When it comes to candlesticks, the higher the timeframe the more powerful they become as a standalone tool. This is why they end up becoming part of my entry trigger. Since they are already a signal of their own, having them at the right location (judged by PA, SR, and TL's) makes them very powerful indeed.
I have simplified Candlesticks because there are so many names that people give them and only a few that I care for myself.
A Pinbar for me is simply a Candle that has a lot of wick and not much body, this way the name Pinbar for me covers what others call a Hammer, Hanging Man, Shooting Star, Inverted Hammer, Spinning Top, even Doji's really.
It is the Indecision I am interested in and although certain types of Pinbar are more powerful than others it can be generalized for simplicity at the beginner level.
The other Candle Patterns I look for are InsideBars, TweezerTops and Engulfing Patterns (always at the correct location)
*Engulfing patterns I ended up calling CeC's btw... candle eats candle.
I whipped this picture up to help simplify Candlesticks a little.
Don't forget that when we have the correct Candle Pattern at the correct location I then want that Pattern to be broken in the correct direction to enter the trade. This can be done via Pending Orders and you do not have to stare at the charts.
Thankyou for starting this thread and sharing this info. I am new to fx, and am just beginning to study price action. I am very interested in what you have to share. I hope you continue with this thread.
I think I have been thorough enough in explaining that first trade and since there seem to be no questions yet I will answer them later if/as they come in.
REMEMBER: the core trade explained I have traded right down to the M2 chart with decent success..
it will work on any timeframe but my crazy 8 hours staring at the screen days are long over with my new trade management EA's and VPS,
so I now take this trade on M30 and above depending if I am travelling the world or at home.
I will now go prepare a similar step by step process to explain the dynamics behind the next price action trade I will explain.. the TL bounce
Drawing Trend Lines is actually something I should have covered before the 1st trade example but I will cover some basic TL drawing concepts I have before I move on.
The next trade is the TL bounce so it is very important that you draw them correctly.
Firstly there is no point drawing a TL unless there is a Trend, hence the name of the Line I suppose. So how do we determine if a TL is warranted?
There are essentially 2 main conditions I look for to draw a TL. TL's are used to gauge the Momentum of a move.
1. Confirmed Trend Line Zone:
Quite simply 3 points to connect that, in the example of a sell, created the Lower High, Lower Low, Lower High, Lower Low scenario.
*When you look at my charts you will see the gray boxes, these are Support/Resistance boxes, they are not a single price but a small area. Trend Lines are essentially angled Support/Resistance and therefore I also look at them as zones rather than a single line.
2. 2nd wave has greater gains and is much more powerful than the first indicating a possible Impulse wave from the Elliott wave theory. I don't apply the EW theory too much in my trading except in this kind of scenario where it tends to apply more often than it does not. I won't go in to Elliott Wave theory here but instead explain in a logical manor. Basically the increase in power and momentum indicates that there is a very high chance of the next wave continuing a Lower High Low pattern so I place a single TL (as it is not a confirmed TL zone by having a 3rd point) to remind me that it is not as solid as a zone, but a predictive momentum line. I do not find these as reliable if the TL is way too steep.
The market moved in nice smooth proportionate looking swings whilst making it's 1st Lower High, Lower Low scenario, the 2nd wave of movement down does not indicate that the momentum is slowing.
A single TL was drawn (please ignore the TL zone as that applies to the next trade using this same image)
The 3rd hit on that TL was also confirming a Resistance area that was created during the previous wave of selling. It lines up perfectly with the TL, and SR box and gives a place to enter, a place for your SL, and the ability to judge RR before you enter the trade. I will go over that in the next post
In this example since we have our confirmed Resistance area at the predictive TL and we have our SL.
Using Candlestick patterns the 1st entry opportunity is the IB after the PB.
The black area is an intelligent area to move your SL to BE based on recent historical price action
The Conservative TP is an equal low minus any spikes that stick out by themselves.
Now we can judge RR which as you can see in the picture is greater than 1:1
Notice how I say conservative TP, what I mean is that clearly we are expecting a Lower Low, The waves of movement down have not lost momentum yet, so the RR will be much better in fact.
But if we assume the worst we have locked in Break Even at the next logical place for price to possibly create a Higher Low and we base our RR on the safe outcome of at least an equal low to be conservative. This way if we always look for 1:1 as a minimum TP based on conservative logic but we more often than not will always exceed that 1:1 RR
As I mentioned before the gray boxes on my chart are Support Resistance areas, but I only have a limited number above and below price at any one time so for that previous trade there were none there.
For this next TL bounce trade using that same picture the gray boxes are there as they were in real time.
In this next trade the confirmed TL zone was not quite reached but a nice Resistance box was created as price headed down on that previous wave, the previous wave of selling was much greater in power than the first 2 waves of selling indicating increased momentum.
The chances of another wave of selling were high so once a Resistance box close to the TL zone was confirmed by that 2nd visit there....
Candlestick patterns were all that was left to wait for.
2 Pinbars side by side was a nice touch and the trade now had an entry point, a SL point, a conservative TP point to judge RR, and an intelligent place to move your SL to BE based on historical price action.
It was just about 1:1 RR at the conservative TP so all systems go.
In this pic though I also marked out a more likely TP that you would have shot for when you saw those nice red candles gaining strength on each one