Transcription
[Music] How's it going everyone? In this video, we are going to cover wick sizes with reversals and which candles support expansion. Let's get into the PDF.
So, the first thing you have to understand is the difference between an expansion candle and a reversal candle. If you haven't already seen my video on open, high, low, close, go ahead and check that out first as it will explain all of this.
But when we have an expansion candle, it has a small wick on both sides and a large body. This small wick supports expansion because it is making a shallow opposing run. The price will open, make its low early into the candle using a small amount of range and then it leaves the rest of the time period for price to expand higher before closing. So it will have the open low with a shallow opposing run and then a move higher throughout the time period before closing. Now that supports expansion.
When we have a large opposing run that does not support expansion. That is a reversal candle. So you can see price opens. It doesn't make that shallow opposing run early into the candle. It's going to use most of its time period and most of its range making the wick. So it has a large opposing run and then it's going to come back towards that opening price before making the high and closing. Ideally, we want to be trading expansion candles. So we want to see if the wick size supports an expansion candle or if it doesn't.
So let's take a look at an expansion candle. You can see on the lower time frame here we have that shallow opposing run where price opens, makes its high and then has displacement lower. You can combine this with the phases of price where you have expansion, retracement, expansion. And generally these expansion candles are going to close into its highs or lows. So here are the notes on an expansion candle. We have small wicks in a large body. Price generally forming its high or low early into the candle. And this leaves enough time for it to expand. And price closing near its high or its low. And for targeting, I'm going to be looking for expansion targets, liquidity points, or this average candle's range.
Now, with a reversal candle, you can see it uses most of its time period to form its wick. So you can see price opens, it trades higher, forming its wick, and then all the way back lower. It doesn't really make sense for price to form its wick here halfway through the candle using a lot of range and then continuously expanding lower. So with this, we are going to adjust our targets. Instead of looking for price to expand, we're just looking for it to reverse or return back to its opening price. So just quick notes, a large wick and a small body. Price uses most of its time and range forming this wick here. And then we're just looking for price to go back towards its daily open and close around that area.
So, if I'm going to be looking to trade a reversal candle with a large wick, I want to adjust my targets. I'm not looking for it to expand. I'm looking for the opening price or liquidity points or points of interest around there to target.
So, let's take a look at a few different candles. Now, if you've seen my candle 2 and candle 3 video, this should also make sense as well. But what we are going to be focused on is our higher time frame candles. So, for instance, if I'm on the five-minute time frame here, I'm going to be looking at the hourly candle using my time frame alignment video, and I'm going to see what does our opposing run look like. And when I say opposing run, I mean from the opening price to that high or the move opposite my bias. You can see price opens, it has a shallow move against sweeping out this previous candle's high. If that is paired with a change in the state of delivery, it's then confirming this wick. And you see how we have a small wick that supports expansion lower. So we made this wick very early into the candle which means price can continue to expand throughout this given time period. You can see that's how we get an expansion candle. So that is an example of where price reverses and expands in the same candle.
Now let's go to another example. You can see here we open this candle and we make a move higher over the previous candle's high. If we're going to have a reversal to expansion candle, we would have formed the wick here making a move lower forming a change in the state of delivery and then expanding. But if you notice, we don't have that shallow opposing run. We have a large opposing run. We use almost half the time and quite a bit of range on this move up. So, does it make sense to think that price is going to rip all the way down here? No. So, I want to adjust my targets. If price is going to form a reversal in here, I'm really just expecting to return back around its opening price or the liquidity resting around there. So, a large opposing run. I'm going to let this form. We have a large wick. This doesn't support expansion. So, the easiest way to look to trade this is if I have a large wick that doesn't support expansion, I'm just going to wait for a new higher time frame candle that does support expansion. So, following that large wick on the next candle or candle 3, and this is my candle 3 video, we then have a small wick. So, we have that open. We have a small opposing run. We have that change in the state of delivery in candle 3. And then we can expand lower.
Now, here are the risks of trying to trade that large wick reversal candle. And this is why I don't prefer to do it. If we have that large opposing run, we don't really have the filter of the candle close. And so many times price will just continue to trend up if we are wrong on this being a bearish candle. And that's why I like to use the filter of the candle closure.
