Adapting to Market Conditions: Master Candles
In my previous post, I talked about the need to adapt to changing market conditions. I explained how at the moment because of the financial crisis, and the lows GBP/JPY has made, I would no longer use S+R lines.
I am still trading the NickB method, as it is detailed in the video course and free e-Book. I have just retired a part of the method for a little while. Now I want to add something new to the NickB method. It is a little something I picked up from a fellow trader....... master candles!
What Is A Master Candle?
Master candles were first introduced to me by a fellow trader from my site. They're very simple and fit in well with my trading method. Master candles are basically two scalp lines that form a recent high and low on a 1hr candle. You can use master candles on higher timeframes but I use them only on the 1hr.
Spotting a master candle is very easy and trading them is even easier.
A master candle forms when a large candle engulfs the following four or more candles. Take a look at the example below;
The minimum number of candles the master candle needs to engulf is four, but the more the better. When a master candle forms it is an area of support and resistance being set. If you're familiar with my method, you could think of master candles as mini scalp lines. Just because they're mini it doesn't mean they do not work though. These lines work very well.
Spotting a Master Candle
Can you see the master candle in the 1hr GBP/JPY chart below?
Well here's a little help. There are three master candles on this chart. The first is marked by the blue lines and it engulfs four candles. The second is marked by the orange line and it engulfs 12 candles. The third is marked by green lines and engulfs 16 candles. Unfortunately the green one did not work out but nothing works 100% of the time!
Trading a Master Candle?
Trading master candles is even easier than spotting them. All you need to do is trade breaks of the support and resistance lines created by the master candle. It is pretty much exactly like trading scalp lines with my method.
Targets
Targets are up to you. After taking one of these trades I usually move up to the 4hr chart and look for any nearby danger areas. Areas such as scalp lines or S+R lines can be significant obstacles. Personally, I try to keep the target the same as I would on a normal scalp line break. So I will usually aim for around 50 pips.
The more candles that are engulfed by the master candle the more confident I am that a break of the support or resistance will make me pips. So usually if there are 7+ candles engulfed I will raise my target to 60 pips. If there are 10 or more candles engulfed I might raise my target to 100 pips.
As always, targets are dependant on market conditions and are assessed based on what I see on my chart, at the time of the trade. There is no one size fits all in terms of targets. For example, there could be 15 candles engulfed by the master candle but we could be in a low volatility market so I will only target 30 pips.
Summary
This is not a whole new trading method. This is just a new addition to the NickB Method. I use it in conjunction with my analysis. In the next article, I will show you how to use master candles to make big pips!
I will be adding videos about master candles to the video course and I will discuss master candles in the next free e-Book update.
« Previous Entry Next Entry »
