8 Price Action Secrets Every Trader Should Know About Part 2

5. The 4 clues of candlesticks and price action

This ties in with the previous point and it further demonstrates the importance of putting together the pieces when you trade price action and avoid blueprint-thinking. The 4 following points will help you avoid many of the common trading mistakes people make who just look for blueprint patterns.

♦ The length of wicks

If you see a lot of long wicks, it means that volatility and uncertainty is increasing. Especially during market tops or lows.

♦ Bullish vs. bearish wicks

Do you see more/longer wicks to the upside or to the downside? Wicks that stick out to the downside typically signal rejection and failed bearish attempts.

♦ Position of the body

Is the body of a candle positioned closer to the top or the bottom of the candle? Bodies that close near the top often signal bullish pressure – especially if the candle comes with a long bearish wick.

♦ The body

The ratio between the body and the wicks can tell you a lot. Candles with a large body and small wicks usually indicate a lot of strength whereas candles with a small body and large wicks signal indecision.

6. Broker time doesn’t matter

We get the question how broker time and candle closing time influences price action a lot. Truth be told, it does not make any difference to your overall trading although time frames such as the 4H or daily will look different on different brokers.

7. The amateur squeeze and stop hunting

Conventional price action patterns are very obvious and many traders believe that their broker hunts their stops because they always seem to get stopped out – even though the setup was so clear.

It is very easy for the professional trader to estimate where the amateur traders enter trades and place stops when a price action pattern forms. The “stop hunting” you’ll see is not done by your broker, but by profitable traders who simply squeeze amateurs to generate more liquidity. You should either wait for the amateur squeeze to be over or add some extra space to your stop to avoid getting kicked out of potentially profitable price action trades.

8. Correct market selection

Building a watchlist prior to your trading is important and market selection is a very misunderstood concept in trading. Let me give you an example from my trading: every Sunday I sit down and go through all of the 15+ forex pairs that I consider trading. However, usually only 6-8 make it on my actual trading watchlist for the week ahead. And the main reason why the others get cut is because of low probability price action which usually means tight congestions, squeeze consolidations and narrow ranges with a lot of volatility.

Read Part 1

Junior Trader Stefan Panteleev

Read more:

• The Amateur VS The Professional; The Difference is in The Mind
• A story of a trader: ‘Trading can take over your life – but only if you let it’
• How to Filter Good & Bad Price Action Entry Signals
• The smartest way to invest your first $1000
• Should S&P500 be afraid from Friday 13th what the statistics look like