Trading The 4 Hour Power Of Three - OHLC / OLHC

Summary

In this video, the presenter delves into the concept of the '4-hour Power of Three,' explaining how to trade the open, high, low, and close of a 4-hour candle. The key concepts of accumulation, manipulation, and distribution are discussed, with a focus on identifying expansion candles and understanding the importance of wick formation. The video highlights how to use both higher and lower time frame candles to define market structure and find entry points, while stressing the importance of patience and alignment with a broader daily bias. Examples in both futures and forex markets are provided to demonstrate the application of these strategies.

Takeaways

• 😀 Understand the 'Power of Three' in trading: Accumulation (Candle 1), Manipulation (Candle 2), and Distribution (Candle 3). This forms the foundation for predicting price movements.
• 😀 Focus on trading expansion candles (Candle 3), which indicate strong price movement. Wait for the wick to form before entering the trade for better accuracy.
• 😀 Candle 2 with a small wick signifies manipulation, while a large opposing run indicates a lack of support for expansion. Always wait for confirmation before trading.
• 😀 Utilize multiple timeframes: Align your trades on the 4-hour chart with daily biases and use lower timeframes (e.g., 15 minutes) for precise entries.
• 😀 Never try to trade the wick directly. Let the wick form, and trade the body of the candle after it signals a protected swing for a more reliable trade.
• 😀 When trading, aim for a risk-to-reward ratio of at least 2:1. Place stop losses on significant swing points or key levels (protected swings).
• 😀 Pay attention to the change in the state of delivery (CISD), which is a key confirmation for a valid trade. It indicates the price is ready to move in the anticipated direction.
• 😀 Be patient: Avoid chasing trades when the range has already expanded. Let the market complete its cycle before making your entry.
• 😀 Use fractal models on lower timeframes (e.g., 5-minute charts) to confirm setups on higher timeframes like the 4-hour chart. This helps refine entries and improves accuracy.
• 😀 If you see expansion met with expansion, such as in the 6 a.m. and 10 a.m. candles, understand whether the market is bullish or bearish. Trade accordingly, with proper stop loss placement.

Q & A

What is the 'Power of Three' in trading?

The 'Power of Three' refers to a trading strategy based on three distinct phases: accumulation, manipulation, and distribution. These phases are used to identify and trade the real market move, with the goal of trading the expansion candle after the market has completed these stages.

What are 'candle 2' and 'candle 3' in the Power of Three strategy?

'Candle 2' refers to the manipulation phase, where the market forms a small opposing run within the same higher time frame candle, but doesn't support further expansion. 'Candle 3' is the distribution phase, where the market makes the real directional move, which traders aim to trade.

How does a shallow wick support expansion in the Power of Three strategy?

A shallow wick in a 4-hour candle suggests that the market has made a minor pullback before continuing in the desired direction. This shallow wick signals that the market is likely to expand in the same direction, as it indicates that price action hasn't deviated significantly.

What is meant by a 'protected swing' in this context?

A 'protected swing' refers to a low or high that has formed and is considered protected because it was established after a shallow opposing run and a change in the state of delivery. It acts as a key point for trading expansion, as the market is less likely to revisit that level.

Why is it important to let the wick form before trading the expansion?

Letting the wick form before trading the expansion is crucial because attempting to trade the wick too early can lead to getting stopped out. The wick marks the uncertainty phase of the candle, and waiting for it to form ensures that the market has established its direction before entering a trade.

What is the role of lower time frame confirmation in the Power of Three strategy?

Lower time frame confirmation helps to refine entries for the trades based on the Power of Three strategy. By using smaller time frames, like the 15-minute or 5-minute charts, traders can confirm whether the market is respecting key levels and the directional move before committing to a position.

How does the reversal candle in the strategy differ from the expansion candle?

A reversal candle indicates a change in market direction after a consolidation or opposing run, while the expansion candle represents the continuation or 'real move' after the reversal. Traders focus on trading the expansion candle, as it represents the larger price movement in the market.

What does the term 'change in the state of delivery' mean in this context?

The 'change in the state of delivery' refers to a shift in market behavior, often signified by a price movement that breaks a previous structure, such as a high or low. This change indicates that the market is likely to move in the direction of the new trend, confirming the validity of a protected swing.

What is the significance of waiting for the new 4-hour candle to open before entering a trade?

Waiting for the new 4-hour candle to open ensures that the trade is aligned with the current market sentiment and structure. The new candle provides fresh data that confirms whether the price action supports the anticipated expansion or reversal.

How do fractal models help in confirming entries at lower time frames?

Fractal models help identify price patterns on smaller time frames that align with the higher time frame (like the 4-hour candle). These patterns provide confirmation for entries, ensuring that the trade is in line with the overall market structure and bias, helping to avoid false signals.