Peculiarities of the pattern’s formation and use
As a rule, a wide ranging bar means that either sellers (if it closes on its lows) or buyers (if it closes on its highs) prevail in the market. However, the market may turn upside down in a fraction of a second: yesterday’s victors risk understanding that they have been trapped and will be ready to put up a white flag. Such situations are indicated with an inverted bar in the chart. Its body’s size (spread) is the same as in the previous bar while the closing and opening prices are inverse. This combination is called “Railway Tracks” in price/action. Its occurrence is the first signal that the current movements of currency quotes may change for the opposite at Forex.
For more convenience, let’s replace bars with candlesticks. The different colors of their bodies simplify the process of pattern identification. Bearish Railway Tracks is a graphic pattern where the second candlestick closes on its lows and bullish Railway Tracks is a graphic pattern where the second candlestick closes on its highs. The candlesticks’ ranges must mark the pattern out. It has to be eye-catching.
Railway Tracks pattern
The Railway Tracks pattern occurred in USD/CHF’s chart three times in autumn. At the beginning and at the end of September, it produced a clear signal that the correction of the current ascending trend was exhausting quickly. The bears were weak and unable to start a full-blown counter-attack. The bulls were taking the initiative and the pattern we’re studying could be used for forming a long position in the prevailing trend. In the second half of September, there occurred Railway Tracks which launched a retracement. If the pattern’s formation is contrary to the trend, it’s wise to set moderate targets.
Railway Tracks in USD/CHF’s chart
The strategy of work under the Railway Tracks pattern is quite simple: a long position is opened on the highs of the second bar of the pattern and a short position - on the lows of the second bar. Protective stop orders are placed at the opposite end of the pattern. If the Railway Tracks pattern is identified in the framework of a prevailing trend, use the golden trading principle “keep losses low, let profits grow”. If not, get ready for closing the trade at any moment. Sure, this rule has its exceptions: the Railway Tracks sometimes results in a trend reversal, but a beginner trader needs to focus on searching the points of the corrective movement’s exhaustion.
Strategy of work under the Railway Tracks pattern
Later, when you’ve accumulated some trading experience concerning this pattern, you can combine it with some other tools of technical analysis. The combination of the Railway Tracks and Bollinger Bands is particularly efficient. The formation of two inverted wide range bars near the moving average or on the top (at the bottom) of the dynamic trading range intensifies the analytical significance of this graphic pattern.
When the Railway Tracks formed in the daily chart of USD/CHF, there were retracements from the moving average in Bollinger Bands in the first and the third cases. It confirms the idea that bears’ forces exhausted quickly. In the second case, the bulls were unable to move the quotes beyond the upper limit of the dynamic trading range.
Railway Tracks pattern and Bollinger lines
So, once 2 eye-catching bars appear in the chart and their prices are inverted in relation to each other, think about opening a position. The second bar of the Railway Tracks pattern will indicate the direction, but the trader has to be aware of the prevailing market trend.
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Price chart of USDCHF in real time mode
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