Reading Candlestick Charts Was HARD Until I Learned This 3 Step Trick

Main ideas / lessons conveyed

• Candlestick chart reading becomes much easier when you:

  • Use fewer indicators (to avoid conflicting signals and “analysis paralysis”).
  • Focus on what’s obvious in the market (not on charts of instruments you “know” but that aren’t actually showing strong opportunity).
  • Build and follow a repeatable strategy using metrics that have shown real profitability.

• Most beginner traders fail because they:

  • Overload their charts with indicators.
  • Don’t trade what’s actively moving (often due to familiarity bias).
  • Mismanage fear and exits—selling too early or holding losers too long.

• The video’s underlying trading approach emphasizes price action patterns, confirmed by:

  • Trend/mean indicators (EMAs),
  • Market “equilibrium” and bias (VWAP),
  • Participation and imbalance (volume bars),
  • Momentum confirmation (MACD, more useful in choppy/bearish periods).

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Methodology / “3-step trick” (detailed)

Step 1: Use fewer indicators is better

Core principle: Reduce indicators to avoid conflicting signals and improve pattern recognition.

Recommended minimal indicator set:

1. Exponential Moving Averages (EMAs): 9, 20, 200

   • Interpretation: EMA is the average price over the last X candles.
   • 9 EMA moves fastest (most responsive).
   • 20 EMA moves slower.
   • 200 EMA is widely respected (longer-term context).
   • Practical note: 50/100 EMAs are unnecessary for his method.

2. VWAP (Volume Weighted Average Price)

   • Acts like a moving-average “equilibrium” that also accounts for volume.
   • If price is above VWAP → generally bullish / bulls in control.
   • If price is below VWAP → generally bearish / bears in control.
   • Bias guidance (long-biased approach): Prefer trading when price is above VWAP.

3. Volume bars (colored by candle close vs open)

   • Requirement: Volume bars must not all be the same color.
   • Color logic: whether the candle closed above or below its open (imbalance visualization).
   • Purpose: Understand buyer vs seller dominance and how volume changes during moves/pullbacks.
   • Key takeaway: Volume often gives context strong enough that you could almost trade with volume alone, while candles supply the pattern structure.

Additional confirmation indicator (later / market-dependent):

• MACD (Moving Average Convergence Divergence)
  • Use it as a “Red Light / Green Light.”
  • Focus on trades when MACD is above the signal line (positive momentum).
  • MACD helps reduce false breakouts, especially during bear/choppy conditions.

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Step 2: Focus on what’s obvious (trade the conditions that are clearly favorable)

Core idea: Don’t trade instruments just because you “know” them.

• He explains an early mistake:
  • He traded familiar names (IBM, US Steel, American Electric Power, etc.) and couldn’t “see” clear setups.
  • The issue wasn’t chart reading—it was that those instruments weren’t showing the right market behavior that day.

What “obvious” means in his strategy: High Relative Volume + catalyst + price action context

• Relative Volume (Rel RV):
  • Compares current volume vs its historical baseline.
  • Best profits occur when relative volume is about 5x higher than average (relative to the 50-day average).

Strategy parameters / filters:

1. Relative volume ≥ 5x
2. Instrument up > 10%
3. A catalyst (news/event driving attention and volume)
4. Price range: $2 to $20 (historically where he saw the most profit)

Practical scanning workflow:

• Use scanners to find instruments meeting the filters.
• Identify the catalyst behind the move.
• His claim: you don’t need deep industry knowledge—you need the catalyst + the market behavior.

Why catalyst matters (his logic):

• High relative volume is usually a byproduct of news/catalyst.
• Without a catalyst, volume typically won’t spike meaningfully, reducing the chance of clean follow-through.

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Step 3: Build trades around metrics + pattern rules (enter, manage exits, don’t fear-profit-taking)

Overall framework:

• Let the move happen (“first wave”).
• Wait for the pullback.
• Enter on the timed confirmation from the next wave.
• Use predefined exit rules to avoid:
  • Selling too early
  • Holding losers too long

Pattern-based entry logic (“wave” concept)

• Waves/tides idea:
  • After a move up, there’s a pullback.
  • Watch for a shift back upward.

Entry trigger (timing):

• Identify a pullback where price makes new lows.
• Wait for the market to print the first candle that makes a new high after the pullback’s low(s).
• Meaning:
  • The pullback low marks where risk is controlled (seen as a lowest-risk entry for the next push).

Risk management:

• Stop loss placed near the pullback low (the candle low that defines failed support).
• If risk is controlled, target a favorable profit/loss ratio.

Profit/loss ratio and accuracy connection

• Break-even math:
  • 2:1 profit-to-loss ratio
  • If you win at least ~33% of the time, you can break even.
• His historical accuracy note:
  • Around 68.6% wrong about 30% of the time,
  • Yet profitability still comes from good profit/loss ratio + instrument selection.

Exit management: avoid common beginner traps

Trap A: Selling too soon (fear of loss / locking tiny wins)

• Problem:
  • Beginners often sell at small profits, capping upside.
• His solution:
  • Use hotkeys to scale out rather than full exit immediately.
  • Change behavior from “sell full position” to sell part first (commonly half).
  • Move stop to break-even for the remaining portion.
• Goal: reduce fear-driven early exits while controlling risk.

Trap B: Holding full size when it turns against you

• Problem:
  • Some traders don’t sell and “go down with the ship,” increasing losses beyond plan and hurting profit/loss ratio.

Exit indicator concept:

• An exit indicator occurs when a candle makes a new low, especially after price has been squeezing upward.
• If price starts failing and shows signs like:
  • No progress,
  • Buyers disappearing on tape/level 2,
  • Red candles appearing,
  • MACD or moving averages contradict the thesis,
• Then treat it as reason to exit or reduce.

Micro-confirmations after entry (what he wants to see)

After entering (especially near the “first new-high” candle), he wants:

1. Price moves up quickly
   • Rule of thumb: ~10 cents within one minute.
2. Buy-side confirmation on the tape
   • Green on the tape / buyers lifting offers.
3. Large green candles
   • Signals strong buying pressure.

Exit confirmations (inverse logic):

• If there’s no upward follow-through, no buyers, red tape, or red candles forming—he exits.

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Speakers / sources featured

• Primary speaker: The video’s narrator/host (trainer and trader referenced throughout; no specific name provided in the subtitles).
• Sources mentioned (not speaking roles):
  • Third-party audited broker statements (used as evidence of real trading results; no specific company named in the subtitles).
  • Market types/instruments referenced: Forex, cryptocurrency, futures, stocks; NASDAQ/S&P context via “S&P 500” mentioned (no specific publisher cited).