What Forex Buy and Sell Signals Do I Use?

forex buy sell signals

Happy Friday!

This week’s question comes from Kendrick, who asks:

Would you be so kind to discuss the various sell and buy signals that you frequently or commonly look out for when trading, especially after identifying support and resistance?

Just about everything I do in the Forex market revolves around six buy and sell signals. Three are candlestick patterns while the other three are chart patterns such as the head and shoulders.

The question above reminded me that while I have written about these signals separately, I’ve never compiled them into a single post. So this seemed like the perfect opportunity to give you a big picture view of the signals I use.

If you’ve followed me for any length of time, you know that I like to keep things simple. So while the six patterns below can be highly profitable, they are also simple to understand.

In fact, some might say they are too simple. But I assure you that after using the signals in this post for more than five years, they are all you need to become consistently profitable in the Forex market.

What follows is a summary of the various signals I use along with real life examples of each. Feel free to use the links throughout this post to learn more about the different patterns including entry and exit methods.

With that, let’s begin.

Candlestick Patterns

There are three types of candlestick patterns I look for during a trading week. They are the pin bar, engulfing bar and inside bar.

While the pin bar can be traded on the 4-hour and daily time frames, both the engulfing and inside bars are most effective on the daily time frame and higher. If you use them on any time frame lower than the daily you open yourself up to false positives.

Let’s take a look at each one in greater detail.

Pin bar

For those who have followed me for a while now, it will come as no surprise to hear that my favorite candlestick pattern is the pin bar. These candles are characterized by long upper or lower wicks and represent a rejection of support or resistance.

That last sentence is paramount to the effectiveness of the pin bar pattern. Without having a key support or resistance area near the candlestick, the formation is rather meaningless.

Here’s an example of a bearish pin bar on the AUDUSD daily chart:

AUDUSD bearish pin bar

Notice how after closing below a key level, the pair formed a bearish pin bar after retesting the area as new resistance. A short entry on a 50% pullback would have yielded a tidy profit in less than 48 hours.

To learn more about the pin bar including how to trade it, see this post.

Engulfing bar

The engulfing bar is a reversal pattern that can often signal exhaustion from buyers or sellers. As the name implies, it’s a candle that completely engulfs the previous one.

One critical rule of using this signal is only to pay attention to the engulfing patterns that develop on the daily chart and above. Any signal on the intraday charts is unreliable in the sense that it could be a false positive.

Another important point is that the candlestick pattern must form at a swing high or low. Otherwise, it won’t signal the necessary exhaustion from bulls or bears that make it an effective reversal signal.

Below is an example of an engulfing candle on the AUDUSD daily chart.

AUDUSD bearish engulfing bar

Note that the candle formed at a swing high and at a resistance level that had been in place for several months.

See the two links below to learn more.

Bullish engulfing bar

Bearish engulfing bar

Inside bar

When I began trading with price action in 2010, I started with the pin bar and inside bar candlestick patterns. I figured I would learn the two signals inside and out before considering other more advanced patterns.

It was a good move. I always advocate sticking with one or two price patterns in the beginning before expanding your options. The fewer things you have to learn the easier it is to become proficient by honing in on the subject at hand.

But over the years I’ve moved away from trading the inside bar, at least to some degree. I still find one here and there that catches my attention, but for the most part, I don’t trade it.

That doesn’t mean it isn’t a profitable signal. It just means that it doesn’t suit my style as much as the other signals in this post.

With that said, for someone searching for a good trend trading signal, the inside bar is one of the best in my opinion. The key, however, is to make sure you stick to the daily time frame. Anything lower than that and you’ll end up with too many false positives.

Below are three bullish inside bars that formed on the USDJPY daily chart during an aggressive rally.

Inside bars

The key here is to find a pair that is trending. You should also pay close attention to the location of support and resistance before deciding to execute a trade.

See this post on the inside bar trading strategy to learn more.

Chart Patterns

Now that we’ve looked at the three candlestick patterns I use, let’s dive into the three chart patterns. These include the head and shoulders, channels and wedges.

As the name implies, these are patterns that form over an extended period on a chart and involve multiple candlesticks. In fact, most of the technical structures I utilize take weeks, months or even years to materialize.

