A Simple Price Action Trading Strategy to Consider

Presenting a Trading Strategy that Relies on Patterns and Graphical Analysis

Sofien Kaabar, CFA

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Pattern recognition is an exciting field where we extract insights from data that repeats itself and shows on average similar outcomes. The challenge is finding these patterns and validating their potential. This article presents a rare but very powerful pattern in a modified way and combined with graphical analysis in a trading strategy.

The Extreme Euphoria H/L Pattern

Candlestick charts are among the most famous ways to analyze the time series visually. They contain more information than a simple line chart and have more visual interpretability than bar charts.

The Extreme Euphoria H/L pattern is a modification on the Extreme Euphoria pattern discussed in previous articles. The general shape of the Extreme Euphoria pattern is five candlesticks with the same color and having increasing body ranges with the exception of the second candlestick where it is only preferable to have a bigger body range.

This is because the frequency of signals is greatly reduced if the conditions were strict (even though, theoretically, the conditions are strict but in real life).

The bullish Extreme Euphoria H/L is composed of five bearish candlesticks with each candlestick having a body range (difference between close and open) bigger than the previous one except for the second one where it is only preferable. The main condition is that every low is lower than the previous low. The following Figure shows a theoretical illustration of the bullish Extreme Euphoria.

The bearish Extreme Euphoria H/L is composed of five bullish candlesticks with each candlestick having a body range (difference between close and open) bigger than the previous one except for the second one where it is only preferable. The main condition is that every high is higher than the previous high. The following Figure shows a theoretical illustration of the bearish Extreme Euphoria.

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