Trading Candlesticks explained by professional Forex trading experts the “Trading Candlesticks” FX trading team.
Trading Candlesticks?
General Logic: A candle which contains a long wick means that while the candle was open, a large reversal must have occurred. That reversal could be caused by a large order at the low point or high point of the candle or the momentum that caused the initial move may have ceased. We will never know exactly why, but in a sense, that does not really matter. A high on a long wick to the upside or a low on a long wick to the downside represent a price point that we can utilize to set up trades. The high or low point is a reference point that we can use for stop placement. The market has given us a piece of information and we can then use that to our benefit.
Specific Trade Idea: Once you have identified a long wick, take note of the high on a long wick to the upside, or take note of the low on a long wick to the downside. That high or low will be our reference point. Our stop will be placed a few pips above the high of a long wick to the upside on a short trade or a few pips below the low of a long wick to the downside on a long trade. We then look for an entry knowing our stop level in advance. This allows us to manage our risk properly.
For example, if we have a long wick to the downside, and the low point of that wick is 1.3950, we know that our stop will be placed just beneath 1.3950, let’ say 1.3945. If our maximum risk on any single trade idea is 50 pips, we would need to enter the long trade at 1.3995 or lower.
By approaching the trade idea with our stop level already decided, we are in complete control of our trading. We only enter if the market allows us an entry within our pre determined risk parameters. If not, we simply look for the next opportunity.
Here is an example of a long trade on an hourly chart. Notice the long wick that forms to the downside (circle). We then look to enter on the next candle (rectangle), 15-25 pips above the low of the candle with the long wick. Our stop (white line) is located 5 pips beneath the low of the candle with the long wick. In this case, the trade triggers on the next candle.
Trading Candlesticks Conclusion
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