Barry Thornton’s Long Candle-strong moves in the market.
As this course is called the long candle course I think it would be a good time to make sure that everybody understands the basis of Japanese candles. Japanese candles give a good visual summary of the path the price took during the single (one) time span of the chart. If we say that we are using a 1 hour chart this means that every candle on the chart represents the price movement the price took during that 1 hour. A 1 hour candle would therefore equal the movement of the 12 five minute candles that can be found on the 5 minute chart. The key information obtained from every candle is:
– The price high, the price low, the opening price, the closing price and the direction of movement from its colour.
The area between the opening and closing price is the body of the candle and represents the actual gains or losses made by the BEARS or the BULLS. If the price goes up (the BULLS have made gains) during the period of the candle the body is normally blue. When the price goes down (the BEARS have made gains) the colour is normally red. When the opening price is equal to the closing price there is no body. If the BULLS or the BEARS make BIG gains during the period of the candle you get a LONG Candle. In this course the objective is to catch the long candles where there are strong moves in the market.
Are the multi time span views showing any possible reversal signals or bounce signals?
When looking for bounce trade opportunities, look at as many time span views as you can. Many times a major support and resistance area that one can only be seen on a long term chart goes unnoticed. Confirming the same support and resistance using many time spans also adds to the strength of a support and resistance area.
Are there strong Horizontal support and resistance levels present?
In the absence of any other support and resistance evidence strong horizontal support and resistance is the most tradeable bounce technique.
You would simply assume that the price will bounce at a strong support or
resistance level certain level after the price has trended for a reason distance. These trades give the best risk return ratios as you can trade with a relatively small stop compared to your target. You should aim for a 1 to 3 stop to target ratio. 30 pip stop for a 90 pip target. This means you only need to get 1 out of 4 trades right and you will still break even.
Is there strong Non horizontal support and resistance present?
The same comments apply as those for horizontal support and resistance except that the non horizontal levels are slightly less reliable and would involve a trending market. Only bounce trade in the direction of the trend would be recommended.
Are there Confluence levels for support and resistance?
As we have seen previously a confluence of different types of support and resistance can add considerable value to the chance that the price will bounce
Price patterns – reversal formations on the quicker time spans?
With slower bounce trades it is good to view the trade on the 5 minute or 15 minute chart as these charts are more likely to show reversal confirmations such as double tops and head and shoulder formations
Reversal Candlestick formations and volume?
As we have seen in the section on volume trading, volumes can be a confirmation for bounce trades. Bounce trades tend to happen very fast and pending orders are recommended. Volumes are lagging indicators so are of less value than support and resistance when bounce trading.