The good news is that we don’t have to wait months or years to trade. With dozens of currency pairs at our disposal, there’s almost always something to do.

Head and shoulders (and inverse)

When it comes to profitability, the head and shoulders pattern is at the top of the list. It typically forms after an extended move up and signals exhaustion from buyers.

The inverse head and shoulders pattern also represents a potential reversal but does so after an extended move down and signals exhaustion from sellers.

The reason I say these formations can be highly profitable is that they often provide several hundred pips of profit if traded successfully.

Here’s a head and shoulders pattern that formed on the NZDJPY weekly chart over several months. This was a formation that I traded and also commented on several times on this site as things unfolded.

NZDJPY head and shoulders

In the case of this NZDJPY reversal, the selloff totaled more than 1,200 pips.

Note that the head and shoulders also comes with what’s called a measured objective. This is a potential profit target that’s found using the height of the structure.

Learn everything there is to know about the head and shoulders pattern in this detailed guide.

You can learn more about how to use measured objectives in this post.

Channels (ascending and descending)

Channels occur more often than most traders probably realize. They are particularly plentiful after an impulsive move up or down. The channels that form in this manner are known as bull and bear flags.

If you’ve followed me for a while, you’ve no doubt seen me comment on either an ascending or descending channel. In fact, I bet not a single week goes by where I don’t use a channel to outline the price action on a given chart.

They offer an excellent way to identify and outline periods of consolidation which can provide an opportunity to play the subsequent breakout.

Here’s a recent example of an ascending channel on the NZDUSD daily chart:

NZDUSD daily channel

Notice how the ascending channel above began forming after an extended move lower. As such, we could also call this a bear flag, which most often represents a continuation of the prevailing trend.

Check out the detailed guide on how to trade equidistant channels for more information.

While usually the result of consolidation, channels can sometimes outline a broader trend or cycle. Such is the case with the ascending channel on the NZDJPY monthly chart below.

NZDUSD monthly channel

Instead of using the channel above to catch a breakout (which would take decades), I would use a formation like this to form a longer-term outlook for the pair.

See this post for more details on how I utilize multi-year channels such as the one above.

Wedges (narrowing and broadening)

Like channels, wedges usually represent consolidation. However, what sets them apart is their terminal nature. In other words, a narrowing wedge has a definitive end point whereas a channel does not.

The two charts below show the difference between a narrowing wedge and a broadening wedge.

First up is a narrowing wedge on the GBPJPY 4-hour chart.

GBPJPY narrowing wedge

As the name implies, a narrowing wedge occurs when price action gets “squeezed” by support and resistance. Because the pair has no choice but to eventually break out, we call this a terminal pattern.

Visit the post on how to trade rising and falling wedge patterns for more.

Now, here’s an example of a broadening wedge on the GBPJPY 4-hour chart:

GBPJPY broadening wedge

Notice how unlike the narrowing wedge in the first chart, the price action in a broadening formation “fans out” as time passes. The broadening wedge is not considered a terminal pattern because the pair could theoretically never break support or resistance.

Of course, reality says that the formation will eventually break down as was the case in the chart above.

Want to know more about the broadening wedge? Check out this post.

Final Words

If you’re new to price action or just looking to add an extra signal or two to your already established arsenal, the list above is a great place to start. Each one is simple yet highly profitable if you follow the lessons on this site (see links throughout this post).

My advice is to pick one or two signals, learn the characteristics, entry and exit methods, etc. before moving on. Trying to learn all six at the same time would make things harder than they have to be in my opinion.

Also, the more material you try to digest at one time, the longer it will take to become proficient. By selecting just one or two patterns, you’ll be able to master them in much less time than if you took on all six at the same time.

Last but certainly not least, stick to the 4-hour and daily time frames, take notes and just keep piling on the experience. Before you know it, you’ll be seeing pin bars and channels without even thinking.

Your Turn: Ask Justin Anything

I’d love for this new weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.

To do that, I need your help.

Here’s what you can do to get involved and have your question answered in next week’s post:

  1. Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
  2. Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.