Now, in summary, there are three different scenarios in which I could look to trade, but they become more difficult as we move to the right here. So, the easiest is letting this candle to close. It has a large wick showing a reversal, and then I can look for a small wick and a continuation in candle 3. The next would be a reversal to expansion candle which is trading that reversal candle. And this is more difficult than trading the continuation following the reversal. Here I need to look for a small opposing run that small wick a lower time frame change than the state of delivery and then making sure I have enough time for this range to expand lower. Now the most difficult and I typically avoid this is when we have a large wick reversal. And the reason for that is I might as well just wait for the next candle to have a small wick and then get on side with that expansion candle as this candle does not support expansion. But there are ways to trade this. Specifically, if I'm trading a reversal candle on the daily, then I look to trade the lower time frames back towards the daily open.
Let's get into trading view and go over a few examples of this. So, here we are on our first example. We have silver on the hourly chart and then the daily chart on the right side here. So if you notice, we've had two days of a very large expansion which can set up conditions for a new phase of price. So either a retracement, a reversal or a consolidation. Now let's take a look at this and think through our scenarios. If we are going to get a reversal, what is our point of interest for that? It's going to be previous day high. So marking out previous day high, what do we want to think about? We want to think, do we get a nice shallow run above previous day high to form a reversal in which we can trade back towards the equilibrium or back into the range expecting an expansion candle or a larger range? Or do we get a large opposing run in which case we adjust our targets back towards the daily open? So then trading it back to the daily open expecting to form a large wick. So how do we know what's going to happen? Well, we don't really. We just let price tell us what it's going to do. So let's let this play out. Here we have a nice shallow run above the previous day high. But what do we not get? We don't get the confirmation. Without that change in the state of delivery there, we cannot confirm this wick high. And so this is what would happen if you try to not use a confirmation. It doesn't work. We just let this continue. Let's see if we can form a reversal. But now we have expansion into a little consolidation or a retracement. So we'd want to see what a new high put in. Now, one thing to be considerate of is how far do we have until the next day, right? Because if we get too late into this day, we're not really expecting it to expand too much, right? So, really, we want to see this high day form early New York or before New York. So, then New York can expand. Let's see what happens there. We take out the high and we have a nice little reaction off this. So, what are we going to be looking for? Do we get a change in the state of delivery? Now, what do we notice? Do we have a small wick still? Yes, we have a small wick relative to the daily range. But do we get a change in the state of delivery? We do. The indicator will just mark that out. So, we have what confirmed now. With the change in the state of delivery, I can anticipate this wick to have formed. And we have a small wick which supports expansion where lower. Now, just mechanically speaking within the fractal model, my EQ can be the target for that expansion if we're going to expand lower. But let's see what happens. And there we go. and reach towards EQ and we hit it right at the end of day. So you can see just to review we have a shallow opposing run right a small wick with a change in the state of delivery that supports expansion lower and then we can expand and you can see how this forms early or before late into the New York session. That way New York session can still expand lower and continue throughout the day.
Now getting into the next day what happens? Well, you can see my fractal model confirms and that's because we have a candle 2 closure with a change in the state of delivery. So, we'll print out this box or this area that I am looking for the wick in candle 32 form. If you want to know how to trade candle 3, I have a full dedicated video on that.
