FOLDING RULE Pattern [Forex & Crypto Trading Strategy] sometimes also called the «3-stage trend line» — this is a very simple forex strategy (forex model), which is used on almost any currency pair and is suitable for absolutely all time intervals.
This pattern is a trend reversal signal, so it needs to form before taking any action.
When trading forex, fans of “catch” a big trend very often have to wait for the moment of a trend reversal, and sometimes it doesn’t happen anyway … And then, when you just get distracted for a while — and as it turns out, it’s right there, this very trend reversal. Only have time to say it, but sometimes it is too late to enter the market. Because the movement through the third trend line is so fast that sometimes it is simply impossible to catch up with it.
But oddly enough, while identifying the patterns of these breakthroughs, a very simple geometric structure (pattern) was found, which was not mentioned in any of the books on technical analysis (graphical analysis).
So it was called — folding rule.
Using this folding rule pattern, you can enter the market in the early stages of a trend reversal.
And so, to enter the market for sale (short position) according to the «Folding Rule» pattern, you need:
1) We draw a trend line (T1) along the bases of 2 relatively recently formed troughs (support areas).
2) Then an impulse usually begins to form in the market, and after that, as it is formed, we draw the 2nd trend line (T2) along the bases of two relatively recently formed troughs. Very often, we can clearly tell when it’s time to draw a trend line (T2), because. the market will move quite sharply from the trend line (T1). After the market corrects but does not reach the trend line (T1), it is time to add the next line.
3) The last stage of the pattern is when the market starts to pick up speed and this is often an exhaustion move and after that we draw a third trend line (T3). This movement has the same characteristics as the T2 line.
After all these constructions, we can clearly say that we are ready to trade.
When the T3 trend line was broken by the price, we enter the market by opening a trading position for sale on a break of this trend line and closing the candle price below this trend line. Our safety stop order should be placed above the biggest high, the top of the entire uptrend. After that, you should set a goal to achieve profit — and this goal will be the trend line (T1).
You may be amazed at how often support forms on the trend line (T1). But after we closed the trade with a profit on the trend line (T1), we still continue to watch what happens next in the foreign exchange market. If the market does find support at this trendline and starts to rise again, then we can wait until another short trading opportunity is formed.
If the price in the market continues to fall through the trend line (T1), then this signal is a strong enough sign that the entire previous trend tends to reverse completely, and we should consider re-entering a trading position for sale.
Entry to buy according to the «Folding rule» pattern:
1) draw a trend line (T1) along the spikes of two recently formed peaks (resistance areas).
2) the market increases the momentum, and after that we draw the 2nd trend line (T2) on the spikes of two more recently formed peaks (resistance areas).
3) The price in the market is accelerating and this move very often becomes an exhaustion move — we draw the 3rd trend line (T3).
After all the constructions, we are ready to conclude a deal to buy.
When the trend line (T3) was broken by the price and the price closed above it, we make a deal in the long side (i.e., to buy). Our safety stop loss order is placed below the most recent support low — which is the base of the past downtrend. Set a profit target (Take profit) — a trend line (T1).
Just like in the cases with the folding rule pattern, once we exit the market with a profit on the trend line (T1), we still continue to monitor the price action in the market — what happens next. If the price finds resistance at T1 and continues to decline, then we are waiting for the formation of the next opportunity to enter a trading position to buy.
If the market continues to break through the resistance of the trend line (T1), then this break is a strong indication that the whole trend tends to reverse in the near future, and we may need to consider another opportunity to re-enter a trading position to buy.