C y c l e C a n d l e s Trading Workshop
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What are we going to cover today? Review, MQ CycleFinder and MQ Cycle Candles Identifying Trend Based on Price Action Trading Cycles Within the Context of an Established Trend Trading Candlesticks with Trend Trading Candlesticks Counter-Trend Trading the Double Doji Candlestick Pattern Getting Your Mind Right, Trading Psychology
Identifying Price A c t i o n T r e n d s
When we are looking at price action to identify trend direction, it is important to remember, we ONLY look at pivot points. We do not look at one price bar in relation to the previous price bar.
Definition of an up trend: + = Definition of a down trend: + = Anything else is considered consolidation or reversal.
Down Trend
Up Trend
What is the Trend Here?
Down Trend
What is the Trend Here?
Up Trend
Review CycleFinder a n d C y c l e C a n d l e s Indicators
What is the MQ Cycle Finder
What is the MQ Cycle Candles
Trading Cycles W i t h i n t h e C o n t e x t o f a n E s t a b l i s h e d Trend
With all the setups we trade, we want to start with analyzing the price chart itself. The first things we want to look for are; Is the market in a trend? If yes, what direction? Once we identify if the market is currently trending, this will give us directional bias on if we want to trade long or short.
Once we have identified the trend, we want to create an IF/Then statement for when to enter a trade. IF trend is up, THEN we go long on start of new minor up cycle AFTER retracement. IF trend is down, THEN we go short on start of new minor down cycle AFTER retracement.
Now, we do not want to enter just on the start of a new cycle, we also want to see a break of the previous bar s high (if going long) or break of previous bar s low (if going short) this will make sure we have the market actually start moving our way and keep us on the right side of the mountain. The initial stop is placed below the low (in up trend) or above the high (in down trend) of previous pivot. Market should start moving our direction fairly quickly.
When we go to exit the trade, we have several options (pick the one that fits your trading personality) Trail stop based on consecutive higher lows (in long position) or consecutive lower highs (in short position) Exit based on major cycle change Target support or resistance from larger timeframe Target 2/1 or 3/1 of your average risk
Trading Candlesticks w i t h i n t h e C o n t e x t o f a n E s t a b l i s h e d Trend
Another way of timing entries into an existing trend is by using candlestick patterns. If we are trying to trade with the trend, normally we want to have both major and minor cycle filters turned on with the MQ CycleCandlestick indicator. If we are looking to time our entries into a trend that has large swings for pivots, we can turn off the major cycle and just use the minor cycle.
Just like with the other strategies we discussed, the first thing we want to do is analyze the price action and determine the price trend, then we use indicators to confirm setups. Remember, the number one thing we can do to increase our probabilities of success is to make sure we are on the right side of the underlying price action trend. Trade the right side of the market.
One thing to keep in mind when trading candlestick setups, the candle has to TRIGGER, meaning the following price bar must break the high or low of the candlestick in order to initiate a trade. We never want to assume that a market is going to move our direction, make is prove itself by triggering.
Trading Candlesticks Counter- Trend
Another great way to use candlestick patterns is to identify potential reversal points. If we are looking for reversals, we do not want to just take every single candlestick setup, we need to apply filters. If you are looking for counter trend reversal candles, we need to turn off the major cycle filter in agreement setting.
Additionally, we want to make sure the cycle finder is weakening (if going short) or strengthening (if going long) We can use the cycle finder to identify divergences in major cycles. Similar to how we would look for divergences on a momentum indicator like MQ Momentum or MACD. If we can have a candlestick pattern + a cycle divergence + a minor cycle in agreement, then we have a high probability reversal pattern.
A divergence occurs when price and major cycle are no longer agreeing on the direction of the market. When we are looking for divergences, we want to look at price pivots and momentum pivots.
T h e D o u b l e Doji Breakout Setup
Doji patterns are showing neutrality Double Doji s are showing miniature consolidation We re looking for a breakout of the consolidation with the Double Doji Setup
Rules for Trading The Double Doji Breakout Identify 2 Consecutive Doji s Mark the top and bottom of the doji s (this is your breakout range) Wait for a break above or below the upper/lower end of the range by 2-3 ticks (at a minimum) If MQ Cycle Finder is in agreement with breakout, then you have a potential trade setup (either long or short) Stop Is Placed Above/Below End of Range
First Exit Opportunity is for Scalping Exit Close when Minor Cycle Changes in Opposite Direction Second Exit Opportunity is for Larger Move Exit when Major Cycle Changes
What is a double doji? The double doji occurs when you have two (2) double doji s It needs to happen at the top of an up move or at the bottom of a down move We do not want to trade this in a sideways/choppy market
Step 1: Identify 2 Consecutive Doji s Step 2: Mark Top & Bottom of Doji s (Your Break Out Range) Step 3: Look for a Break Through the Border of Your Breakout Range(s). Step 4: Confirm that MQ Cycle Finder is in Agreement with Breakout Step 5: Place Stop Above or Below End or Range Step 6: Exit at MQ Cycle Finder Change