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Hugo in HTO Trading,

Gauging momentum | Putting all together now

This is the fourth of a four lesson course

Cheat sheet for a full candle sentiment

High close, bull candle = Strong bullish sentiment

Mid close, bull candle = Bullish sentiment

Low close, bull candle = Weak bullish sentiment

High close, range candle = slightly on the bullish side of neutral.

Mid close, range candle = clearly neutral, neither side is showing control.

Low close, range candle = slightly on the bearish side of neutral.

High close, bear candle = Weak bearish sentiment

Mid close, bear candle = Bearish sentiment

Low close, bear candle = Strong bearish sentiment

The same pattern can have numerous meanings, depending on where it occurs in the market, so we must consider the context.

Consider the context’ means we consider where the current price pattern appears with respect to the background market environment and price action, and what that means.

Changes of sentiment at key locations can have very significant meaning for future market momentum.

These key locations will typically be any location which plays a part in defining your market structure or your trend. I trade based upon support and resistance levels, so in considering the context of background market structure and price action, I ask myself:

  • Has the market shown strength or weakness on approach to the support and resistance area?
  • Is the current candle pattern sentiment continuing this strength or weakness, or has something changed?
  • Has the pattern breached the area of S/R? If so, is it now showing signs of acceptance or rejection of this new area?
  • Where is the pattern occurring within the current trend?
  • Or is the pattern within a sideways trading range or other form of consolidation pattern?
  • Is price testing any areas of swing highs or lows?

Lets take a look at the chart and analyse it:

(1) Mid close, range candle = clearly neutral, neither side is showing control; at this stage I wanted a close above candle 1 to confirm the break above the resistance (key location 1).

(2) Low close, bear candle = Strong bearish sentiment; at this point I thought the price want to retest the support (key location 2) at 1.1295, but after the next candle became obvious a strong swift in momentum.

(3) High close, range candle = slightly on the bullish side of neutral; but at the previous resistance now support (key location 1) for me it signals a clear rejection to the down side.

(4) Mid close, bull candle = Bullish sentiment; no doubt in my mind that the price would try to reach the resistance (key location 3).

(5) Low close, bull candle = Weak bullish sentiment; all my bells were ringing saying get out after a weak teste of the resistance (key location 3) and I closed most of my long position but held on to 1/3 of it.

(6) Mid close, bear candle = Bearish sentiment; another sign of weakness to the upside, closed all long positions.

(7) Low close, bear candle = Strong bearish sentiment; but this time at a support (key location 2) so caution is prudent.

(8) High close, range candle = slightly on the bullish side of neutral; so if the next candle close above it could trigger a long entry. But with a high risk because we have a previous support now resistance (key location 1) too near the potential long entry.

(9) Mid close, range candle = clearly neutral, neither side is showing control; Showing lack of momentum so now my plan changed. Now I have to wait for a retest of the support (key location 2) making a double bottom pattern to trigger my long entry.

Most traders chase setups and entries after they’ve become obvious to the crowd. Through this analysis process, you can guarantee that your awareness is maintained ahead of current market action, so that your trading involves deliberate and premeditated actions rather than impulsive reactions to unexpected events.

Hope this four lesson course on gauging momentum will help you as it helped me into avoiding weak entry’s and boosting my confidence in trading.