GOLD - POWER OF 3 STRATEGY

Gold 4H reversal
The power of three method will enable you to spot when a swing low or a wing high is in the process to develop. Reversal trading can burn your account if you don’t employ the right tools. Understanding when to spot a bottom in the market and this buy/sell trading step-by-step guide is all about.
Step #1: Look for a downtrend that has broken a previous swing low
We’re trying to make it easier for you, so in order to determine the trend you can simply use the 50 EMA. For trend direction, the 50 EMA is one of the most prolific moving averages. In a bearish trend, the price needs to trade below the 50 EMA.
If we want to identify a change in the trend direction, we need to look after market changing factors that hint towards a change in the market sentiment. Usually, the most powerful trend reversal happens near a previous swing low.
The more significant the swing low is, the higher the chances are to have a winning trade.
From a supply and demand equation, there are lots of things that happen around a major swing low. Often times these pivot points are used for stop loss placement and once they are triggered a reversal can happen.
The key thing to keep in mind when trading reversals is that location is everything.
Now, we’re going to outline the power of three pattern that can signal a swing low.
Step #2: The Power of Three: Look for a candle that has higher lows on the right and on the left
The power of three pattern is composed of three candlesticks, where the middle candle has both on the right a and on the left a higher low. When you employ the power of three at an inflection point then trend reversals become not so difficult to anticipate.
This is not a very common price action reversal pattern but it’s one of the most powerful chart patterns you’ll ever learn. What happens behind the curtain in terms of the supply and demand balance is represented by the power of three method. It simply shows more demand coming into the market.
Note: The breakout of the first candle high doesn’t necessarily have to come with the third candle. It can come with the 4th or the 5th, etc. candle as long as the low of the middle candle doesn’t get violated.
Note: the third candle needs to break and close above the high of the first candle for a valid reversal pattern.
Step #3: Buy when we break and close above the first candle’s high
As we noted before, a swing low is confirmed only once we have a break and a close above the first candle’s high. The power of three is completed when price breaks and closes above the high of the first candle, which is also the ideal place to open a buy position.
Step #4: Hide your protective stop loss below the middle candle
To protect your trade, you need a stop loss in the market.
Your stop loss is just like a friend that is meant to protect you from blowing up your trading account.
With our strategy it is not that difficult to define the proper location to hide your stop loss. Simply place your stop loss below the middle candle low. A break below this low will invalidate the whole trade idea so there is no point in trying to force the market any longer.
Step #5: Take Profit at the 50% Fibonacci Retracement (or one you choose) of the previous cycle
Once a trend reversal is set in motion according to the Dow Theory it has the tendency to find resistance at the 50% Fibonacci retracement of the previous cycle.
Simply, plot the Fibonacci retracement tool from the high to the low of the previous bearish trend and set your take profit at the 50% retracement level (or one you choose).
Note** the above was an example of a BUY trade using this cryptocurrency reversal strategy. Use the same rules for a SELL trade – but in reverse.