If you’ve been reading my previous posts, you should now know a lot more about price action and candlesticks. I briefly introduced you to the indecision candles, which announce indecisiveness in the market.
In this post I’ll elaborate on these indecision candles and how they can help you as a trader looking for setups.
What is indecision?
Indecision literally means indecision. Coupled with trading or investing, this means that the fight of buyers and sellers is (temporarily) undecided. Neither party has enough power to determine the direction of the price.
I already explained that you no longer have to look at candles as are the patterns, but at the price behind the candles. Read the story they tell.
So if the bulls and the bears are stuck in their battle, you can see that reflected in the candles.
Take a look at this candle:
This is one of the best indecision candles you can get. When you open a reversal trade, this is usually the type of candle with which everything started.
This is how they form on a real chart:
We have a wonderful bullish trend here. This trend is healthy and strong. We see higher highs and higher lows. In this case, buyers are completely in control of the price. Looking good bulls! 🙂
But then we see this candle:
Buyers could still push the price up a little at the start of this candle (hence the wick on the top), but they were pushed back by the sellers. The bears gained strength and eventually pushed price down. Making this candle close lower.
This easy to read, but what does it mean?
Candles like this are perfect for reversal trades, because they show indecision in a trend. When price strongly moves in a certain direction and suddenly stalls, that indicates indecision.
The indecision candle is definitely NOT a 100% guarantee for a reversal (price changes direction). But it does tell you that price is stalling and that there is a possibility of an incoming reversal.
And the chance that a reversal is coming is far bigger with this candle, than for example the one before.
This is what happened after this indecision candle was formed:
Isn’t that glorious! 🙂
A good exercise is to search your charts for indecision candles. See if you spot them and look at what happen next. Keep in mind that indecision candles often pop up after strong trends.
Questions about indecision candles? Hit me up in de comments!