When the price reaches a critical area, such as a golden level, after a significant move and a suitable correction, it creates an incentive for those who missed the previous move to enter the market due to the price drop. As a result, traders conclude that the price has become attractive and is below its intrinsic value, leading to competition among them to acquire it. They are willing to buy at worse and higher prices because they know others will be willing to enter at even worse prices and drive the price up.
However, in this competition, those with more capital and knowledge, who have a greater impact on price movements, recognize the value of the price sooner and enter the market earlier. The result of these significant and effective traders’ entries creates a candlestick that signals a change in order flow.
The smaller and less knowledgeable traders are, the later they realize this and thus enter the market later, often using tools and methods to determine their entry signals. Therefore, we should aim to enter the market immediately after the large traders, i.e., after the order flow change candlestick, to capture suitable profits since we are entering the market at the beginning of the auction theory.
We should consider what point we would set as a stop-loss if we were in the previous direction of other traders. This can greatly assist in understanding price behavior.
The order flow change candlestick is one that has changed the previous direction of the order flow, such as a downward trend. However, it does not necessarily mean it can be the entry edge. For example, if the order flow change candlestick covers several previous candlesticks but is large, it raises transaction costs, and the distance between the stop-loss and the entry edge increases, making entry with this candlestick illogical. The ideal scenario is to see a state of indecision with small candlesticks after a correction and for a candlestick to form afterward that closes in the upper third (in an uptrend) and covers several previous small candlesticks.
Sometimes, after observing the order flow change candlestick and entering the trade, the price continues its path, but the candlesticks, in terms of size, do not align with the market context. In such cases, in the forex market, we look at the spread. If the spread is much wider than usual and price changes are very rapid, we close the trade before the candlestick closes at the highest point if we are behind the chart. However, if we are not behind the chart, such as planning to check the chart when a 1H candlestick closes, we set the stop-loss above 50% of the large candlestick because this large candlestick was a step in a lower time frame and is likely to undergo a correction.
In reversal trades, sometimes the price shows an inability to continue after hitting a key level, and after seeing the entry edge candlestick and entering the trade, the price moves against us, forcing us out of the trade or activating our stop-loss. This might happen several times. What solution is suggested in such cases?
The reason for this issue is that the community expected to perform this reversal lacks the necessary power and liquidity, and the trade should not be entered, or we should move to a higher time frame and enter the trade upon seeing the entry edge in that time frame to join a larger community.
When an order flow change candlestick is seen, we must ensure that it was formed when there was money in the market. In other words, there should be an order flow that is about to change. For example, a candlestick might form before news or at night when effective money is not in the market, and we might assume that this candlestick has changed the order flow direction, such as a bullish movement followed by a bearish candlestick closing in the lower third. If we enter a counter-trend trade, we might later see the order flow change against us and the trend turn bullish again.
Sometimes a good trading opportunity is identified, but the entry edge candlestick does not form. In such cases, we should recognize that we cannot capture every market opportunity. Just as we cannot attract all customers even if we have the best location for a store, there might be cases where the entry edge is missed, but it could form elsewhere with other criteria, like the slope of the steps. Thus, we trade according to the principles even if we miss some market profits. A skilled trader is someone with experience and skill, and a skilled individual is necessarily an experienced one. So, if I am a skilled trader, I might enter at points where I am not waiting for the basic entry edge definition, such as entering a trade with a shadowy candlestick and the price reaching its open in reversal trades where a long shadow candlestick was seen previously.
Another reason an entry edge might not be issued, but a step is formed, and we miss it, is that candlestick shapes can vary across different brokers due to different data feeds, which affect how candlesticks are formed.