So, let's get into another example. So, what do we have going on here? If we zoom out a little, you can see we have a candle 2 closure, a candle 3 continuation, and although it's not ideal structure in here, mechanically, we are still looking for price to continue. That's why my indicator here marks out the T-spot here, looking for a candle for continuation. And if we're going to continue and not consolidate today, we are either going to reach previous day high or previous day low. So, marking that out, there's our previous day high and here's our previous day low. Which one is more likely to be hit? And based off the bias and trend, I would be looking for previous day high. So taking a look at that, what do we have? We're sweeping out lows. We get a closure over the series of down close candles that made that low. So now we could look for price to trade to previous day high. But this is not what the video is about. The video is about trading the reversal. So let's see what happens and if we can frame a reversal on this day. So you can see we do go ahead and reach up into that previous day high. Now what do we notice about this daily profile? We are just expanding away, right? We are making a large run. So if we were to frame this from a bearish perspective, what is this? Is this a shallow run? No, this is a large opposing run. You can see that because if you think about this as a bearish wick, right? This area from here to the high would be the wick. And so this is an example of a large opposing run. So if we are to frame a bearish reversal today, we want to adjust our targets. Does it make sense for price to expand up and then expand all the way through these lows? No, it doesn't. Instead, I want to be focused on the opening price or the targets around the opening price, which means we can look for a fair value gap around here. And generally, I'll use a fair value gap or the opening price. If we have a protected low intraday, if we have failure swings on those session lows, then I will be more interested or more inclined to just target the current daily low. But let's see what happens because we first need a confirmation of that reversal. So what do we see here? We sweep out the high. Do we get the confirmation here? Well, let's see if it happens. And it's just more consolidation. So no confirmation. It's a consolidation. We need another sweep of the high. You can see we're using a lot of time here. It doesn't really make sense for it to be an expansion day. And there we get what? nice consolidation manipulation. So, we could look for price to go where? Expand lower. But due to this large opposing run, we want to be targeting around the daily open. Not looking for price to form an expansion day because at that rate, we'd have to open low, high, and then expand lower. That's just too much range. So, let's see what happens. There we get the change in the state of delivery, and we start to expand lower. And you can see now we're hitting those targets around the daily open. Open open gives us a retracement. And yes, we may go hit that intraday low. And we do, right? But for me, if I have a protected swing on the intraday low, as we do here, as we talked about, then I'm going to want to target around the daily open because if for some reason I am wrong and we don't complete this bearish move, we're going to do what? We have a high, a low, higher high. If we form a lower low, it's going to be in this area to then make a higher high. So, I'd rather target this area here than be greedy and hold for the intraday low. If I don't have those failure swings or that structure there. So, hopefully that makes sense in the fact that when we have a large opposing run, that's when I need to adjust my targets and look back towards the daily open instead of looking for price to expand.
So, here we are on another example and we are on oil or CL on the daily chart. Now, in this scenario, I'd really just want you to focus on the daily candles, their formation, and the phases of price. If you notice, we're in a range here. We have all these failure swings here at previous month's low. And we have the range high right here. So, if we're going to expect a reversal, what do we want to see? A price reach into this high here, form a reversal, and then trade lower to these previous lows in the range. So if we go down to the hourly chart, let's see how this reversal forms within the daily candles and then how opportunities could be presented. So down here on the hourly chart, let's see how this works out. So you can see price is opening up. If we want to see a move higher into this highs and trade it, we'd want to see price open, make a low, and then trade higher, right? Let's see what happens. You can see we have a little reversal here. Why would it not make sense to trade any of these reversals? Well, you're trying to trade away from the drawn liquidity. It does not make sense to try to trade short until these highs are taken out. Are there possible ways to get entries in here? Yes, but it just doesn't make sense in terms of the higher time frame structure. And there you can see we use the EQ, we form a change in the state of delivery, intraday, and then we go and expand towards this high. So, with taking out this high, does it make sense to try to trade this reversal day here? No, it doesn't really because we have price opening, making a low, changing the state of delivery and trending higher. That does not support expansion lower. But if we were to form a reversal, would we want to target what? The opening price. Now, why doesn't it make sense to target the intraday lows? Well, it's because they are not failure swings. When we want to target those intraday lows, we want to see price open and just make a steady move higher, right? It's going to make a bunch of failure swings and then we can trade that reversal down here. What do we have? we open and we have a nice V-shaped reversal here. So, if I was to try to trade something in here, I want to be targeting that daily open, right? Because it's the same thing as the last example. If I am wrong on price forming a reversal here, we're having a high, a low, higher high. I'd want to see a higher low in here to trade higher. So, I always think about the opposite side as well. Let's see what happens. And there we do go lower. Now, if you notice, where did this candle end up? right back at its opening price. Now we have a nice reversal candle with a large wick. So what do we want to see the next candle? If it goes lower, we want to see a small wick, which would be what? Price holding this area here, right? So open high, trading lower. And this is from my candle 3 video. And you can see we do get that. And then we start to expand lower. And if we're going to continue to have expansion days, what are those expansion days going to have? Small wicks, right? Because small wicks support expansion lower. And you see how all of these days here have relatively small wicks. And that is what supports expansion lower. And if we go back out to the daily chart, we can have that move towards those previous month's lows. Now, another thing I can talk about and mention here is you can use the higher time frames for targets. So you can see how these two are very shallow and close to each other. Those are failure swings on the lower time frames. So you can view that from the higher time frame candles. So going back to the hourly and looking at this daily candle here, when we have a large opposing run, I'm not trying to look for price to expand lower. It doesn't make sense in the time left in the candle or the range that has already been used. So instead of trying to trade this reversal, I could on the lower time frames, maybe a 15-minute to trade back towards the daily open, but instead I'm going to wait for that next candle to trade the expansion lower.
