a try in explaining pro trading strategy (PTS)
Pro trading strategy
Let’s take a break and have look at a chart
How it works so far: you wait for an exhaustion candle to form, whose tail bounces of a support/resistance pivot line. You wait for it close and open the trade on the opening of the next candle. In the example above you have an exhaustion candle bouncing of 2 pivot resistance lines you would enter a short trade at the opening of the next candle and exit it on the next pivot support line. You always have to wait for the candle to close before you can say that it is an exhaustion candle or not. Your stop loss has to be above the exhaustion candle, which often doesn’t give you a good risk/reward ratio, but as this strategy has a high win percentage it doesn’t matter that much.
Now let’s go a bit further and go into what does qualify for an exhaustion candle:
Ideally it should look like this
Let’s see if we can now answer these questions using the chart below. Do not take into account the 1.1 rule (Nothing touches it to the left for 3-5 hrs). Which are valid exhaustion candles a-y?(the answers will be posted as soon as 20 people has responded to this little quiz 1)
Now let’s continue:
5. The ex-candle should form during a trend and be obvious at the end of that trend (or retracement).
6. It is necessary that the ex-candle bounce off a pivot (see pivot history of previous two days,
7. If the exhaustion is bigger than the previous candle, it is ideal.
8. "Ideally" part of the body of the exhaustion candle is within the range (high-low) of the previous candle
7. Multiple ex candles side by side strengthens the turn.
Here you can see an exhaustion candle which shows all of the above points mentioned so far
If we consider all of the above mentioned points which would be valid exhaustion candles in the chart below (a-t quiz 2(the answers will be posted as soon as 20 people has responded to this little quiz 2)
summery exhaustion candles:
what does an exhaustion candle show us. like all candle stick patterns it shows us the actual market condition, the battle between buyers and sellers. in the case of exhaustion candle, let's take the example below, there is an uptrend. at the point of the ex.candle buyers are trying to push the price higher, but seller enter the picture now telling the buyers enough now and they are the ones who push the price way down again. the trend comes to end as it reaches an exhaustion level. the buyers are getting exhausted as they can not push the price higher. if this occurs around pivot resistance, other resistance levels, trend lines....this candles are valuable indicators of an imminent change in direction. they are not only useful in trading the PST but also on higher time frames using monthly/weekly pivots or other strong resistance levels.
That’s part 1. soon to be continued.so if you liked it so far stay tuned and press the like buttom. every comment is welcome.
if you answer to the Quizzes, please answer quiz1......and/or quiz 2 so it is clear which one you are answering to.to round up the subject i attached a file. the info in there is from nial fuller
Nice Work Joachim, good explanation of Pro strategy basics. I am sure you will go into details of trend continuation pattern using pro strategy.
One thing that I will like to ask would be as you said in your explanation that ex candle body should have some over lap with previous candles body in that case the examples you posted for "idea ex candles" do you think that ex candle body is over lapping with previous candle ? Secondly the third candle you show for in "ideal ex candle" seems to be in middle of trend so rather act as continuation pattern, so it would be nice to keep it till you discuss continuation pattern.
Great work ....
hi sadar.as always your comments are really helpful. to 1:"Ideally the body of the exhaustion candle is within the range (high-low) of the previous candle. they are still in the range(high/low of the previous candle, but i might have to change the wording like "part of the body of the ex. candle", but this i have to check out further first.. 2. the 3 picture of ideal ex candles is at the end of a trend, which is in the picture not obvious.and you are right i will go into trend continuation pattern later. but for now just the basics. thanks sadar, cheers joachim
On the second look you have posted two quizzes in one post so now it is not clear which one are people answering to , so I will consider either breaking down the post into two post Post 1 ending at Quiz 1 and second ending at Quiz 2 or you can also consider just make one Quiz at the end.
great suggestion.have a look i changed the posting.should be more clear like this, cheers joachim
B , P , Y are valid exhaustion candles
b c d f g j l n p s t y
What a fantastic sight I have stumbled on today, thanks very much, from my experience with exhastion candles if you enter not on the open but on a retrace of between 30 and 40 % into the exhastion candle you may miss the boat sometimes but it reduces your stop considerably, and soaks up a bit of the spread
All the Best