Squeeze Alert Candlestick Pattern and its Types

Hi there, everyone. Forex market offers us various opportunities with its dynamic nature and constantly changing prices. However, it is important to make the right decisions at the right time to be successful in this market. This is where technical analysis, particularly interpreting patterns in Japanese candlesticks, can help unlock real opportunities. In this article, we'll examine the noteworthy "Squeeze Alert" candlestick patterns in Forex trading, discussing how to recognize these patterns, entry points, stop-loss strategies, and methods for setting targets.

Structure and Definition

The Squeeze Alert candlestick pattern represents a distinct period of compression or consolidation on price charts, offering clues about expectations for either an upward or downward movement in the market. This pattern typically consists of three candlesticks:

1. First candle: The first candle is a long-bodied candle that represents the continuation of the current trend. It can be either a red candle (Bullish Squeeze Alert) or a green candle (Bearish Squeeze Alert).
2. Second candle: The body of the second candle is smaller than the body of the first candle. This candle can be any color as long as it stays completely within the body of the first candle.
3. Third candle: The third candle is the smallest candle in the pattern. It often opens and closes within the body of the second candle. It can be either red or green.

The Squeeze Alert candles, regardless of their colors, form a pattern resembling a triangle on the price chart. While representing periods of consolidation on the charts, it actually hints at possible upward or downward opportunities beneath the surface. For this reason, there are two types:

• Bullish Squeeze Alert: This pattern forms during a bear market and anticipates an upward breakout.
• Bearish Squeeze Alert: This pattern forms during a bull market and foresees a downward breakout.

Bullish and Bearish Squeeze Alert Patterns

The Bullish Squeeze Alert pattern is a technical analysis pattern that indicates that the price is compressed and is likely to break out to the upside, like a bow being drawn. When this pattern appears, we can consider taking a position with the expectation that the price will rise.

The Bearish Squeeze Alert pattern, on the other hand, tells a completely different story. It suggests that the price is compressed in a narrow range and is likely to break out to the downside. In this case, we can consider taking a position with the expectation that the price will fall.

How to Trade?

Bullish Squeeze Alert: During a bear market, the likelihood of an upward breakout in price increases. The squeeze indicates that the price is ready to move towards higher levels. In situations where this pattern is observed, we might consider taking long (buy) positions with the expectation that the price will rise. See the following example of trading on Google Inc.(ALPHABET INC.) stock:

Bullish Squeeze Alert on Google Inc. (Alphabet Inc.) stock.

Entry: The top of the long candlestick can be considered as a breakout point. A long position can be initiated from this point.

Stop Loss: The bottom of the long candlestick. This represents a possibility where the price may revert below the breakout point.

Target: Set at a distance equal to the length of the long candlestick, identified as Target 1. Additionally, possible profit levels can be determined using support/resistance levels, risk/reward ratio, and other technical analysis tools.

Bearish Squeeze Alert: During a bull market, the probability of a downside breakout increases. The squeeze indicates that the price is ready to move to lower levels. In cases where this pattern is seen, we can often consider short (sell) positions with the expectation that the price will fall. Take a look at the following trading example on NETFLIX stock:

Bearish Squeeze Alert on NETFLIX stock

Entry: The bottom of the long candlestick can be considered as the breakout point. A short position can be initiated from this point.

Stop Loss: The top of the long candlestick. This represents a possibility where the price may revert above the breakout point.

Target: Set at a distance equal to the height (length) of the candlesticks formed during the squeeze, identified as Target 1. Additionally, possible profit levels can be determined using Fibonacci retracement levels, support/resistance levels, risk/reward ratio, and other technical analysis tools.

It's Essential to Remember: Please note that Forex trading is a financial field that offers high returns but also carries risks. Everyone should be aware of these risks when trading in this market. To reduce your risk of losing, you should only trade with money that you can afford to lose. No pattern or indicator in the markets can accurately predict the future movements of price. The Squeeze Alert candlestick pattern, like other candlestick patterns, does not always give the right signal. It is recommended that you be careful when using technical analysis tools such as Squeeze Alert patterns and consider other analysis methods when making trades based on these patterns. Success in Forex trading is possible with an integrated approach and effective risk management, not just based on a single pattern.