minor updates 14th May 2017…
If forced to nominate the best candlestick pattern, this would have to be it…
The rejection bar is a one bar formation. The rejection bar is also commonly known as a pin bar, a hammer or an inverted hammer. Its reputation as the best candlestick is well earned, and it forms the crucial candle in forex patterns such as the Hammer, the Hanging Man, the Inverted Hammer, and the Shooting Star. Here are some illustrations:
Note that all these rejection bars above have been identified with respect to one strategy only: the Bladerunner. Rejection bars are not only powerful but also commonly encountered in forex trading. Practice looking for them and you will begin to find them everywhere!
We can define this candlestick formation in the following way:
- It is a forex candlestick which has rejected higher or lower prices. Price will open and move in one direction, and then reverse during this single candle session to close at or past the open.
- Ideally, the open and close of the rejection bar are very close together, the closer the better.
- Ideally, the open and close of the rejection bar are near one end of the bar, the closer to the end the better.
- The tail of the rejection bar should be at least equal to the body; the longer the tail of the rejection bar the better, generally speaking, since this signifies greater rejection from the high or the low.
- The head of the rejection bar is defined as the highest point price reached on the candle – for a bullish rejection bar – or the lowest point price reached on the candle for a bearish rejection bar.
The rejection bar should never be traded on its own, of course. The more supplementary signals we have for price rejecting from the same level that the tail of the rejection bar retreated from, the better.
Even so, if price rejects from a significant level such as the mid-band of the Bollinger bands, a weekly pivot, or a significant support and resistance level, and at the same time the rejection forms an obvious rejection candlestick, we have a fairly strong signal, shown in several examples above.
Trading this particular candlestick without supplementary signals is an advanced technique, best left to seasoned traders who employ it as one of their personally favoured tools. However, it is worth noting the power of this candlestick in formations such as those mentioned earlier. If you see a rejection bar forming up on its own, look for a confluence of reasons to enter the trade. It really is powerful stuff!
The next topic in our candlesticks section is devoted to multiple time frame candlestick trading. This involves the use of more than one time frame chart at the same time to scan for candlestick formations.
Click here to go to Multi-Time Frame Candlestick Trading