Candlestick Charting Trading Part 2

welcome to part two on candlestick
charting trading the markets now as you see here we have brought up multiple
bars by the way part one I will include the link to it in the description below
this video so you can go and check that out and we’re building upon part one
right now so now we’re going to get to this way of simplifying candlestick
patterns without learning all the different 618 Japanese candlestick
patterns I don’t really know how many of there are but 618 sounds good since
that’s a Fibonacci and this traders we got to do Fibonacci numbers right well
okay not necessarily but anyway so what we’re going to do is we’re going to look
at this very concept here to simplify the reading of Candlestick patterns and
that is whether they validate or invalidate the pray section of the bar
or bars that precede them all right now what do I mean by that alrighty here’s
what I mean so as we talked about in the last video the primary things that we’re
looking at are first of all is the range of the bar from high to low so that’s
going to determine whether it is a bearish or bullish bar whether there’s a
lot of action whether there’s a lot of movement essentially what that really
means is okay during that period of time this is a five-minute chart but it could
be a daily weekly 60-minute whatever during that period of time there was a
lot of movement all right from a low to a high or a high to a low
so that’s significant as opposed to if we get a narrow range bar like we get
here where during that same period of time there’s just not much movement mark
you didn’t go anywhere there wasn’t a lot of activity there wasn’t a lot of
supply demand imbalance that would be a good way of looking at it
and so mark I just kind of stayed neutral didn’t really go very far again
a little bit of movement it doesn’t really have any significance a lot of
movement does so that’s the first thing from the height of the lope and then the
second thing we look at is the real body in comparison to the wick
and that has significance as well so for example when we look over here we see we
have a wide range bar and then when we look at the real body compared to the
wick now I use yellow for the wick we see that oh it had a quite a bit of
range down here but guess what it rejected those values we closed here and
the market did travel below that and tested those levels down there but
couldn’t get enough traction again supply-demand imbalance a lot of buying
came in so probably what’s happening in the mind of the market participants is
they’re saying hey this is a better price now now we’re considering this a
deal or maybe a steal like when you go to buy a car right is it a good deal is
it a bad deal or anything else it’s all another market participants as a whole
the mass psychology is saying ok yep some price has been tested down here
maybe a few people sold but not many people and I will end to sell anymore
and so now the market comes in and starts buying and says oh this is a good
deal and so this is called again a rejection of value very important
concept in treating those prices have been rejected and so the market moves up
so the way that we would read this as far as does the bar validate or
invalidate the bar before it is this way so this has a wide range bar from high
to low it engulfs the bar before it so there’s your classic engulfing pattern
if you want to look at it engulfing patterns and this is a very bearish bar
and that’s a very bullish bar so the green bar here invalidates the bar
before it all right so the green bar like that with yellow to that part
invalidated the bar before because the bar before it was a bearish bar and that
is one way to understand this now the other critical thing is where do these
patterns occur on the chart we’re in the context of the chart do they occur so
just these candlestick patterns in fact the gentleman on my
video actually made a very good comment that I totally agree with where he said
you know when engulfing bar might work and then the next 12 won’t and he’s 100%
correct so we need to see these in context in what Ella Farrell that calls
the landscape of the chart or I think Steve ness and called it the overall
environment of the chart I forget the exact terminology that he used but
pretty much all traders are very much where this professional traders at least
so 100 percent you can not just treat these candlestick patterns in isolation
so what we’re looking for is again this part here is bearish but guess what
we’ve already been going down for quite a while so the odds of it continuing to
go down are less now there’s never any certainties but we’re always putting
together a number of uncorrelated variables to establish a probability
scenario for trading and one piece of evidence one of those variables will be
your candlestick patterns your price action but that’s just one variable
especially when you’re just looking at one or two our patterns like this we
need to take it in the context of the entire chart so the more the markets
been going down you get sure you get a big bearish bar but I’d rather take that
big bearish bar up here see now there we get the same thing this red bar which is
a fairly wide range bar in validates I like that to kind of enjoy my new yellow
highlighter here dude a little toy here invalidates the green bar before it and
there for sure green bar bullish green bar bullish
green bar bullish red bar comes in at a swing high again engulfs wide range
closes near the low this one close near the high right invalidates the bar
before it and that’s the concept that we’re looking at here now what about
this one let’s just do a couple little quizzes here so we’ve got that one mark
there with my cute little magenta arrow so this one is we’ve got a doji bar
opens closes at the exact same price and it’s not real wide range not
wide range but we basically a small rejection of value to the top open and
close near the bottom near the bottom third near about a quarter probably
actually therefore we would say that okay comes in the middle of the of the
impulse move there for you yeah it just doesn’t change anything right so it’s it
