TTrades Fractal Model - Trading Candle 2

[Music] 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. 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 candle's 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 cuz 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 traded 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. So now marking out the series of up close 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. What would liquidity be? Previous days highs and lows. So, that can be a target as well. Let's see how this works out. And you can see there we go and get that expansion lower. So, just to review, what are we looking for? If we're trying to trade a reversal day, we want to see if it supports expansion. This candle does as it has a change in the state of delivery intraday forming a small wick on the daily time frame. This allows it to form its wick early enough into the day to expand throughout the day. Now, if we go and replay this example and let's say the daily candle looked something like this, right? We had a super large wick that already pad most of its daily range. Do we really expect price to expand all the way down here? Not really because that is such a large range. So that is why we are looking for that small wick to support expansion. So here we are in our next example and with my fractal model, I'm only looking to trade swing points. So you can see here we have two swing lows and we do not have another swing low to trade off of. So with that idea in mind and sweeping out a high, looking for a new phase of price, I'm only favoring downside. So let's drop down to the lower time frame and see if we can frame a reversal off of this previous day high. So here we are at the start of the New York session and what do we notice about the daily profile so far? We have a consolidation into the Asia session and then London makes a move higher expanding out of this range. Now what do we have? We have a consolidation, right? We don't get a retracement into this fair value gap to trade it higher. We are stuck internal to this candle's range. So with that being said, what do I want to look for? I want to look for a sweep of a high to trade it back lower. So, taking a look at this, what do we have? We have this move higher. Now, what do we notice about this wick? It's quite a large wick, right? In terms of the daily profile, we have started to expand away. So, with a larger wick, not forming that shallow sweep over previous day high to form a reversal lower. What do we want to look for? We want to adjust our targets. This is one of those scenarios of trading a larger wick. Instead of looking for expansion lower, I'm looking for it back into its daily open. So using that as a level and then those session lows. So as price expands, let's see what happens. We go and take out those levels. Now, it's not that price can't trade lower. It could go down into this fair value gap down here around EQ of the range. But when we have a larger wick, my expectations is favoring back towards that daily open in those session lows, not trying to be greedy and look for a massive move with a wick that does not support expansion. So as we let this continue, do we end up getting a move lower? Nope. We close the day as a reversal candle. Now in the next day, this is my fractal model where we have a candle to closure looking for a continuation lower in the continuation day. And that is when we can get that continuation down there into that fair value gap. Now, hopefully what you learned from this example is that when we have a candle with a larger wick, I want to adjust my expectations from expansion to looking back towards the daily open or the higher time frame open or those session lows or those current candle lows if using this fractally. So, here we are with our next example. And if you notice, we are in a range. How can I tell that? Well, this previous candle's range encompasses all of the other days following it. So, marking out the range high and the range low. What do we want to look for when trading a consolidation? We want to wait for one side of the range to be taken. Now, we have failure swings on both sides. And you can see that by looking at these higher time frame candles and how they do not overlap. Now, we'll want to wait for the high or the low of the range to be engaged before looking for opportunities. Now, let's see what happens. I wouldn't be interested in this CISD here. Why? There is no relevant level. We're still consolidating. Similar thing with that one. Now, we take out the low in the range. Now, there's a few questions I can ask you here. Yes, we have taken out the low in the range. And where would we want to trade? We'd want to trade to this range high, right? That is the whole idea. But let's look at the time of this and the range of it and what the higher time frame candle looks like. Here we have used most of our daily time right all the way through the New York session oscillating before running out this low. So does it really make sense for the afternoon session on oil or gasoline in this case to rip all the way to these highs? No, not really because this candle does not support expansion. So this is generally where it's ideal to either looking for an intraday high to be taken out but if you look Asia and London have already been taken out so we don't have failure swings to target or back towards the daily open. So, is this much range to get a target out of this trade? Not really. Right? We could go down and look to do something with that. And let's see how that goes. But this brings up an important point. Within the intraday profile, what am I using to confirm the wicks of the daily candle? Well, earlier on in the day, I want to use a higher time frame. So, in Asia, I'm almost specifically only going to use the hourly or 30 minute. Once I get into London, I'll use the hourly, 30 minute, or 15. And once I'm into New York, yes, if they present themselves, I'll use those higher time frames like the hourly or 30 minute. But a lot of times with a New York reversal, it's going to be very quick. And if I wait for that confirmation, my target's already going to be hit or I'll not get on side. So specifically in this case here, if I was going to wait for an hourly change in the state of delivery, where does that occur? It occurs up here. And that would be my target for this move, right? That is buy side liquidity. And that would be a target for this range low to this range high, right? So this is where it would make sense to drop down to a lower time frame. So looking at a 5m minute, do we have an entry in here? Well, we have a change in the state of delivery right here. And then are we going to form a continuation here? Cuz we reach into an important level. I want to see if we form a new protected low. There we do form a new protected low. And I could look to take a stab at this. Now, let's talk about why I don't like this. Now, it would be one thing