So, here we are in our next example and we're just going to focus on adding all of those things together. Small wicks, change in the state of delivery, and even some confirmations of SMT. So, let's take a look here. Right, we do have this reversal forming off the previous 4 hours low. Why would I not consider this? Well, for me, I'm not going to be able to trade away from this failure swing here unless we have SMT, and we don't. So, this is not something I would be able to trade away from, but the idea is still there that we have a small wick. Do we have a change in the state of delivery? We do with an SMT here. And then we could look to see that move higher throughout the given time period. Once that candle closes, then we have a valid fractal model. And this is where I could maybe consider a continuation just because we have traded and showed we want to trade away. But let's let this play out and then see if we can form a reversal. Right? So, we've expanded back into the range. Let's say I want to see price form a reversal off this high. What are we looking for every time? Well, marking out the high, I want to see what a shallow opposing run. And then I could look to trade the current candle, a large opposing run. And I don't really want to trade the current candle, but if I do, back towards the daily open. But the better scenario is wait for the next candle, a small wick to trade it lower. So, what do we see here? Price open lower first. That is currently a bullish sign. Let's see if we get a move to this high. And we are now what? We're now consolidating, right? We took out this low. We come back into the range. We can't reach the high. This is a consolidation candle. But the idea remains the same. We want to see price trade into this high and then form a CISD. Now, what's the problem here? Why would I want to wait for the next candle? Well, if we're thinking if we want a shallow wick, right? The whole reason for that is yes, we don't use much range there, but also we don't use much time. We want to see that early into the candle. Does it make sense for price to consolidate here and then with 40 minutes left in the candle, take out the high and then expand? No. It would just take out the high and then wait for the next candle. This is generally where I'm going to let this candle close and look at the new candle. And here you can see we get a new candle. So then I'd want to see what I'd want to see price form this reversal off of its previous candle's high but also this one since they are failure swings. So here we reach into that high right at the start of the candle which is ideal. Now we want to see do we get a large opposing run which like I said we're then going to be targeting back towards the daily open or the liquidity around it or do we have a shallow opposing run in which case we can look for trades to get on side in that candle. And you can see a nice little Vshape here. We have SMT. So, we're forming a reversal off of that previous candle's high in the early parts of that candle. And we can look to trade this lower. But let's see where this can go lower, too. We have fair value gaps in here. Really, we want to see do we manipulate this low and then come back into the range or do we fail to manipulate it and we can trade it lower, right? Just the phases of price. We don't manipulate that low and then we get that continuation lower. So you can see right we have a small wick a change in the state of delivery. We had the SMT that all supports expansion lower. So let's let this go ahead. If we're going to get another continuation lower, what do we want to see? Price reach up into the previous range. Right? We're in a fair value gap here. and they would want to see what a change in the state of delivery internally to continue lower. So you notice it's the exact same concept within this candle that we did at the high just in a continuation instead of a reversal. What happens? We do get that change in the state delivery and then we get a continuation lower. So that is an example of trading candle three. But you can see how the concept remains the same. It's just profiling this higher time frame candle. Expansion candles have a small wick made early into the candle. Small wick made early into the candle can expand lower. Small wick made early into the candle can expand lower. And if we just let this continue, right? Let's see what happens. Would we have wanted to trade any longs in here? No. Cuz this candle doesn't support expansion. If we want to trade any longs, what are we going to need to see here? Well, we need a reversal off this previous day low. Not previous day, previous 4 hour. And let's see. Do we get that? We're getting a consolidation, right? So, we'd want to wait for the new candle. So now we have a new candle. We'd want to see a reversal off this previous 4hour low and this one here. And so you can see, do we get that? We don't take out this previous low. So this is what I mean up here. I'm not I can trade away from this cuz I don't have a failure swing. I can't trade away from this because it has not been taken out. This candle does support expansion higher as it is a small wick and it's paired with a change in the state of delivery, right? But it's not something I could trade. So, in this last example, we're going to use the 15-minute and the 1 minute chart just to show you guys that this is a fractal