This 1 Candle Reveals Price's Next Move

Summary

The Candle Signs strategy empowers traders to predict and profit from the next candle’s movement by understanding the behavior of two types of candles: disrespect candles (indicating a trend continuation) and respect candles (indicating potential reversals). By analyzing key price levels (PD Rays) such as fair value gaps and swing points, traders can determine whether the market is moving higher or lower. The strategy also introduces the two-candle rejection concept, where price rejection or continuation is confirmed by the first and second candles, providing clear entry signals and enhancing risk management techniques for more effective trading.

Takeaways

• 😀 Candle science involves understanding two types of candles: disrespect candles (indicating trend continuation) and respect candles (indicating a potential reversal).
• 😀 PD Rays (price delivery rays) are key levels such as fair value gaps, previous candle highs and lows, and swing highs/lows that guide price movements.
• 😀 The direction of price movement is determined by marking out PD Rays on higher time frames (monthly, weekly, daily) to understand where price is coming from and where it is likely headed.
• 😀 Understanding the direction helps in predicting whether the next candle will be bullish (higher) or bearish (lower), with a focus on probabilities rather than certainties.
• 😀 Candle science combined with PD Rays provides a framework for identifying high-probability setups for price movement prediction and trading decisions.
• 😀 The narrative in trading refers to understanding where price is moving from (the PD Ray it’s leaving) and where it’s going (the PD Ray it’s moving towards).
• 😀 Two candle rejection is a critical concept in candle science. It occurs when the first candle rejects the PD Ray, and the second candle follows through, confirming the move.
• 😀 If the first candle doesn’t reject a PD Ray, the second candle can still sweep the previous candle’s high or low to continue the trend, showing price rejection or consolidation.
• 😀 In trading, understanding the potential for a move is more important than expecting an exact outcome. Probabilities (e.g., 80% chance of a trend continuing) guide decisions.
• 😀 Risk management is essential in applying candle science, where stop losses and break-even strategies are set based on the behavior of price around PD Rays and the candle formation.
• 😀 The ping-pong effect explains that price retraces back to premium PD Rays before continuing in the trend direction, and this is essential in predicting price moves effectively.

Q & A

What is the concept of 'Candle Science' discussed in the script?

Candle Science is a method used to predict the next price movement by analyzing the types of candles in the market. It focuses on two main types: Disrespect Candles, which indicate continuation, and Respect Candles, which signal potential reversal.

What are 'Disrespect Candles' and what do they indicate?

Disrespect Candles are candles with a large body and small wick, indicating that the market is likely to continue in the same direction. These candles show a strong price movement without much retracement.

What are 'Respect Candles' and how are they formed?

Respect Candles are candles that form after price action shows signs of reversal. These candles often have long wicks at the top or bottom, depending on whether the price first moves up or down before reversing.

How do PD Rays (price delivery rays) relate to Candle Science?

PD Rays, such as fair value gaps, previous highs/lows, and swing points, are important levels that price action moves toward or away from. Candle Science uses these levels to predict the direction of price movement, with PD Rays often guiding where the next price move will head.

What is the importance of the 'direction' step in the strategy?

The direction step is about determining whether the next candle will be up or down. This is determined by analyzing the PD Rays on higher timeframes (e.g., monthly, weekly) and observing price action relative to those levels.

What role do higher timeframes play in identifying price direction?

Higher timeframes, like monthly and weekly charts, are used to identify key PD Rays (fair value gaps, previous highs/lows). These levels give insight into the broader market structure and help predict whether the next candle will move higher or lower.

What is the concept of the 'ping-pong effect' mentioned in the script?

The ping-pong effect refers to the idea that price action often moves between premium and discount PD Rays. When price creates a bullish trend, it may retrace to a discount array (bullish PD Rays) and continue higher, while premium arrays (bearish PD Rays) may create retracements.

What is a 'two-candle rejection' and how is it used in trading?

A two-candle rejection is a pattern where the first candle shows a rejection at a PD Ray (e.g., fair value gap), and the second candle continues in the same direction. This pattern helps identify whether a price reversal or continuation is likely, and it can be used to set entry points for trades.

How does 'two-candle rejection' help determine trade entries?

If the first candle shows rejection at a PD Ray, the second candle is expected to follow through in the same direction. This provides confirmation that the market is respecting that level, and traders can enter based on the continuation of that move.

What happens if the first candle in a two-candle rejection does not show rejection?

If the first candle does not show rejection, it may indicate that price will continue moving in the opposite direction or enter a consolidation phase. The second candle may still sweep the previous candle's high or low to set up a potential reversal.

How does risk management factor into trading with Candle Science?

Risk management is crucial when applying Candle Science. Traders should wait for clear price action signals before entering trades, and once a trade is made, using stop losses and setting break-even points ensures that risks are managed effectively while still capitalizing on potential profits.

How can a trader capitalize on price movement using lower timeframes?

Once the direction is determined on higher timeframes, a trader can refine their entries using lower timeframes. For example, they can look for fair value gaps and price rejections on lower timeframes to enter trades with tighter risk management and more precise timing.