Phase Lines in Forex
As you know, the two phases of a trending market are runs and pullbacks.
- A run is a move in the direction of the trend.
- A pullback is a move against the trend.
On average, runs are greater in size than the preceding pullback.
For this reason, trading the runs offers the highest profit potential – hence the trading adage “buy after the pullback and sell after the run”.
Our primary method for identifying the start and end of runs and pullbacks is candlestick pattern analysis.
In Strategy 3, you learned an entire trading strategy dedicated to catching these moves. You’ve also learned how to magnify the effectiveness of candlesticks by crosschecking their signals with higher and lower timeframe price action analysis.
You are about to learn the final piece of the puzzle, phase lines.
A phase line is the boundary between a pullback and the next run.
They are always drawn against the direction of the trend and displayed in light blue so you know the difference between your trend lines and your phase lines.
Unlike a trend line, which connects as many open and close prices as possible, a phase line is designed to represent the far extremes of a pullback and therefore is drawn more so on the highs and lows of candles. When the market is finally able to close above (long) or below (short) the phase line, it signals the pullback is over and the start of the next run is commencing.
When candlestick patterns fail, you can use lower timeframe price action analysis to approximate the turning point of a run. When they both fail, phase lines act as a last resort. A phase line must always be broken before a run commences, so by using these three methods you reduce the probability of missing a run.
Phase lines are a topic we delve into on during Lesson 14 of the Infinite Prosperity course.
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