candlestick charting Archives • Futures Day Trading Strategies

Posts Tagged Under: candlestick charting

How to use price action to exit your trades

 

When it comes to exiting trades, some traders may have room for improvement in their approach and strategy. In this article we highlight some simple, yet often overlooked, price action principles that can help you understand when a trend is over and likely to reverse.

 

Exiting Trades using Wicks – Candlestick Rejections

Wicks after a long trending phase may point out that the trend is losing strength. In the screenshot below you can see how multiple wicks to the downside after the strong sell-off foreshadowed the bullish reversal.

The wicks show that sellers tried to move price lower to continue the downtrend, but sellers didn’t have enough power and buyers stepped it to absorb all sell orders and keep price up. Finally, sellers gave up completely and buyers moved price higher.

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Reading Market Sentiment with Price Bars – Inside and Engulfing

 

While some might argue that candlesticks are just a snapshot of market activity without any true meaning and with even less forecasting value, the trader who can interpret the subtle clues provided by candlesticks and price formations can increase their odds.

In this article, we want to explore two of the most commonly used three-bar price patterns – the inside bar and the engulfing pattern. In contrast to other candlestick patterns, the three-bar formations put more emphasis on market context and thus, allow traders to understand what is going on inside price.

 

The Inside bar

The inside bar shows a market contraction and a consolidation period often just before a reversal. The inside bar pattern consists of three candlesticks where the second forms completely inside the previous bar, hence the name. The small candle inside the larger previous one shows the contraction and a period of market indecision.

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How to improve signal accuracy of Dojis

 

Dojis are among the most popular candlestick patterns; they are easy to spot, happen frequently and visualize an important market structure. A Doji candlestick consists of 2 candle-shadows to both sides and a small body – typically, the body is just a single line when the open and the closing price of the Doji fall at the same level. However, Dojis don’t necessarily have to open and close at the same price. A reasonably small body can also be considered a Doji pattern – it is more about the psychology and the balance between buyers and sellers that are important and not the exact shape.

The screenshots below show 2 classic Doji patterns. To read and interpret Dojis correctly, it is also important to consider the candles before the Doji and the first candle immediately after the Doji. A Doji after a rally and a subsequent bearish candle can foreshadow a

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The difference between Momentum and Volatility, and how to use it in your trading

 

The misunderstandings and misconceptions between volatility and momentum can lead to expensive trading mistakes and can even result in totally flawed chart and market analysis and trading decisions.

Volatility and momentum are two fundamentally different things and we will explore the differences between the two concepts, how to measure volatility and momentum and how to use them for effective trading decisions.

 

What is volatility?

Volatility describes how much price fluctuates around a mean. If you would use a moving average and see price going back and forth around the moving average, markets are in a high volatility environment. Furthermore, if candlesticks have relatively long candle shadows, compared to the candle body, it also signals a volatile market.

Thus, volatility is also often referred to as a risk indicator because high price fluctuations can signal indecision in the markets and the powers between buyers and sellers are constantly shifting.

 

What is momentum?

To a certain degree, momentum

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Price Action. Can chart formations provide precise or almost precise entries and exits?

 

Price action is such a popular trading concept because of its simplicity. When it comes to applying price action to charts and making trading decisions based on price formations, there are a handful of principles that can help you make more sophisticated calls and avoid some of the most common pitfalls.

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Chart formations vs. Candlesticks

First, we have to be clear what price action and price formations are. Chart formations are made up of many candlesticks or price bars and form certain patterns. On the other hand, candlestick price action traders only focus on a very limited amount of candlesticks to form an opinion – usually not more than 3 candlesticks at a time.

It is important to understand the connection here; an inside bar candlestick formation is made up of a larger candlestick followed by a smaller

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