if we hadn't taken out those overnight session highs, right? Because then we have those failure swings as targets. But if we notice the New York session already took out those highs, we don't really have any low resistance liquidity to be sitting to be taken out. And I generally want to favor back towards the daily open at that point. This doesn't really give great risk-to-reward. Could we still try it? Sure. Let's see if we can get two R out of it. You can see how that daily open provides resistance and then we do go take this out. Now, with that being said, if we go back out and take a look at this for a second, this daily candle does not support expansion, right? We have a large wick. This is a perfect example of when it's better to let this reversal day trade and then look for the continuation day following and see if that has a small wick that supports expansion. So, as we let this trade, what do we have on this next day? You can see price forms that change in the state of delivery and then we get that continuation higher. You see how this daily candle has a small wick that supports expansion higher versus this candle has a large opposing run doesn't support expansion. It just has this reversal for this to continue. So here we are in our next example and we are looking at GBPUSD. And if you notice we've had expansion, we get a retracement and then another expansion. Now we have multiple days of expansion here. We can possibly get one more but within my model I cannot look long after my fourth day. We have an important level resting right here. So if we are going to hit this key level and form a reversal or a retracement or a consolidation, where would we expect that to occur off of previous day high? Let's drop down to our lower time frame or the hourly chart here and take a look at what this looks like. You can see there was a very clean and nice bullish setup here. But let's focus on this price action up here. So as we get into the new day, we have expansion consolidation. We want to see the consolidation ran out. So we have expansion into this high. Do we get expansion back lower? And yes, we do. Right? We have expansion met with expansion, which is what I would consider to be a reversal. And we also have that change in the state of delivery. So we could consider this a change in the state of delivery. We can anticipate this wick to have formed and then look for 2 R or right back to the EQ of this range. Let's see how this works out. And you can see we get stopped out before it goes and runs to our target. Now, what can we learn from this? Well, not all entries are going to work out. But we can also learn to use correlated assets. So, by taking a look at the correlated asset or euro, let's take a look at our daily chart, right? Which one is weaker? Well, GBP ran into its previous day high to form a reversal and into the swing high on the higher time frames. Euro isn't even reaching towards its previous day high, right? It has a small shallow wick built off of that wick. So, taking a look just on the daily chart, we can see that Euro is weaker. We can also mark out our SMT. So, by marking out this high over here, that's the same as this low over here. Now, if we drag this over to where it ran out our stops, we are nowhere close to that, right? So there's an SMT here and Euro is weaker. So if we did the same exact setup, but instead framed that using the weaker asset and taking an entry still at midnight there, we can go ahead and take an entry on GBP. My stop on the same level. How does that work out? You can see that is a nice clean and clear setup back into the previous range. So that is one example of something that is going to fail, right? and that is normal or you can also learn from it and take a look at those correlated assets for extra confluence. So here we are in our next example and if we go ahead and mark out our daily open what do we notice about this open high low close and we can just draw it out. We opened we made a low right here and then we are trading higher. So currently this is what our daily candle looks like and it does have a small wick that supports expansion higher. But we have already expanded, right? We've already made most of our daily range. So this is when I favor shorts back into the range. So if we are going to get that to occur, then I want to see a swing point or a swing high. When could that occur? Well, we have our 9 to 10 a.m. candle closure. We could form it off of our previous candle's high. and Kane, if you are watching this video, this is similar to Kane's strategy. Let's drop down to the five minute, but let's take a look. We'll reset our chart view, and we are marking out that previous candle's high. So, that current higher time frame candle's high. So, to frame a reversal here, we'd want to see a sweep of that and then a change in the state of delivery to look to get on side with a move back towards the daily open. And once again, we want to adjust our expectations. We don't expect price to expand all the way up here and then expand all the way down another 500 points. We just want to see those session lows and the daily open. So let's see what happens. Right there we get our closure through. So here if we zoom in we have that hourly candle supporting expansion and that is the new 4hour candle. So now the 4hour candle has a small wick that supports expansion as well. If I switch this to a 4hour candle, right, you'll see that also has a small wick that supports expansion and that's also framing a reversal off of its previous candle. So, let's say I wanted to use the 4hour and 15minute model, right? I'd be waiting for a closure below there. We could also watch that. When do we get the closure? There we go. And once again, want to be looking for those session lows. So, we'll go ahead and just stay on this time frame. You can see it's the same concept. We're talking about it on the hourly and five minute. We switched to the 4 hour and 15 and you can see we get that continuation lower back to that daily open. And did we hit that session lows or the current day low? Let's see if we do. We do, right? So that would be my final target for me. If we go any further, that's great. But my expectations aren't for us to go any further. Right? That's the range I am looking for. So, just to review, if we go back to that hourly and 5 minute model, we'll put that back up. Go to the 5m minute time frame. You take a look at that. We'll throw on the history. You can see we form this change in the state of delivery up here. And then that allows for continuations following. Right? So, even if I just don't catch this reversal in candle 2, that's when I can trade my fractal model continuations in candle 3 and candle 4. So, with that being said, I hope you found this video helpful. If you want a video dedicated on Candle 3, please let me know in the comment section below and I can likely do that one next. So, I'll see you guys next time. Have a good one.