Ever Heard of the Flying Buddha in Forex?
01/09/2016 9:00 am EST
Though moving averages and candlestick patterns are quite familiar tools for the forex trader, Adam Lemon, of DailyForex.com, details how they can be used together with what is known as the “Flying Buddha” pattern.
Candlestick patterns and moving averages are hardly new as tools for forex traders. However, there is a way to use moving averages and candlesticks together in a way that is quite different to what most traders are doing. The Flying Buddha pattern has been around for a number of years and remains very effective and profitable as a forex trade entry technique. It can be used in all markets, but is especially suited to forex.
Please note that I did not invent or name this pattern, and I certainly intend no offense to anyone of the Buddhist faith, which incidentally provides a great mindset to tame emotions of fear and greed which can make trading more challenging than it should be.
What Is the Flying Buddha Pattern?
The Flying Buddha pattern is quite simple. Simply set up a candlestick chart with two moving averages: the 5-period exponential moving average (EMA) and the 10-period simple moving average (SMA), both applied to the closing price. It is a good idea to make sure that both of the moving averages are drawn in strong and different colors that stand out easily from the colors of the candlestick chart.
A Flying Buddha is any candlestick which:
- Has a low above the 5 EMA, when the 5 EMA is above the 10 SMA (a bearish Flying Buddha); or
- Has a high below the 5 EMA, when the 5 EMA is below the 10 SMA (a bullish Flying Buddha).
Here is a chart showing highlighted examples of bearish Flying Buddhas. There are a total of five candlesticks which qualify:
Here is the same chart, but this time it shows highlighted examples of bullish Flying Buddhas. There are a total of seven candlesticks which qualify:
Note that you might get more than one Flying Buddha candlestick in a row.
How You Can Trade a Flying Buddha Candlestick
If you are looking for a long trade, for example, and you see a bullish Flying Buddha candlestick appear, when the candlestick closes you can put an order for a long trade just above (e.g. 1 pip) the high of that candle. You can also place a stop loss just below the low of the candle.
If the price hits the stop loss before the entry is triggered, you can remove the entry order, as the candlestick has not worked as signifying a turn in price. The whole point of the Flying Buddha is to get you into a turn in price very early, which allows an entry with a tight stop loss, which should make your trade more profitable.
By Adam Lemon, Contributor, DailyForex.com