The 'Three Candles Reversal' strategy is a popular method of analyzing price charts that helps identify potential trend reversals. It is based on the interpretation of candlestick patterns and volume dynamics.
The essence of the strategy:
The 'Three Candles' pattern signals a trend reversal when three consecutive candles indicating a change in price movement dynamics form on the chart.
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Conditions and features of the strategy:
1. Bullish reversal (at the market bottom):
- The first candle: Bearish (closes below the open) and indicates the current downtrend.
- The second candle: Small, often a doji or hammer. The candle signals uncertainty and a decrease in selling pressure.
- The third candle: Bullish (closes above the open), overlaps the body of the first candle (at least partially) and indicates the beginning of an uptrend.
Entry into the trade:
- Enter at the opening of the next candle after the close of the third bullish candle.
- Stop-loss: Set slightly below the minimum of the second candle (or first local minimum).
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2. Bearish reversal (at the market peak):
- The first candle: Bullish (closes above the open), reflects the current uptrend.
- The second candle: Small, can be a doji or inverted hammer, indicating weakening buyer pressure.
- The third candle: Bearish (closes below the open), partially overlaps the body of the first candle, and indicates the beginning of a downtrend.
Entry into the trade:
- Enter at the opening of the next candle after the close of the third bearish candle.
- Stop-loss: Set slightly above the maximum of the second candle (or the last local maximum).
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Signal confirmation:
- Volume: The volume on the third candle should increase, confirming the trend reversal.
- Additional indicators: RSI or MACD can be used to confirm divergence or overbought/oversold conditions.
- Support/resistance levels: Reversals often occur near key levels.
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Example of the strategy in action:
1. In a downtrend market:
- The first candle shows strong selling pressure.
- The second candle is small, forming near support.
- The third candle breaks upward, demonstrating buyer strength.
- Enter long at the opening of the next candle.
2. In an uptrend market:
- The first candle is a strong bullish one.
- The second candle indicates a slowdown near resistance.
- The third candle breaks downward, signaling the beginning of a downtrend.
- Enter short at the opening of the next candle.
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Advantages:
- Simplicity: Suitable for beginner traders.
- Effectiveness: Provides good signals when applied correctly at support/resistance levels.
- Versatility: Works on any timeframes.
Disadvantages:
- False signals: It is important to consider volume and confirming indicators.
- Not suitable for a sideways market: False reversals often occur in ranging markets.
Use this strategy with caution, set stop-losses, and adhere to risk management! Versatility: Works on any timeframes.
Disadvantages:
False signals: It is important to consider volume and confirming indicators.
Not suitable for a sideways market: False reversals often occur in ranging markets.
Use this strategy with caution, set stop-losses, and adhere to risk management!#Bitcoin❗ #bitcoinnews #BTC☀ #BinanceBlockchainWeek #Ethereum✅ $XRP $BTC 
