Learn to Trade; OH sh*t, I can’t believe its free! Part 2.
By Trader Fibonacci Fiddsy
Welcome to my — learn to trade; Part 2 of my ‘OH sh*t, I can’t believe its free!’ series.
Well done for making it to Part 2! If you missed part 1, click the link below!
As mentioned in Part 1, the basics of trading is buying at support and selling at resistance.. However, that’s the content for Part 3! We’ll come back to that in some good depth but honestly, you are not quite ready for that yet!
THE BASICS OF TRADING
We need to wind it back a little and take a look at the second most important aspect after risk management. Price action! There isn’t much point in progressing beyond this point if we don’t understand candle sticks, what they represent, how to identify bullish candle sticks from bearish candle sicks on a chart and which common bullish and bearish candle stick patterns you need to keep an eye out for when trading. When it comes to trading, price action is king.
A candle stick represents the price action of whatever time frame you have on your chart. Example — If you are on the 1 hour chart, then a single candle is 1 hour of price action/trading information. If you are charting on the 4 hourly chart, then a single candle represents 4 hours of price action and so on.
A candle has an open and a close which is called ‘the body’ of the candle. The body represents where the price started at the candle open and also where the price closed at the end of the candles time frame.
A candle also has wicks. Wicks represent the high and/or the low of the candle. Wicks are also known as candle shadows.
Now lets break down a candle stick even further with colour. This might seem like the most obvious (green means go, red means stop) but the colour is indicative of whether the candle closed higher or lower than it opened. A green candle means the candle closed at a higher price (bullish candle) then it opened while red candle means it closed at a lower price (bearish candle) then it opened.
Bullish and bearish candles
The picture above is a very basic description of bullish and bearish candles. All these candles have specific names but if I am being honest with you, as long as you learn to identify if they are bullish or bearish, then the specific names DO NOT MATTER. The only issue with this cheat sheet is that just because a candle closes green, doesn’t mean its bullish or if it closes red doesn’t necessarily mean it is bearish. Pin Bar candles are an exception to the rule.
These candles are known as Pin Bars. They signify trend reversal candles. We will get into trend at the bottom of this article however if you see a bearish Pin Bar in an uptrend, it signifies a reversal regardless if it has closed red or green and visa versa for a bullish Pin Bar in a downtrend. Pin Bar candle sticks will become very important signals in your trading arsenal.
Pin Bars represent a price rejection which is the reason they are called reversal candle sticks. I’d personally argue that they are the singular most important candle stick to keep an eye out for when trading but they need to be combined with trend and support & resistance for the best probability of success.
When taking a trade, you should always wait for the candle close. Prematurely taking a trade based of a candle that hasn't closed (confirmed) yet is a risk very rarely worth taking.
Candle Stick Patterns
I wont actually go into much depth on candle stick patterns in this article. So long as you can identify bullish and bearish candles (including Pin Bars) and understand the anatomy of candles, then this simple cheat sheet will generally cover what you need to keep an eye out for. Alternatively, just Google ‘trading cheat sheets’ and you’ll have access to far more advanced patterns. Tho below is more than enough for now.
TREND
You will need to identity an uptrend (price increasing) or a downtrend (price decreasing). Trend on higher time frames will give the indication if we are in a Bull market or Bear market. A Bull market is a market which price is trending up while a bear market is a market is when price is trending down.
An Uptrend is a series of higher highs (HH) in price and higher lows (HL) in price.
A downtrend is the polar opposite — a series of lower lows (LL) in price and lower highs (LH) in price.
The reason this is an important early step is because statistically, there’s a higher percentage chance that the trend will continue. This means you should be looking to buy/long in an uptrend and look for reversals in downtrend.
If you were an experienced trader, you would favour going long in a bull market and going short in a bear market but to ‘go short’ you need to trade with margin and leverage. While I may mention it here, I still stick to my ‘do not use leverage’ mantra until you have spent time in the market and can successfully spot trade the market.
There is a rather universal saying in trading that ‘trend is your friend’ which basically means — trade the same direction as the trend. The best time frames to consult on trend are the higher time frames — the daily time frame and up. The higher the time frame, the more information/price action each candle has — the larger the information, the more accurate the trend will be and don’t be afraid to consult multiple time frames. The more time frames in agreement, the stronger the trend will be.
This is often an area where many new traders can get tunnel vision by not consulting multiple time frames or identifying where the stronger daily support and resistance is when trading lower time frames.
For me personally, If I am trading the lower time frames like the 15min chart, i’ll look for my price action entry off the 5min and check my trend, support and resistance on the 1 hour chart.
For trading off the 1 hour chart, i’ll look for my price action entry off the 15min chart and check my trend, support and resistance on the 4 hourly.
If I am trading the 4 hourly, i’ll look for my price action on the hourly and check my trend, support and resistance on the daily time frame.
And lastly, If I am trading the daily time frame, I am looking at the 4 hourly for my price action entry and check my trend, support and resistance on the weekly.
Most traders have different variations of ‘consulting’ other time frames but the point is, its best not to get tunnel vision and the process of consulting various time frames will help give a broader more accurate overview of whats happening in the market. Just remember, we are trying to stack as many probabilities as we can for the highest chance of a successful trade.
TradingView
Don’t forget — If you don’t have TradingView yet, click this link and sign up to the free version. You are limited on the amount of features available but when starting out, the free version is completely fine. If you are looking at a paid version, try wait till Black Friday sales as you can pick up annual subscriptions for a fraction of the usual price. Using the link will give you up to $30 off when upgrading to a paid version!
UP NEXT — Part 3!
We’ll take a deep dive into the different types of support and resistance, Psychological big number levels, horizontal support & resistance, liquidity zones, trend lines, moving averages & exponential moving averages and Fibonacci retracement levels.
DISCLAIMER
NOT FINANCIAL ADVICE– The Information in this article, learn to trade; Part 2 of my ‘OH sh*t, I can’t believe its free!’ series, is provided for educational, informational, and entertainment purposes only. The Information contained in or provided from or through this article is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice.
The Information in this article is general in nature and is not specific to you the user or anyone else. You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented in this article without undertaking independent due diligence and consultation with a professional broker or financial advisory.
You understand that you are using any and all Information available on or through this article at your own risk.
RISK STATEMENT– The trading of Bitcoin, alternative cryptocurrencies has potential rewards, and it also has potential risks involved. Trading may not be suitable for all people. Anyone wishing to invest should seek his or her own independent financial or professional advice.
