Among the commonly used candlestick patterns which traders find reliable when it comes to identifying signs of trend-reversals is the Railway Tracks Pattern. While it has an easy-to-read structure and is very common in any chart, one needs to know the essential details as well as the criteria of making sure that a pattern is really a Railway Tracks Pattern. In this write-up, we’ll share with you a comprehensive guide to trading the Railway Tracks Pattern on any trading platforms such as eToro.
(NOTE: Before we continue, we have to give a disclaimer that the trading products offered by the companies listed on this website carry a high level of risk and can result in the loss of all your funds. CFDs are complicated instruments that are never guaranteed to provide you supplemental earnings. In fact, Around 67% of all retail investors experienced a loss while trading CFDs. Make sure to keep this in mind before attempting to use the eToro platform yourself. All the information found on this website is not official trading advice and all practices shown are referenced for the use of the Demo account only.)
What is the Railway Tracks Pattern?
The Railway Tracks Pattern is a candlestick pattern that signals a reversal. It is commonly used by many traders because it is easy to find in any chart and that it doesn’t require many indicators for it to be visible. While the concept of the Railway Tracks Candlestick Pattern is very much straightforward, it also has the potential in being used in many other ways.
As we already know from our previous article about the Railway Tracks Candlestick Pattern, this pattern signals a reversal of a trend. It is a signal for a trader to sell or buy positions to avoid possible losses. Since the basics have already been made known from our other articles, let us focus on its use on a chart and steps on how to implement it on an actual trade.
The pattern is made up of a pair of candles – a bullish and a bearish candle. As a basic structure of this pattern, it resembles a “Tweezer” pattern that lies on a common trend line. In addition, the bodies of both candles should be more significant than their tails to confirm substantial buying and selling pressure. Most of the time, both candles have the same lengths, however, in other cases, the second candle is bigger especially when the pressure or volume is too great. With both candles having almost identical sizes, traders see it as a “railway track”, thus the name.
The formation of the Railway Tracks Pattern is often prominent on markets with continuous buying or selling pressure. It usually shows up at the end of a long trend. However, there are also cases where the pattern shows on swings or short trends.
As basic criteria of identifying a Railway Tracks Pattern, both candles should have identical to almost identical candle dimensions, it should show at the end of a trend, and both candles should have a common trend line (as shown on the image).
Basically, there are only two kinds of Railway Tracks Pattern that a trader should know of – one is the Bullish Railway Tracks Pattern, and the other is the Bearish Railway Tracks Pattern. The Bullish Railway Tracks Pattern implies a signal for trend reversal towards a bullish market, while the Bearish Railway Tracks Pattern gives a signal for trend reversal towards a Bearish market. Alternatively, the Bullish pattern forms at the bottom or base of a downtrend, and the Bearish pattern forms at the peak or at the top of an uptrend.
So how to Implement the Railway Tracks Pattern on an Actual Chart?
Prior to implementing the pattern on actual trade, you’ll first need to identify it on a chart. As a basic step in identifying a Railway Tracks pattern, refer to where the trend would possibly end – either at the base or at the peak. After which, look for two candles with contrasting colors. As a next criterion, both candles should have almost the same body and both should have little to no shadows or tails. Finally, both candles should touch a common trend line.
Attached below are a few examples of Railway Tracks Pattern on a chart having the mentioned criteria and requirements.
This first image shows a strong uptrend for BTC and a steep downtrend after the Railway Tracks Pattern formation. From this chart, candles in the pattern are very much identical and both are touching a common trend line or resistance level. As the pattern formed, there was a steep reversal that happened. This type of Railway Tracks Pattern is a bearish Railway Tracks Pattern since it signals trend reversal toward a bearish market.
The second image shows multiple formations of the Railway Tracks Pattern within swings or short trends.
On this chart for FB, a series of Railway Tracks Pattern formations are visible right at the ends of each trend. The identical dimensions of both candles on each pattern are very obvious and each pattern fell on a similar trend line. For a trader who is focused on swing trades, having to use the Railway Tracks Pattern to find reversal points would be greatly beneficial.
Our Final Say
Oftentimes, the Railway Tracks Pattern can be hard to find on a day range. To counter this, simply change the time or range of the chart to a more comfortable setting where the pattern can be located.
As an additional confirmation of the reversal, refer to the volume on the chart. A strong buying pressure or volume simply means a bullish reversal, while a strong selling pressure means a bearish reversal.
The Railway Tracks Pattern is in fact not that difficult to use in an actual trade. Also, it involves lesser risks as compared with other candlestick patterns. The important thing to remember is that this pattern as well as all other candlestick patterns work best when used with other tools or indicators to further solidify its assumptions.
Only by understanding the Railway Tracks Pattern can you be able to benefit from it. With a practice account at eToro, you’ll be able to master this pattern in no time and increase your chances of gaining profits.
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