just keeps going down now you could look at this one here and say oh but that’s
kind of a bullish part again sort of kind of but what makes it less
significant is that and we’ll show a couple more things in future videos as
we look at more of the context of the chart and how to put it all together but
again it’s in your own range bar this one’s pretty narrow range to nuts medium
range we’ll say medium range and therefore not as strong of a signal all
right so this one here I would say okay just doesn’t really change the picture
since we’re already going down the general impulse move us down you know it
just kind of confirms the down move in the middle now one last question here
what about these two this one’s a little bit of a tricky question although I’ve
given you the answer already but it’s a good review
so does this green bar invalidate the red bar be for it and the answer is no
it does not so again a little tricky question why
not well again go back to what I’ve already said it’s a narrow range bar
therefore in my mind any narrower range bar is just significant it’s neutral
it’s not bullish it’s not bearish it’s just neutral it doesn’t really change
the sentiment of what the market has currently or previously been doing now I
do this sometimes in live webinars and I actually start with this one and
inevitably over 50% of the people will say that yeah it I’m gonna clear up my
charts here a little bit I start with this one and I play a little trick on
them and I say did that green bar invalidate the red bar before it and
over 50% of the people say yes but this is a mind game okay this is a trick that
your mind is playing on you and it is the issue that we have we could see the
future right on chart we can see what happens next and
so it’s called future bias in a sense where since you can see the future we
have this inclination where we think for some unknown reason that we should be
able to nail every cycle high male every cycle low and that there’s a high
probability way of determining every swing high and every swing low and my
friends there is not there is no way to determine every swing high in every
swing below and the market effect you won’t be able to predict most of them
actually I don’t even like to wear use word predict at all the way I like to
use it as there is not a high probability scenario or signal for most
swing highs and swing lows and we only trade the ones where there are high
probability situations signals triggers but most of them don’t have them most of
them don’t have them so it’s kind of a tricky question but I do that on purpose
because people assume well I could see this yep so that’s the low and that
should invalidate that but nope the truth is there was no high probability
signal there that that was gonna put in a swing low and the market was gonna go
up and you have to be careful now because this is where you can get
treaters remorse you see the market go up and you say oh and you were trying to
reverse engineer it and say I should have been able to figure that out and
then you try to look at all kinds of ways of how you could have figured that
out that is a fool’s errand you will drive yourself crazy do not get caught
up in that please please don’t get caught up in that only look for the high
probability trades and again they don’t occur as often as you probably think
they do in fact I would say that this is one of the reasons why most beginning
traders or even intermediate traders even educated amateurs get tripped up
all the time is because they just have well false expectations unrealistic
expectations and the truth is that most professional traders we trade a lot less
than you probably think we do we probably think a lot fewer trades than
most of you expect and that’s one of the things you got to do is get a grip on
the reality of treating and that’s just the honest
truth and once you accept that then that’s going to help you a lot and by
the way one reason that people don’t like that answer is because well they
want to trade more and I get it I get it I want to trade more – one of my biggest
challenges in fact I would say my cardinal sin as I was coming up through
the ranks was over trading for that very reason I wanted the action I wanted more
trades I thought there would be more trades than there are in reality and I
struggled with that and I turned it became profitable when I finally got
more patient and accepted the reality that you know what most of the time the
market is pretty much a random walk and there’s only a few times here and there
that the market actually gives you high probability trade signal so anyway
enough of that but hopefully you got value out of all that we’re going to
follow up with some more price action and stuff here in future videos so if
you got value out of this please share it with others with that beautiful
little share button below that’s really the best thing that you can do share
good things with good people give a thumbs up if you have any comments
questions requests for future videos put those down in the comments that always
encourages me to create more free tutorials for you and I’m also going to
give you another bonus and that is a free trade setup called the rubberband
trade it is my Wow one of my best trades it’s actually one
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17 thoughts on “Candlestick Charting Trading Part 2”

  1. Thanks Barry, Great video as always! I've been trying to reach you through email and your website, but unfortunatelly no response yet. I'd like to get the customs indicator for MT, but the link doesn't work (it links to the fibonacci course). Please advise. Thanks!

  2. It looks like the fifth bar from the left (red bar) has the same structure and the green bar you are talking about at 3:30 in the video. This fifth bar from the left on the chart rejected lower prices too, but price went lower the next day. How does one tell the difference? Is the context of the chart the answer?

  3. Great video on reading price action and candlestick shapes/patterns Barry. Very easy to grasp the concepts you described.

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