Active Trade Management… How to talk to the Candles???
I hope you are having a great time in markets. Without wasting any time, let’s get into the topic.
In a nutshell and theoretical point, my whole analysis procedure can be written as follows.
First, we have a price chart (trading timeframe) which is formed by a huge collection of market data. It is like a plain world map with no country boundaries drawn which is almost impossible to read if you want to know different cultures in the world.
Now, we have drawn the structural support and resistances to focus our analysis to a certain area. This is like drawing boundaries of countries in the world map.
Then we zoomed into the structure of our interest (where current price action is going on) and then identified the inertia (trend) of the price. I considered trend as the inertia of price action as it is very reluctant to reverse unless a strong opposing orderflow hits it. Newton’s first law of motion. 😉 Pardon me for all this if it confuses you. I’m a physics lover and I just can’t help it. 😀
Once that is done, we zoomed into the trend to observe each individual swing to find the strength and weakness of the trend.
Based on all this study, we have formed a future bias and then we update it with the new information carried by new candles.
We can easily do all the necessary steps until we form a bias and updating it with every candle is the hardest job. We read candles almost all the time in the market hours while updating the bias, while waiting for a trade, at the entry time, while managing the trading and almost every second you sit in front of the charts. People say that shorter timeframes are full of noise and signals in shorter timeframes are less reliable. Bullshitttt. Every tick carries some important information and it is our stupidity to consider that as noise. If you are good at reading the candles, you have got a great edge on other traders as very few of them can do it and the remaining are lazy to learn. This article is a road map to that journey and it’s not the endpoint and I recommend you to research on your own on improving this skill. I am still trying to improve this and it’s fun. 😀
Talking to Candles:-
I imagine that a candle has a tongue to speak and it answers all the questions I pose. We must be like an interviewer to gather as much information as we can, not after the candle closes, but when the candle is in the construction phase as we have a trading timeframe and lower timeframe to answer the questions at any time. The more questions you ask, the more information you get. And trying to seek answers to the irrelevant questions with respect to the context of the market is useless. Waste of time and effort. We all know that our account, in the long run, doesn’t depend on how much you make on the winning trades, but depends on how much you lose on the losing trades. Active trade management is the one that can help you to achieve that and talking to the candles is the heart of active management.
So, what kind of questions we need to ask the candles to get the information??
Well… That depends on the context of the market but there are some common things to look into irrespective to the context and I will give my list below. Feel free to expand the list with your own and make them yourself. I repeat, I ask all these questions not after the candle closes, but during the formation of it.
Does the candle break high/low of the previous candle? If broken, are the new prices accepted or rejected and whether the price is accelerating or decelerating in the new region?
Is this candle near to any of the areas of my concern like zones for Pullbacks and S/R boundaries for Structural trades? If it is nearer, how is it behaving while interacting with those areas? Does the interaction support my premise or is it telling me to reassess the market situation?
Where the candle must close if it has to support my premise? What kind of 2-candlestick pattern is likely to form if it closes in the expected region.
Is this candle supports the strength and weakness in the swing it is in or is it trying to weaken the strong swing or strengthen the weak swing? What does it mean to my premise?
What is the range of the candle and what does it mean to the premise? Does it signify exhaustion or strength if the range is unusual?
Is this candle trapping any traders? If yes, in what direction and what is the possible location of their stops??
These are the common questions we need to ask the candles irrespective of the context. True that there will be more according to the situation and you will know what information you need to validate the premise with experience. Remember, as my trading timeframe is 3minutes, I just got only 3 minutes to gather all the answers. Prepare your own list and let me know the improvements in your trading after applying this technique.
Happy trade management.