Post #107
If there has been a theme to my posts recently, it is summed up in the word: CONTEXT.
I am learning to use candlestick patterns as a secondary method. By that I mean, entry set-up signals.
VSA and WRB & Long Shadow analysis are the primary methods and are used to understand the contextual backdrop thru which a candlestick pattern trade can be taken.
Take a look at the chart below.
We see a WRB on Ultra High Volume.
VSA tells us that markets do not like Wide Spread up bars on Ultra High Volume. Because there could be hidden selling in the bar.
Now check out the very next bar. This bar has almost as much volume as the WRB, in fact it has 3 ticks less. BUT the range is much more narrow and the bar closes in the middle of its range. This is a transfer of ownership bar. The Smart Money is dumping supply into the market. As retail traders rush in to get long, the Smart Money is all too happy to sell to them. Like I said, we need to always be aware of who is on the other side of the trade.
While this bar is up, on high volume it is not "up volume". Most volume indicators and volume analysis would assume it is positive. But we know better than that.
A few bars later, we see a narrow bar that close up from the previous bar and closes in the upper portion of its range, but on volume less than the previous two bars. This is No Demand. Professionals are not interested in higher prices at this time.
At this point we have context. Supply has entered the market. Note that price overall begins to move sideways.
There are some who would go short after the No Demand with the background selling that can be seen. This is a personal choice. For me, all that the context says is, "now is not the time to be going long". I need to see some candle pattern, preferably within the range of the WRB, to get me short. (if you look at a chart from today, you will see that price plummeted after the jobs report). But my point is this, the context, or story, at this time says more about NOT going long than simply get short.
A Tradeguider "sign of weakness" might appear on the transfer of ownership bar. It would therefore look like the top was called and thus possibly sold. This is the error that most indicator only traders who look at TG make.
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