- All new low or high are considered potential leading candle and must remain the new or low to maintain validity.
- In identifying all candles(1,leading and 2) the size of a candle range is the high minus the low(wicks inclusive).
- Decision to take a trade and identify possible targets after a setup has qualified may include other studies to determine trend and its strength to enhance peformance.
- All trade entries for both buy and sell setups is the close of candle 2 after setup is qualified valid, earlier entries can taken before close of candle 2 if criteria in Setup identification below is met.
- Stoploss is 1pip ontop/below the high/low of leading candle respectively.
- Opposing qualified and valid setup formations are used as exit signals if already in trade, depending on Timeframes opposing signal will not perform well if underlying trend is strong but in any case positions should reduced if not closed and wait for a new signal in favour of trend direction.
- Failed opposing formations could signal continuation of an already existing setup.
Setup identification - if the present candle(potential leading candle) is a new low or high and has covered at least 50% but not bigger than range of the candle 1, wait to see how candle 2 closes, if setup is to qualify, candle 2 must not go high/below leading candle depending if it a buy or sell setup, in fact candle 2 can do anything else as far leading candle remains the low in a buy setup and vice versa.
1st Qualification - 0nce we have a new high or new low( potential leading candle), leading candle must not already be bigger than candle 1 and must remain the higher/lower between itself and candle 1.
2nd Qualification - In the opposite scenario where the potential leading candle is already greater than candle 1 then candle 2 must cover a range more than the entire range of the leading candle in the oposite direction to become valid(big bodied candle 2 prefered in these scenarios) whilst leading candle still maintain its high or low in the formation.
3rd qualification - if leading candle is a small candle ie not equal to half of candle 1 but still remains the high/ low,then it is necessary to let candle 2 cover a bigger range more than that of the leading candle whereby the candle 2 can now be more than 100% range of candle leading candle(big bodied candle prefered in these scenario) whilst leading candle still maintains it high or low in the formation.
As in all setups the SL should be atleast 1 pips above or below leading candle depending on either if it is a buy or sell setup or most importantly when an opposing leading candle occurs to close trade.
In the above scenarios filter can be used to ascertain trend, ie wave theory, Gann, ichimoku, osillators and other studies that can give trend direction, so one can know if to leave open position when an opposing leading candle shows up.
Further to this, candle formations like this have very high performance hence reliable. This setups can be seen in all timeframes and instruments, bigger TF more pips more reliability, the size of stoploss is usually bigger in larger TF but not necessarily bigger as 1pips higher or below leading candle is determinant of SL.
Studies so far indicates that the personality ,MM, experience of trader will determine rate of performance like all other strategies, a R.R.1.1 target ratio will get high strike rates, formations around supports and ressistance will always do well even exceeding 1.1 target ratio frequently.
