Transcription
99% of Traders waste time memorizing a bunch of Candlestick patterns that simply don't work. And I know this because 8 years ago, whenever I started trading, that's exactly what I did. And it caused me to lose thousands of dollars, and it made me take way longer than necessary to become a profitable Trader. However, there is one Candlestick pattern that can change your trading overnight. This pattern is going to drastically increase your win rate, and it's going to help you consistently spot reversals. And the best part is that it's only one pattern, so you're not going to be overwhelmed or overthinking whenever it comes time to trade; you're going to know exactly what to look for. Let's go ahead and hop on a chart and take a look at some examples.
Before we go over this pattern, it's extremely important that you understand context is everything, okay guys? I remember whenever I first started trading, I would go and watch a YouTube video, learn a strategy or a pattern, and then I would just go look for it anywhere in the chart. If you do that, you will lose money. Okay, now that we've covered that, let's talk about the three essential elements that this pattern requires.
The first of which is called swing liquidity. Just like this Candlestick pattern we're going to learn today, context is important when selecting which swing liquidity you use. So swing liquidity is a rather simple concept; it's found at literally any high or low. So whenever we take a look at this chart right here, notice how this candle right here has a lower high on either side of it; that would make it a high. And then this candle right here has a lower low and has higher lows on either side of it. So there's a low, higher low, higher low; so it's a three-bar formation. This is very important because it can be used to determine reversals due to Traders having their stop losses in this area.
The second element we're going to use today is going to be called a fair value Gap. Many of you already know what this is, but for those who don't, a fair value Gap is just a three-candle formation where the middle candle is expansive, and it leaves a gap between the Wicks of the candles before it and the candle after it. So that Gap is what we refer to as a fair value Gap. And the reason these are important is because it shows displacement in the market, and it takes a very large Force to create this kind of displacement and cause an imbalance in the market on one side, whether it's buyers or sellers. Now I want to be crystal clear: some fair value gaps have a higher probability of continuing than others, so I want you to pay close attention. And what we're going to go over next is what changes this from a gamble to a proven strategy. Because many of you guys have heard of Swing liquidity, or you've heard of fair value gaps, and you probably use them a lot, but you still get stopped out on your trades. So what I'm about to show you is going to change everything.
And that brings us to our third essential element, which is PC liquidity. Now, PC sounds like some complicated abbreviation; all it stands for is the previous candle. So whenever you're looking at this example right here, notice how this candle's High got swept by this candle. And this wasn't necessarily a swing point on this time frame; however, on a lower time frame, it likely was. And by using the higher time frame to visualize this, we drastically simplify our process. And the more you can simplify your process, the more repeatable it is, and the more easy it is to trade in a live market. And when you use the specific time frames we're going to go over today, you're able to spot areas that have even more liquidity than swing points alone, because this is when the most Traders are trading and placing their stops based on these levels. And most likely you have placed your stops at these levels before and gotten manipulated out of good trades. And what I'm going to show you is going to make you able to avoid that happening in the future.
So what is this Candlestick pattern that we're going to go over today? The only way this Candlestick pattern will work consistently is when paired with two or more of the concepts I just taught you. So you have swing Point, winning liquidity, fair value gaps, or previous candle liquidity. Bonus if you have all three. Now, if you want to learn more about Concepts like the ones I just showed you, you can download my course for free using the link in the description.
Okay, so what is the Candlestick pattern? I know you're probably like, "God, this guy just needs to tell me the pattern that I came to watch this video for," but if I were to just give you the pattern and let you run with it, that would be like most trading content, and it's not going to help you; it's just going to give you a new shiny object to chase. So I want us to take a look at this example and Mark it up. Now, if you see it, if you already see the Candlestick pattern, pause this video and comment, because I'm interested to see how many of you guess it. So now let's mark up this chart together, that way you fully see how to use this pattern. So right here we've got a fair value Gap because this middle candle is expansive and has Wicks on either side that aren't touching. You've got another fair value Gap right above it. You've got a swing point up here; you've got another swing point up here; got a swing point up here. Oh, notice that this candle right here swept that swing point, and we're also in a fair value Gap. And what else did it sweep? It swept the previous candle's liquidity. Now, what else did this candle do? Well, if you look, this candle engulfed the previous candle, meaning it closed a body Above This candle's body. So after this candle has engulfed the previous candle's body, that is a very strong sign of a reversal when paired with two or more levels. Now, if you notice in this example, we had our FVG right here; we had our swing low right here; and we had our previous candle low. You only need two of these Concepts together, paired with an engulfing to confirm that that move is going to reverse to have a high probability scenario. And once this happens, you have a very clear way to frame your stoploss, to frame your entry, and to frame your target, or you could just use this for directional bias. So the engulfing pattern signals a high probability reversal when used at key levels.
So what you're doing in this example, whenever the Market came under this swing low, you're inside this fair value Gap right here, because remember this whole zone is a fair value Gap, and you swept that previous candle's low. A lot of liquidity was taken, meaning a lot of Traders got stopped out of their buy positions right here, or breakout Traders wanted to sell the market down here. So when the market moves up and it closes Above This candle's body, then you know that every Trader who got involved in this area and every Trader who got involved down here and tried to sell, they're now underwater. And if they are in the red, meaning they position positions are in the negative, they're going to want to get out of those losing positions. And when they get out of a sell or a short, that makes the market go up in an explosive Manner. And that's why you can look to then Target opposing levels. So I want you to always require two or more of these levels, but really my favorite is the previous candle's higher low followed by an engulfing, because you know all the Traders in that previous candle are now underwater, and the move is likely to be explosive. If you were going to enter just based on this alone, you would put your stop loss just below the engulfing candle. So let's just say you entered right here; you would put the stop right there. Now, for the Target, you can do this in two ways. Let's say if you wanted to just trade off this time frame, you could look for opposing swing points in the opposite direction. Or, for example, this was a daily chart; let's say if you came in to trade on this day and you just wanted to get a bias, all you could look for was this candle's high. And this can be extremely valuable because if you come to your desk in the morning and say, "Okay, well, which, you know, what's my target for the day?" Well, on this candle right here, let's say if this Market moved down and you were able to get involved anywhere in this Wick in that day, because that Wick is showing that day traded lower first, but if you knew that the market was likely to trade higher into this candle's high, that can be an extremely valuable piece of information because it can help you avoid taking bad trades that are going to end up stopping you out and help you find a target for trading in the right direction.
Now I cannot stress enough how important context is for this strategy to work correctly. If you want to watch an hour-long video where I teach you everything there is to know about trading, go ahead and click the video that's on your screen to watch my free course here on YouTube. It's totally free; it's an hour and a half long, better than most paid courses. If you found this video helpful, then make sure to subscribe to my channel because I post two trading education videos every single week. Thank you guys for watching; I'll see you in the next video.