The folding rule (or 3-stage trendline) pattern is a simple forex strategy used on many currency pairs, and it is also suitable for all time frames.
When trading Forex, you often have to wait for the moment of a trend reversal, but it is very difficult to determine when this will happen. Using the folding rule pattern, you can enter the market at the initial stages of a trend reversal.
To open a short position on this pattern, you must:
1) Draw a trend line (T1) of newly formed lows.
2) After the formation of the impulse, it is necessary to draw a second trend line (T2) at the bases of the recently formed troughs. If during the correction the price did not reach the trend line (T1), you need to add a third line T3.
3) The third line must be built when the line picks up speed.
Market entry points:
You should open a position when the price has broken the T3 trend line and the candlestick closes below the line. Place a stop – order must be above the maximum (top of the upward movement). Profit should be taken when the first trend line T1 is reached.
Conditions for opening a long position:
1) Build a T1 trend line based on recent highs.
2) After accelerating the trend, draw the second trendline T2.
3) After the next price impulse, draw another T3 trend line.
Entry point upon purchase:
We execute a buy trade when the price has broken the T3 trend line and closed above it. We place a stop loss order below the local minimum, and fix the profit when the price reaches the first trend line.