How can a price/action pattern help us understand that we need to buy or sell the asset?
“Trade with trend” - easier said than done. Looking at the chart, it’s hard for us to understand to which extent the trend is stable, if the risk of a reversal is growing, or if we should try to catch the last train. Even S&P 500’s being close to its historical highs doesn’t prove that it’s the bulls who are ruling the market. There’s an opinion that global stock indexes have been in a bearish trend since January 2018 and the US stock market is artificially supported by the White House and the Fed. However, nothing lasts forever and S&P 500 will face a deep correction soon. What can a beginner trader do under such circumstances?
He or she has to look into the signals of strength and weakness of the current trend. We have examined some of them in this blog when dealing with VSA. Let’s come back to some hints today. Our main hero today is Force bar. Its main features are almost total absence of shadows and large spread. The appearance of such a pattern shows that bulls or bears are prevailing in the market (if the Force bar closes on its highs or its lows, respectively).
Force bars in the GBP/USD daily chart
The theory says that the Force bar confirms the stability of a current trend. It helps a trader to define the further direction of price movements, but entry points shall be found on his/her own. Hence two conclusions. First, at the first stage of using the Force bar, ignore the retracements it points to and open a position in the direction of the trend only. Second, despite the fact that the simplest strategy would be buying the maximum if the Force bar closes on its highs and selling the minimum if it closes on its lows, a trader should have his/her own approach to using this pattern.
Personally I prefer switching to a shorter time frame and looking for entry points based on trend recovery trading strategies. In case of GBP/USD, the switch to the H1 chart allowed forming long positions at the retracement from the diagonal or dynamic support lines. In the first case, the combination of Three patterns and Inside bar patterns worked well.
Work strategy using Force bar
Experienced traders know that closing a trade is more difficult than opening it. I suggest watching the first screen. It will show the signs of the bullish trend’s weakness. With the pound, we didn’t have to wait for a long time. When an asset closes far from the maximum in an ascending trend with big volumes, a trader needs to get alerted. As a rule, it means that the bears are waking up. Further, low volumes with a closure on the highs signal the “No Demand” pattern from VSA.
Signs of bulls’ weakness in GBP/USD chart
Once such situations occur, close a long position partially of fix profits fully. In the example with GBP/USD, the market allowed us earning as much as 250 points with a stop order of less than 1 figure (profit factor: 3 to 1). I’m sure there will be new entry signals soon, so don’t stick to a trade in the market that has started to make reversal signals.
So, the Force bar is a price/action pattern which allows checking the strength of a prevailing trend. To use it, apply the system of two screens and search attentively for the signs of bulls’ or bears’ weakness in a bullish or a bearish market, respectively.
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Price chart of GBPUSD in real time mode
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