How do you trade? How do you know when a lot of volumes come in?
In this episode of Truth About FX, Walter gives insider tips on the best method to find your trade’s momentum. He also talks about market movements, indicators, and shares an important tip: look at your candles and observe their pattern.
Download (Duration: 05:32 / 6.33 MB)
In This Episode:
00:57 – lot of volumes
02:08 – momentum
04:00 – qualifiers
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. This is another listener’s question: What do you find is the most effective method to qualify momentum, either in a breakout or trend continuation situation? Do you use price action or something else?
Walter: There’s a couple of ways to do it. I do not use indicators, obviously, but what you can do here is you can look at the candles. Actually, one of my students years ago, he get a trivia on this idea where because he was saying — he kept showing me his charts and say — “How do you trade?” and stuff like that?
He was showing me a strategy and said “This is where a lot of volumes comes in” and I’m like “What do you mean? How do you know a lot of volumes comes in? Like, this is forex. Are you falling your broker’s volumes because that is just your broker?”
It’s a totally different market, really, and things like that. What he was talking about was basically momentum. He said “You can tell momentum when you see these really big candles”. I guess it’s true.
It takes a bit to move the market, it takes a bit. It takes enough buying power to move it up and it takes enough sell to move it down so, you can tell. In fact, I saw a presentation at one of the FXstreet.com conferences which I was lucky enough to present at a couple of years ago.
He was the guy from Oanda. He was one of the co-founders of Oanda. He was showing us how it doesn’t actually take that much to move the market at any given moment. Move it up a pip or so, it’s really not like that and it’s surprising how little it takes.
Obviously, if it is a big candle, that means there’s a lot more behind it. I think the easiest way really is to see momentum in the candles. How do you do that, the question?
The answer for me is I look for really big candles. I think that you’ve got a lot of bullish momentum when the candle that you see is bullish, it is bigger than the last ten candles. The ranges are bigger and it closes right up near the top.
That would be a sign that “Look, we are going in to some bullish momentum here”. Likewise, if you had a downside or a reason to go bearish in the market, you might see a really big bearish candle, bigger than last ten whether closed down near the low candles.
This is the thing I would be looking for now. It is a little bit more complex than that. That is a basic idea. If you see a bunch of little tiny candles that opens and close at about the same spot, some of them might be slightly up, some might be slightly down, they’ve got these long wicks.
There is no momentum there. That is just the market is flat lining so you can take a look at them and see. I know people use MACD, momentum indicators and Alligators and whatever else, that is cool but you can really do it just by the candles.
Remember, the indicators are doing the same thing. They are just taking the data from the candles too. You can do it just by looking at the candles. I wouldn’t really be concerned about anything else.
I do not think you need to overcomplicate it but I know people who will. That is okay. I mean, you’ve got to trade how you believe and that is cool. The size of the candles are important and where it closes is important to me.
It needs a close at the extreme high for a bullish momentum candle and it needs to be really big. Bigger than the last 6 or 10 or 15 or how many candles you want to set the bar at, and then also, the reverse for the bearish.
Those candles have long wicks on either side sort of opening and closing in the middle that is definitely not momentum. The only qualifiers, I should say here, is sometimes you get these candles that are like aberrations. Like, they are just massive.
I’ve been sucked into those too where you get these huge candles and really because the markets moved so far in that one candle, I can think to Francogeddon thing that happened in 2015.
That huge candle, what will often happen when the market does that? We have something in the JPY pairs too a couple of years before that where you get this big candles and you think that “Okay, that’s it, I am going to go in. I am going to take this trade”.
Usually, what will happen is if it is an aberrations that is too big, the market will actually retrace against that candle for a while. It is not a good idea to take those if they are just huge massive.
You want them to be still within a normal range. You wouldn’t want to see the biggest candles you’ve seen in the last fifteen years, that sort of thing. That is not what you want to hang your hat on but that is the only caveat, I would say.
If you are using an order above the high of a bullish momentum candle, most likely it is not going to get triggered if it is a huge bullish candle. Probably, going to pull back against it and retrace against it for awhile, anyway.
You probably won’t get triggered in if you use that kind of entry but if you use a retracement entry and you are getting on a retracement then you might get stuck in a really bad trade if you are taking a candle that is just too big so I will sort of qualify that.
Hugh: Very cool, appreciate that. It’s awesome. Thanks, Walter.