concept. So, you can see here we do form this candle to closure in this reversal. But what do we notice? We spend a lot of time forming this reversal. Does it make sense to enter this late into a candle? No. And that's why macros don't even make sense, right? So, instead, wait for the new candle open. This candle makes a shallow run lower and then it can expand higher. Same thing in the next candle, right? Can make that move higher. Now, if I'm looking for a reversal back lower following candle 3 expansion, candle four expansion, looking for a new phase of price, and that's why my fractal model only looks for candle 3 and four, because after that, you can get caught in a new phase of price. What am I looking for? A reversal off of that previous candle's high, right? That previous 15-minute high. Now, what do we notice here? If we're going to get a confirmation of this reversal, we would need to close through here. That doesn't make sense cuz that would be almost a target for this move lower. So in this case, if I'm looking to get on side with something, I would need another run of a high to form a reversal. Otherwise, it just doesn't make sense. And even then, I can just wait for the next candle, right? And what do we have? We do have a run higher. Do we get a change in the state of delivery? Well, I want to see, do we close through here, right? And what do we notice about this structure? Are we forming this high early into the candle? No. Right? So, this is not ideal to be trading this candle because it open first, right? which so ports expansion higher, but also it's taking too long. So, can it still work? Sure. It's just something I'd rather wait for the next candle, right? And then on this next candle, we do have that candle to closure. And so, with that candle to closure, we have a change in the state of delivery in here. And I could be looking for price to trade lower in this next candle. And that's where I'd want to see what a small opposing run, a small wick on this time frame to then trade it lower. What do you see? We reach into that fair value gap right here. We can go ahead and mark that out. And you can see we make a small opposing run. This small wick supports expansion lower. Let's see how we close. And there we go. And we close nice and low. Right now, same thing here. If we're wanting to see price expand lower or continue to expand, we want to see what? A shallow opposing run. So, we reach into this fair value gap, not reaching back up here. That's above the T-spot area. And then I want to see it continue lower as well. Right? Does go a little bit above there. So it's not as ideal for this continuation lower. And you can see, right, it's not ideal because it spends so long making its wick that then if we are going to expand, it's more likely at the open of a new candle. And there we go. And expand lower here into the lows. Right? So, let's say now since we're beyond our candle three and four looking for entries, we've taken out a bunch of lows. If I'm looking to try to frame a long setup in here, how am I going to do that? Well, I need to use the previous candle's low. Right here, you can see if we mark out that previous candle's low, what do we notice? Right? Could we form a reversal here? Sure. But do we get a shallow opposing run? Right? A small wick to trade it back into the range? No. We have this large opposing run. So, if I was going to try to trade this, what would I have to do? Look to frame back to this opening price. That's not really that interesting to me. So, I'd rather let this candle close and then see if we do form a reversal using that higher time frame candle as the filter. And there you can see we do have SMT. We have the change in the state of delivery. And so, we are forming this reversal candle. So, then when would it make sense to look for an entry? Well, at the open of a new higher time frame candle. And here you can see we just kind of consolidate then into the open of this new higher time frame candle. Do we get any sort of confirmation or do we form an open low and then expand higher? Let's see. Right, we don't go and confirm that one, but we do here. Right. So now I can anticipate that this low has formed and I could look to trade this higher as this is the continuation following a large wick reversal. And then you can see not the best closure, but we are forming a protected swing right at the end or beginning of that new higher time frame candle and we can get that continued expansion right into those targets. And then like right here, right? If we're forming a reversal off this target, what are we looking for? We've had a large candles range, right? But if I was going to try to trade this, my first expectation for this move is just back towards the daily open or the liquidity around it, right? I'm not expecting this to just dump off a cliff. Could it? Sure. Do I expect it? No. Right. And you can see how it just kind of consolidates and hangs out there. And then that's why you use the candle closure as a filter for something like this, right? Does it make sense to leave these failure swings? Not really. Does it make sense to have a reversal here? Not really. But you could potentially scalp that move. It's just very counter trend. So hopefully this example was helpful as well. If you did enjoy this video, please give it a like and subscribe. And I'll see you guys in the next one. Have a good one.