As you practice trading with candlesticks, there are two principles you need to be aware of. These principles will help clarify many of the market situations that you may be confused or uncertain about.
1. Momentum Candle Completion
This is something often ignored by amateur traders when they see a market move and try to chase it. Here’s a typical example on the 1 hour chart:
The time now is 4.30pm
Amateur traders get excited when they see the market move and scramble to enter a trade.
But in their excitement, they forgot that the latest candle has not completely formed yet!
And here’s what happens when the hour is up:
The time now is 5.00pm
The candle has fully formed, and prices shot back down again. This was a false momentum move!
If those traders had waited for the hour to be up before considering to take the trade, they would have avoided this unpleasant situation.
So here’s the principle to follow:
This simple idea will save you from lost capital and unnecessary frustration down the road.
2. Multiple Time Frame Perspective
This is another principle that new traders tend to be unaware of.
Allow me to illustrate this principle with a question:
Try to answer the question as best you can.
..
Ready for the answer?
Of course, this is a trick question… well, sort of.
The point I’m trying to make here is that sometimes, you can’t tell how bullish or bearish a candle is simply by looking at a single time frame.
Let’s now take a look at these 1 hour candles by zooming in to their respective 15 minute time frames.
Take a moment to compare candles A and B this time:
Although they look the same on the 1 hour time chart, when we look at the 15 minute chart they depict different situations!
In this case, candle A is clearly more bullish.
This example illustrates the importance of looking at the market from different perspectives (i.e. on different time frames).
It’s how we can get a more detailed picture of market price moves.
Where possible, we want the to see the same signals across different time frame charts before opening or closing our trades.