Naked Forex Trading Strategy for Beginners
Forex markets have all kinds of traders: some traders advocate using different types of indicators to make trading decisions, while some rely on naked pricing charts without using any technical indicators. Price-action traders make their trading decisions by analyzing price action on charts and are of the view that price in its pure form holds information that no other indicators can provide. Therefore, the term naked forex strategy involves analyzing and making trading decisions based on price action using various techniques. In this article, we will discuss some naked forex trading strategies that you can use in your trading.
To do naked forex trading by just looking at the price action on the chart, you need to be skilled at reading the candlesticks and their patterns. Mentioned below are some techniques, which will assist you in reading the price action on the charts, helping you trade accordingly.
A hammer candlestick pattern, also called a pin bar pattern, resembles a hammer or a pin bar, and hence the name hammer/pin bar pattern. As you can see in the below image, a green hammer pattern that forms after downtrend gives a bullish signal, which can indicate an impending bullish trend. On the contrary, if you see an inverted hammer pattern appearing after an uptrend, you can expect a reversal in the uptrend and a start of the downtrend. The upright green hammer pattern is a buy signal, whereas an inverted red hammer pattern is a sell signal.
However, before applying this pattern to your trading strategy, you should get yourself familiar with the signal and be able to identify the signal in the historical charts. You might need complementary signals along with the hammer pattern to confirm the onset of a trend reversal.
Engulfing pattern, as the name suggests, is a pattern in which the next candle completely engulfs the preceding candle. The pattern can be bullish as well as bearish. A bearish engulfing pattern indicates a possible reversal of the bullish trend, whereas a bullish engulfing pattern indicates the reversal of a bearish trend and a possible start of the bullish trend.
Bearish Engulfing Pattern
As you can see in the above image, the red candle engulfs the previous candle. The red candle forms when the price gaps up and goes upwards but can’t sustain the price level and closes in the red, thus forming the engulfing bearish pattern.
Bullish Engulfing Pattern
Conversely, the bullish engulfing candle forms next to a bearish candle when the price gaps downwards, and the price continues downward but could not sustain the price level, eventually reaching a higher price level that engulfs the previous bearish candle.
As a beginner, you should practice analyzing the naked price action on price charts and identify different patterns to improve your trading strategies. You can use the above-mentioned patterns to identify trend reversals, helping you to trade confidently and profitably.