If you’re reading my blog, I assume that you’re familiar with technical analysis and hopefully with candlestick patterns. So I’ll spare you the time of a boring introduction: there are thousands of articles and videos online about this topic. If you want to know what’s a “hammer” or a “shooting star” just google it and you’ll find your answers. I don’t use those concepts anyway.
Instead in this post, I wanted to dig more about the importance of narrative in price action and what I mean by that. There are certain clues that I see in candlestick patterns or market structures that guide me in my daily bias.
Many times, reading trading books you may have found that in financial markets something that goes like: “Price reflects the sum knowledge of all participants: including traders, investors, portfolio managers, hedgers, banks, etc”. So what do you see in price (and candlesticks) it’s really like the display of psychology (mainly greed & fear) of market participants.
Jack Schwager in his book Schwager on Futures: Technical Analysis, said even better: “One way of viewing the situation is that markets may witness extended periods of random fluctuation, interspersed with shorter periods of nonrandom behavior… The goal of the chart analyst is to identify those periods.”
This last definition really applies to my trading style. Often I’ve no clue of major trends, but I’ll see LTF formation confirming my short term bias as confirmation for the setups. The key concept here is “nonrandom behaviour”.
My mentor always says that in FX: price action is never random. Whenever price is going somewhere, it’s either filling an inefficiency or hunting liquidity. I truly believe being true and I totally agree with the idea. Unless some black swan events happen I think price has always a reason to do what it does. And our job is to wait for the clues and play accordingly.
Whenever price is going somewhere, it’s either filling an inefficiency or hunting liquidity.
ICT
I believe that the narrative of price action (the story behind the market participant) it’s displayed in candlesticks and their patterns. In the following charts I’ll give you some examples of what I like to look at – to enter in my trades.
- First example is probably the most basic one. Clear difference between a strong move and a weak one.
- Another clue I like to see when trying to gather direction is wicks defending certain areas. In this example it’s HTF but I find the same thing on LTF too.
- I’m not a big fan of candlestick names, as I said in the beginning of this article, I don’t really use those formations. There’s a but one that really resonates with me and it’s the doji.
- Last example I’ll share here it’s the importance of choosing which swing’s liquidity has been taken. I made a quick video a while back. It may help.
I have many other types of behaviours that I like to spot in price action but I can’t post all of them here. If you’d like to know more about my trading style you can subscribe to this blog’s newsletter for future posts or join my free Telegram channel where I post daily analysis and trades. Hope it helps. See you around…
