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Best Candlestick Patterns for Price Action Analysis

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As mentioned in a recent post, the key for a better Price Action Analysis with candlesticks is "read" them at a glance and the patterns it forms, mainly when price approaches an S-R level, doing always in conjunction with volume.

Candlesticks are a reflection of what buyers and sellers are doing. You need to know its meaning: indecision, rejection, reversal, or momentum.  In Price Action Analysis, less is more with technical indicators: a few of them are enough. The same idea for candlestick patterns. You can find dozens of candlestick chart patterns, but I feel comfortable with a few of them, the most accurate in my point of view.  No need to memorize them all, just understand the mechanics behind this tool. Consider the following:

Single candlesticks
1- Pin Bar (or long-wick candle): the longer the wick, the better the candle. This candle means that indecision began, as buyers tried to push price higher but failed, causing the wick to show, meaning a rejection. There are b…

Price Action Analysis for Day Trading

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In these days of coronavirus threat and extreme volatility in markets, it's risky for a conservative trader to enter with long positions, even in the short-term. With the SP500 now in a rebound (only due to portfolio rebalancings of investment funds and smart-money short-covering, not fresh money), the key is to see how the SPX will behave when it approaches the 50% of its Fibonacci retracement if it does. Historically in all crashes the Dow Jones (or SP500) have two minimums, the second even lower than the first. And with a world recession in the background, it is more than likely that this will happen in the next weeks.

Therefore, since the end of February, I closed my entire long portfolio and have no long positions when the daily session closes. In March the same: zero longs. I mean, I only do day trades on Index ETFs as SPY, QQQ and IWM. That's my "coronavirus strategy" in days of VIX above 50: preserve cash and do only day trades, closing the trade before the s…

Get Trade Signals from VWAP and Awesome Oscillator

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VWAP, the best trend indicator for day trading:
The volume-weighted average price is a powerful trend indicator for day trading, and it's crucial due to its heavy use by investment funds and smart-money. It looks like a moving average in your 1-minute chart (orange, in mine), and is the same weighted-average we learn in school, in this case, used with the two main factors involved in trading: price and volume.

Institutions work the investor's accounts always buying below the VWAP and selling above it. This way their actions push the price back toward the average, instead of away from it. That's great information for retail investors and traders!

I trade the VWAP in two different ways, depending on the type of trade: breakouts, and pullbacks.

- For breakouts, look first when the price is below the VWAP and, due to price action, crosses it with a big momentum candle.  If this candle also breaks any of your resistance lines (or a trendline), that reinforces the strategy. Then…

Trading the Volatility. Part 2

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The VIX and its inverse relationship with the markets:
The VIX, as a contrarian indicator, is an incredible weapon for technical traders to determine extreme conditions of bullish or bearishness of the market, using its inverse relationship: when the market is rallying, the VIX tends to drop; when the market is tanking the VIX tends to rise. Smart and serious investors use it to bet against the crowd when its greed (or fear) levels are high. And mainly, they use it as protection or hedge for their investments.

The VIX, also known as the 'fear gauge', measures the frequency and intensity of changes in the SP500 in the short-term (30 days), through the implied volatility IV of its at-the-money call and put options. A level below 20 generally indicates a bearish or complacent market, while reads above 30 are generally associated with a large amount of volatility, and mean that investor fears are taking place.

Smart traders usually "buy bargains" when volatility is hi…