Leave a Comment:

33 comments
James Hoffman says

been trading 2.5 yrs- not profitable- currently in a course so not a canditate now-maybe later

Reply
justin says

Just wondering what is your view on supply and demand trading? Do you ever use these zones? Any tips on it if you have any would be cool. Love your site 😀

Reply
    Justin Bennett says

    Hi Justin, thanks for the question. The support and resistance levels I use throughout this site are the byproduct of supply and demand, but I could certainly elaborate on the topic in a future Q&A.

    Reply
Dan says

Justin,

Just wanted to say this is one of the most useful articles on price action trading I have come across. Pretty much all we need to know about price action trading in one concise and informative post. Great stuff. Now to put it into practice!

Best regards,

Dan.

Reply
Rosli says

I started love your yr technique, now I started getting profit, Tq so much for yr help

Reply
Agung Lintar Alfian says

Your method influences the way I trade, because it suits my trading type. Thank you Justin.

Reply
mahmood says

Hi, Dear Justin, , This article is like a grossary store, no need to move here and there. simple but well-explained. Thanks and have a nice weekend.

Reply
MIMI says

Much appreciated and great to have it all on one post with simple explanations!

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davy says

Hey Justin

Draw a chart in the Future,al you’do is Dessing some lines on what happend,my kid from 3 van do that also.

Reply
    Dan says

    Davy,

    What a rude and irrelevent comment. What exactly is this ‘chart’ you’d like to see?

    Trading price action (as explained very clearly inthis article), is about using candle stick and chart patterns in confluence with support and resistance areas, channel breakouts etc.

    Why are you subscribed to a website that can help you with your PA trading when all you can do is be rude the the person writing the post? This article is good (and moreover, free), education.

    I wish you all the best,

    Dan.

    Reply
    Justin Bennett says

    Davy,

    Let me know which commentary you’d like to see, and I’ll be happy to post the links. The truth is that five of the seven signals above were discussed on this site in real time.

    In other words, I’m not just going back after the fact and drawing levels. The examples above were taken directly from the Trade Setups section of this site.

    Justin

    Reply
john says

Justin,
Thank you for the article. I learnt something totally new, sticking to the 4hr and above time frames. Is the Pin Bar good on the 1hr time frame?
Regards.
John

Reply
    Justin Bennett says

    John, it can be useful on the 1-hour chart, just make sure you have a good reason for trading it. Having said that, trading the 1-hour chart before you’re profitable on the daily is like trying to run before you can walk.

    Reply
Jon grant says

Gooday justin, read some of ur articles, they ar’ priceless. Money is ur issue for doing this, it is noble gesture which some people will sell jst to hve all the money of this world. Ur articles hve been concise, incisive and an eye opener. I will like to knw if a confluence is also a resistance and support?

Reply
Rahat Ali says

Hi Justin,
What about indecision candlestick pattern on support and resistance level? Would you recommend using it, any comment on it from you will be appreciated.!

Reply
    Justin Bennett says

    Rahat, anything that represents indecision isn’t actionable, so I tend to ignore it. With that said, I’ll add this question to the list as I believe some could benefit from the answer. Cheers.

    Reply
Francois says

Great to have this all together in one post.
Is it possible to give us cheat sheets with a bullet point summary of the rules and maybe a chart of each? I thought I saw something like that on the site somewhere once but was not able to find it later.

Reply
Jimrod says

This is a very helpful post. Thanks a lot.

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Jason Kenny says

Hi justin, thank you for all your insight into price action trading. Just one question, on the rising wedge chart, will it be incorrect to say that the price action printed before the rotation down can be viewed as a double top.

thanks once again

Jason

Reply
    Justin Bennett says

    You’re welcome. I wouldn’t call it a double top as the two intraday swing highs are too close together, at least for my liking. Usually, there’s a decent amount of space between the two swing highs that form a double top.

    Reply
Dan says

Good article! Thanks, Justin!

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Linda says

What do you think about the possible head and shoulders on the gbp/nzd pair?

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Durgaprasad says

thanks justin for guiding us.
plz can u guide me my question is
What should we do when big news is coming up while my trade is going on.i am afraid that it will hit my stop loss.

Reply
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