In trading the financial markets, we use the US dollar as the de facto SI unit. In a similar model, when analyzing the forex markets, price action traders like us use the daily candle as the primary timeframe when screening for potential tradable setups from the markets.
Regardless of the nature of a trader you are, or your approach to trading, from scalping, to day trading, or swing trading, the daily candle plays a significant pivotal role in informing us of the prevailing direction or trend of the market. The daily candle acts as a graphical representation of the entire day’s trading undertakings of a particular stock, currency pair, or commodity. It encapsulates all the positions placed on a particular instrument within the day; the total number of buy and sell orders, millions of trades & positions placed by traders all over the world that day. As such, it carries a lot of weight and significance in analyzing the market sentiments to tell whether it’s the buyers or the sellers driving the particular market. When looking at the daily candle from your charts, always reckon in your mind that you’re staring at the market behavior of traders in that particular instrument for the last 24 hours.
The shape of the candle is of even more significance to price action traders like us. The various shapes of the daily candle are what inform us of how strong, weak, or even a particular instrument is. We use those shapes as a guide to help us make informed trading decisions and judgments in the markets.
As a trader, approaching the markets without prior knowledge of the prevailing trend is suicidal to your results. You might get away with it in a few instances, but it always catches up with you in your overall performance as a trader.
As such, one of a trader’s biggest jobs is ensuring all their trading decisions are aligned with the current long-term market trend. Anyone who tries to trade against the trend gets swept away by the forces of demand and supply. And a trader’s job is not to try to time the market or fight the trend, but to follow the trends of the markets.
This is where the daily candlestick comes into play. Other timeframes, such as the higher timeframe of the weekly candle, only act as a guide to give us the far-end long-term trend of the market. The lower times, on the other hand, like the 4H and 1H, offer traders opportunities to take trades targeting lower movements and sub-trends that fall within the higher time frame of the Daily candle. Other traders choose to approach their market analysis primarily based on the daily candle. They only screen through the markets to look for viable tradable setups at the close of day, usually at midnight (depending on your broker’s time zone), by using the shape of the daily candlestick to guide their trading decisions. We covered all about the end-of-day trade affirmations and part-time trading in a previous article, PART-TIME TRADING; END OF DAY TRADE AFFIRMATIONS. This works perfectly, especially for those with busy daily schedules, as it allows them to trade the markets by dedicating only 20-30 minutes to analyze the markets only at the close of the day, set up their trades, and leave them to run.
As a rule of thumb, the higher the time frame, the stronger the sentiment of the market direction and the more reliable the setup opportunities that they offer. This is simply because higher timeframes represent a consolidated sentiment of traders over a longer time, hence it carries more weight, and is more reliable compared to the lower timeframes. However, traders can choose to trade either or both shorter timeframes, like the 4H & 1H, or longer timeframes like the Daily and the weekly candles, based on their trading approach and personalities, as long as they trade along with the main trend of the market, the daily candle. We all have different levels of patience. And that’s okay.
With that said, all traders must invest their time and energy in studying and mastering how to use the Daily candle to their advantage, to maximize their profits. This will also help them to avoid getting trapped by insignificant shorter spikes that happen from time to time in the markets, leading to fakey set-ups that leave traders with losing trades. The ability to understand the daily candle and to always use it as your primary guide to understand the current direction of the market, and to help you decipher when the trend is changing, can transform your whole trading performance within a short time.
The contrary is a painful journey of losses and frustrations, especially for new traders, always blaming the markets for their mistakes. The markets can be harsh, and the lessons of the markets can be painful. Even worse, the markets will continue to discipline you with strokes of losses and mental pain until you pay attention and start listening to the market calls. As traders, we are simply students of the markets and followers of the markets. If, and when we make mistakes, we must look inwardly and correct our mistakes, without blaming the markets or losing ourselves into the emotional rollercoaster of revenge trading, which only ruins us further.
Acknowledging the daily candle’s role and always using the daily timeframe and the daily candlestick as your primary guide to mark out the prevailing market trend will save your precious time, money, and energy. This is the ‘hack’ to perfecting your market analysis skills, and shortening your learning curve as a trader.
