TTrades Fractal Model - Trading Candle 2

How's it going everyone? In today's video we are going to learn about how to trade a reversal candle, or candle 2 within my fractal model.

Let's get into the PDF. Now the first thing you have to understand is the difference between an expansion candle and a reversal candle.

An expansion candle has a small wick on each side and a large body.

That means that price during this given time period trended in one direction.

Now a reversal candle opens, makes a large opposing run to form its wick, and then goes back towards its opening price before closing.

So if you take a look, when we have a small wick that supports expansion, as price can continue to trend.

If we have a large wick lower, that doesn't support expansion higher because price can only have so much range.

We're not expecting price to go all the way down here to form its lower wick and then expand off the screen here. Small wick supports expansion.

Large wick doesn't support expansion. So how do we use what we just learned in the previous slide and actually apply it?

Well, if we're looking to frame a reversal off of this previous candle's high, well, I want to have a small wick because then price can expand lower.

You see price opens. This forms a large wick. It has a large opposing run.

This doesn't support expansion lower because I'm not expecting price to open, make a large opposing run, and then continue to trend down.

That's going to take too much time and too much range. So here I'm only expecting price to return back to its opening price or its current low.

You can see we have a large wick and then it closes and then this is the classic setup of a continuation candle the next time.

You can see this is a reversal candle that leads into a continuation. Now what happens when we have a small wick?

A small wick can support expansion. So you see, we sweep out this previous candle's high. We don't have a large opposing run.

So this small wick supports expansion lower. It hasn't made much range, and this allows it to trade much lower.

So if you look at the two types of reversal candles, this is a reversal with an expansion candle.

This is the one we ideally want to trade as it supports expansion lower and can trend.

I'm not saying we cannot trade reversal candles with a large wick, we just have to adjust our targets.

Here with an expansion candle, we can target previous candles' lows and standard deviation projections.

But here with a large wick, I have to adjust my targets, looking back towards that opening price and the current candle's low.

So let's take a look at trading a reversal to expansion candle as that is the most ideal scenario.

The way we are going to go about this is we're going to mark out that previous candle's high on the higher time frame.

we're going to wait for a sweep of that high, a change in the state of delivery, forming a protected high so I can anticipate this wick to have formed.

Then I can look to trade this reversal lower or look for the continuation that follows.

Let's hop into trading view to go over these various scenarios and various reversal candles and the opportunities that they present.

So here we are in our first example and we are on gold daily chart.

Now following my phases of price series you may notice what we're expecting after we have a large expansion like this.

We're looking for a new phase of price. So with that, if we're looking for either a retracement or a reversal, ideally we don't get caught in a consolidation.

Where are we looking for that to occur? Well, since this isn't a reversal candle, I'm going to be looking for price to take out its previous candle's high and then form a reversal here to trade lower.

Now, if this next candle is going to support expansion, what do we want to see?

Do we want to see a wick that is small that then we can trade it lower? Or do we want to see a large wick?

Well we want to see a small wick if we're going to actually trade that lower because it allows it to expand.

If we have a large wick then we're better off either looking back towards the daily open or trading the following day for a continuation.

Let's drop down to the lower time frames to see what it looks like.

So here we are in the next candle and you notice we also can use the phases of price on the hourly chart, and that's personally my favorite for the daily time frame.

We have expansion into consolidation. So if our idea is to trade lower, what do we want to see with consolidation?

Expansion, consolidation, expansion out of this range, met with expansion back in, forming a reversal, to then trade it back lower.

So let's see when we engage with this high. There we see we have expansion into the high and expansion back lower.

That is what's forming that wick there. Now I'm marking out the

series of up-closed candles there, we can go ahead and move one candle ahead and my indicator will do so because it now has the early change in the state of delivery feature, but we have a protected high here now.

So we can anticipate that this daily has formed its wick and it is a small wick which supports expansion lower.

So where can we look for this to trade to? We can use the EQ of the previous day for a target or liquidity.