattern is calculated in two ways: the profit taking area is set from the StopLoss size - 1: 3 and higher, the second option is based on placing a TakeProfit order at 50% of the previous trend (broken trend).
Profit management can be developed in three scenarios: wait for the order to close by TakeProfit and wait for new market signals, close the profit in stages with the transfer of the stop to the green zone, the third option implies installation with activation at 50 - 80 points from the entry point.
Rail pattern in the real market
Consider a bearish setup on currency pair AUD / USD on a daily timeframe. This pattern has become a confirmatory factor for a long-term reversal movement and the second extreme of the pattern. Another additional technical argument was a rebound from an important price level.
Next example of bullish rails on USD / JPY gave Forex market participants a signal of a trend reversal on the H4 period. This price point has set new support for further trends.
The third market situation with rails on Forex is confirming, the pattern formed in the direction of the trend and launched the price up after rebounding from the resistance line.
Conclusion
PriceAction nrail turning attributes- a simple candlestick formation, which is built from two oppositely directed and similar in size candles. Their appearance on Forex charts predicts a reversal or short-term flat for stock speculators. Replenishing the arsenal with new strategy models always helps the trader to notice more entry points and regularly increase the potential of his profitability.
Happy trading!
Hello dear friends! We continue to study trading on foreign exchange market by the Price Action method. The article will focus on the Rails pattern, it is a reversal setup and signals a change in the direction of price movement. It does not appear on the charts very often, but it should definitely be taken into account as an additional tool for technical analysis.
The Rails pattern consists of two impressive in size and multidirectional candles, while their bodies should be as large as possible, ideally 70-90% of the total candle size.
Do not look for it with a magnifying glass on the chart, the pattern should stand out clearly and clearly!
We enter the market with pending orders placed slightly above (High) of the second candlestick if it is a bullish setup and below (Low) if it is bearish.
Stop loss is set accordingly from the opposite side of the entry. In the case of a bullish setup, it is slightly below (Low) of our pattern (this can be the Low of both the first and second candlesticks), and in the case of a bearish setup, it is slightly higher (High).
Let's see what the Rails pattern looks like on the chart:
An important point, the pattern should have a support in the form of horizontal levels,, etc. That is, there should be an additional confirming factor of our setup, if it is not there, and the pattern is drawn from scratch, take it into account it is forbidden!!!
Do not set large targets, the maximum of the nearest horizontal level or one and a half times the stop loss, since the movement can quickly end and go flat, due to the impressive size of the candles themselves. Their size already tells us that a strong movement has taken place, and we should not wait for any other strong impulse.
Let's take a look at entering and exiting positions using the patterns shown above:
As you can see, both patterns have supports in the form of horizontal levels. The bearish, additionally, has a support in the form of an exponential moving average with a period of 50 (acts as a dynamic level).
The take profit of the bearish setup was set just above the nearest horizontal level, and the bullish one and a half stop-loss size.
In the first case, the target was taken, in the second, alas, the price did not reach the take profit (the pattern does not always justify our hopes). But it was desirable to get out of this position at a dynamic level, or at least when a rebound occurred from it, the profit would not have been great, but the deal would not have gone negative.
Important: pay attention to the trend. Let's say that the rails pattern was formed on a price correction, and if the market entry is in the direction of an established trend, this gives it strength. In the case I have considered, entering the market using a bearish setup followed the trend.
That is, in fact, all that I wanted to tell you about the "Rails" pattern. Happy Bidding! Goodbye.
Best regards, Evgeny Bohach
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Those that belong to the main patterns, distinguish between minor patterns, which give, although less strong, but still quite clear signals for trading actions. Strengthening factors in trading Price Action patterns are, as a rule, horizontal, Fibonacci levels, etc. Secondary setups include the Rails model. The pattern is represented by two large candlesticks that clearly stand out from the rest. The body of the candle should be at least 70% of its entire length. The main condition is that the candles are multidirectional, that is, one is bearish, the other is bullish. The setup refers to reversal and predicts a change in the direction of the price trend.
The model will be the stronger, the more reinforcing factors will accompany it. Enhancing factors include:
- - the size of the candles - the longer they are, the stronger the signal;
- - the appearance of the model upon completion corrective movement towards the previous trend;
- - the presence of a support - horizontal levels, Fibonacci levels;
- - older time frames give stronger signals.
Trading rules for the Rails pattern.
There are two types of Rails pattern - bullish and bearish. A bullish pattern is characterized by the location of candles, where the first is downtrend, the second is ascending - a signal of a trend change to an upward one:
Rice. 1. Bullish Rails pattern.In a bearish pattern, the first candlestick is ascending, the second is descending. This pattern signals a trend change to a downtrend:
Rice. 2. Bearish Rails setup pattern.When the Price Action Rails pattern appears, it is necessary to check for support in the form of significant support or resistance levels. If the setup is located on them, then the possibility of making deals can be considered.
Trading on the Forex Rails model is carried out using. The order is placed after two candles of the setup are fully drawn on the chart: for a bullish pattern - slightly higher than the formed pattern, for a bearish pattern - slightly lower. Stop loss is required and it is placed on the opposite side of the setup, slightly lower (for a bullish pattern) or slightly higher (for a bearish pattern):
Rice. 3. Trading on the Rails pattern.The Rails pattern signals short-term price momentum in the opposite direction to the previous trend. As a rule, after this impulse begins, so you should have time to correctly recognize the pattern and enter the market for your part of the profit, albeit not very large. Profits will also be taken at significant nearby levels:
Rice. 4. A way to exit a transaction on a horizontal level.
The second option for this Price Action pattern is to set take profit one and a half times more than stop loss.
In the overwhelming majority of cases, after the Rails pattern is formed and a trade is entered, the price rolls back towards the stop loss. But until the retracement is 50% of the pattern height, the model is considered to be working. Otherwise, it is better to close the order manually, albeit with a small loss, and wait for new signals to enter the market. And one more thing - if you doubt whether combinations of two candlesticks are a Rails pattern - such a combination better skip... Subjectively, even a cursory glance at the chart should be enough to recognize this price pattern.
The Rails bar pattern is pretty simple model Price Action for beginners to understand. These patterns are very clearly visible on the charts, there is no need to be applied to determine this candlestick combination. And although when trading this pattern you will not get more than 1000 pips profit, the strategy based on the Rails model will bring a small but stable income after understanding the work of this candlestick combination and working it out on a demo account!
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