There is a special section in every good price action trader’s toolbox reserved for Forex chart templates, and for good reason.
In addition to technical graphic patterns such as head and shoulders or bull and bear flags, these candlesticks can offer you the chance to understand the sentiment that is driving a particular market.
In this lesson, we will cover three of my favorite Forex chart patterns. I assume you are familiar with Japanese candlesticks.
If not, you may want to visit this post and then come back.
When you finish this lesson, you’ll know how to identify these formations, what makes them so profitable, and the price structures to stay away from.
I will use the terms “candlestick” and “bar” interchangeably during this lesson. A pin bar or an internal bar can technically be called candlesticks and internal charts, but these are not so common.
1. The pin bar and its ability to signal turning points
Let’s start with my favorite candlestick called pin bar. Like most formations, these can form as a bullish or bearish signal.
So what exactly qualifies as a pin bar?
Let’s take a look…
I hope the video above clarified all the questions you may have had on the pin bar.
Here is an illustration of the features we have just discussed.
Before we get into why these are so powerful, let’s first analyze the components of the structure.
The tail of a pin bar is also called a “wick” or “shadow” and represents the most critical element of the model. As a general rule, the tail should make up at least two-thirds of the entire pin bar. Note how the tail on the two pin bars in the illustration above is much more pronounced than the rest of the structure.
Next is the body. The body represents the opening and closing of a pin bar and can vary in size. However, there should not be much space between opening and closing.
The first rule on the queue should help keep you in line. After all, if the tail is at least two-thirds of the candlestick, then the body should be relatively small.
The nose of the pin bar, which is sometimes non-existent, is important only as it refers to the tail and body. If the tail follows our rule of being at least 2/3 of the entire bar of the pins, and the opening and closing are close to each other, then the nose should not be a make-or-break feature.
Just know that the nose should be as small as possible, just like the picture above.
Why the exchange?
When it comes to Forex chart templates, the pin bar is by far my favorite.
- It is easy to spot when you have the chart setup to trade Forex price action
- Provides a favorable place to hide your stop loss
- Pin bar can be extremely profitable when used correctly
- They are effective both on the daily period and on the 4-hour period
Now that you have a solid understanding of the features to look for, let’s get into a couple of examples.
The first is a bullish pin bar that occurred on the NZDJPY daily chart.
Note how after a long downward movement, the NZDJPY found support and subsequently formed a bullish pin bar.
This pattern triggered a sharp movement higher towards the previous oscillation lows, which acted as resistance.
Next is a bearish pin bar that occurred on the EURUSD daily time frame.
In this case, the EURUSD had carved out an ascending channel. At the second new resistance test, the sellers came out in strength and eventually formed a bearish pin bar.
This particular chart formation triggered a drop of 400 pips in the next eighteen sessions.
I wrote a more detailed lesson on the pin bar where I delve into what makes a tradable setup and where to place the stop loss and goal.
2. Nothing says continuation like the inner bar
The inner bar is one of the most misinterpreted Forex chart templates simply because they are not difficult to find. This observation is especially true for those who trade less than day charts.
Check out the video below where I explain the features of the inner bar and an easy way to determine if one is bullish or bearish.
To recap, here’s an illustration showing the attributes of an inner bar:
The range of the inner bar (from top to bottom) should be swallowed entirely from the interval of the previous bar, also called “mother bar”.
Another way to say this is that the mother bar should completely swallow the flow rate of the inner bar.
So what makes the indoor bar so profitable?
When it comes to Forex chart templates, the inner bar is my second favorite model to trade.
- It can serve as a profitable continuation model if it occurs during a strong trend
- Provides a favorable place to hide a stop loss
- A tradable internal bar doesn’t occur often, but when it does it can be a highly effective Forex candlestick pattern
Here’s a great example of the inner bar in action:
Notice how the inner bar in the chart above formed during a strong upward trend. An established trend is a requirement for trading this particular candlestick model.
The reason for this is that the inner bar is nothing more than consolidation. So we have a strong trend followed by a consolidation that leads to a breakout in the prevailing direction.
Pretty simple stuff, right?
The chart below shows two bearish internal bars that formed on the EURUSD daily chart. Note that the pair had been on a downward trend for several months, so these are bearish continuation patterns.
It could be argued that the first signal in the chart above was also a pin bar, and I would agree. The combined rejection of previous support and consolidation made the business setup incredibly profitable.
To learn more about internal bars, including which ones to trade and which ones to avoid, check out my detailed lesson on trading the inner bar model.
3. The inversion of the swallowing bar misunderstood
Last but not least is the swallowed candlestick. Unlike the inner bar that we have just studied, this formation most often signals a reversal in the market.
Why do I call it a misunderstood model?
Because it takes more than one swallowed candle to secure a location. To be considered marketable, a swallowed candle must develop at a key level of support or resistance and after a prolonged upward or downward movement.
Here is a short video that explains what I am looking for…
While the video above only addresses the bearish candle it swallows, the same rules apply to its inverse, bullish swallowing.
In order for it to be profitable, a swallowing pattern must form a high or low swing. Only then can it be used to formulate a business idea.
Notice how the interval of the swallowing bar completely swallows the interval of the previous bar. Hence the name, this is the most important and significant feature of this model. It is also what makes it such a profitable signal.
While the swallowed bar template is my third favorite Forex candlestick template, it can be extremely significant when used correctly.
Here are a few things to keep in mind when exchanging them…
- They typically signal an impending reversal
- These models should be used only in the daily time interval and after a prolonged upward or downward movement
- When used as an input signal, your stop loss should be placed above the top swallow bar for a bearish model and below the low swallow bar for a bullish pattern
- For a higher probability configuration, always combine them with other favorable methods or techniques.
The bearish swallowing pattern below occurred on the AUDUSD daily chart.
In fact, there were two key resistance back-to-back formations.
As you can see, the couple had cut out a wedge pattern. The two bearish signals formed at resistance, creating two profitable opportunities.
Know that the first candle in the chart above is also a bearish pin bar or at least a bearish rejection. It is rare, but these two models can sometimes overlap.
Always remember that a bullish swallowing pattern at a low of swing is a sign of potential strength. It signals that the current downward momentum is likely to come to an end.
Alternatively, a bearish swallowing pattern at a swing high is a sign of potential weakness. If you see a form this way, chances are good that an increase in selling pressure is on the way.
Last but certainly not least, both models of candlesticks must form at a key level to be negotiable. Otherwise, you may find yourself trading a lot of false positives.
Whether you trade using raw price action or some other means to identify favorable configurations, the three chart patterns mentioned above are sure to improve your trading.
As profitable as these trainings may be, always remember that there are never guarantees. Just like any other Forex trading strategy, the above three can and do fail, so always protect yourself.
Last but not least, the pin bar, inner bar, and swallowing pattern are most useful when combined with other confluence factors. In this way, you greatly increase the chances of a successful trade.
What is a candlestick model?
A candle pattern refers to the shape of a single candle on a chart that can indicate an increase in supply or demand.
Are Forex chart templates reliable?
Yes, but the reliability of a model depends a lot on where it is formed on the chart. For example, a bullish pin bar at the key support will be much more reliable than the one that occurs in the middle of consolidation.
Which Forex candlestick model is most profitable?
The pin bar and swallowed candlestick models are two of the most reliable and profitable in my experience.