Candle 3 Closure: TTrades Fractal Model

Candle 3 Closure Explained

Introduction to Candle Closures

• The video introduces the concept of candle 3 closure, building on previous discussions about candle 2 closure. A link to the earlier video is provided for context.

Continuation vs. Reversal Closure

• A continuation closure occurs when the price closes below a previous candle's low, indicating a potential continuation of the trend.

• In contrast, a reversal closure happens when the price sweeps out a previous high or low and then closes back above it, suggesting a possible price reversal.

Differences Between Candle 2 and Candle 3 Closures

• Candle 2 closures indicate that price reversed within that candle, while candle 3 closures do not sweep out highs or lows but close over the body of candle 2.

• An example illustrates how a bearish scenario can lead to expectations of lower trading if there is no reversal in candle 2.

Pairing Equilibrium with Candle Analysis

• The speaker discusses using equilibrium levels alongside expansion candles to predict future movements based on where wicks form in subsequent candles.

Examples of Candle Closures

EuroUSD Daily Chart Example

• The first example shows how price action within a fair value gap leads to identifying a candle 2 closure as it sweeps out its previous candle and closes back inside.

Anticipating Price Movements

• If there’s no reversal closure after reaching into another fair value gap, further information is needed before making predictions about future price movements.

Forming Expectations from Price Action

• Observations are made regarding whether prices close over the body of candle 2; this indicates a potential bullish move following a confirmed candle 3 closure.

Further Examples and Analysis

INQ Chart Analysis

• On the INQ chart, despite taking out swing lows without forming reversal candles initially, closing over the body of candle 2 suggests potential upward movement.

Marking Ranges for Future Trades

• The entire range of candle three is marked for analysis; traders look for upper halves to anticipate higher trades in subsequent candles.

Validity of Swing Points

• Discussion on identifying valid swing points reveals that some points do not meet criteria for either type of closure and should be disregarded from analysis.

Understanding Candle Closures and Fair Value Gaps

Identifying Points of Interest

• The discussion begins with the importance of identifying fair value gaps, which are crucial for validating candle closures. A valid closure must have a point of interest.

• The speaker emphasizes that without a point of interest or valid closure, random swing points should not be chosen for trading decisions.

Analyzing Candle Closures

• The analysis continues with the evaluation of swing highs and lows, noting that while some candles may indicate potential trades, they lack necessary confirmations like closing back inside previous ranges.

• A valid "candle 3" closure is identified when price closes over the body of "candle 2," indicating a protected swing and potential upward movement.

Trading Strategies Based on Candle Analysis

• The speaker explains how to filter swing points using candle closures in conjunction with context and points of interest to make informed trading decisions.

• When framing trades after a "candle 3" closure, it’s essential to mark out the entire range of the candle and respect its upper half for potential higher trades.

Utilizing Higher Time Frames

• Transitioning from a higher time frame (4-hour chart) to a lower one (15-minute chart), the speaker discusses simplifying charts by removing unnecessary drawings while maintaining context from previous analyses.

• A change in delivery state is noted upon achieving a "candle 3" closure at reversal points, allowing for entry opportunities based on protected swings.

Importance of Context in Trading Decisions

• Consolidation patterns are analyzed; despite bullish bias, lacking both "candle 2" and "candle 3" closures means waiting for further confirmation before making trades.

• The distinction between "candle 2" and "candle 3" closures is summarized: “Candle 2” indicates anticipation for continuation if it sweeps high/low; “Candle 3” lacks this confirmation but can lead to future expansions if monitored correctly.