Trading the Open and Close of the Candle

When trading price action or using price action triggers such as Pbars, Inside Bars, Shaved Bars, etc. it is important to always wait for the bar/candle to close more than anything else.

Many people have challenges trading any system because the signals are forming in real time and not necessarily when the candle closes so you have moving elements to the candle, trigger and price action which are still in play.

The way around all this is to wait for the candle to close. Once a candle has closed, it is final – it cannot ever be changed and it will always be that way.

If you are ever tentative about taking a trade, wait till the candle fully forms and closes. Once it does, it will always be like that forever and cannot be changed. This means the signal is clear and there are no changing components to it.

Also, one important thing about trading price action and waiting for the candle closes.

It is often the case (whether it’s the daily chart, 4H, hourly, etc) that price action will be dominant in one direction for the majority of the candle only to reverse strongly at the end of the candle. Institutional traders know retail traders are less disciplined than they are. They know a good trading candle pattern could be forming and will often trap traders into believing that candle is an engulfing candle or reversal candle and then quickly move price in the last minute or 5minutes of the candle only to change it drastically with traders stuck or trapped into a certain direction hoping for higher/lower prices.

It is also often the case the markets will reverse at the end of a session or major candle as traders are paring back positions before market close as they want to be flat going into the close. When they do this, if the market was moving heavily bullish for the day, you will often see price dip a bit in the last 30minutes or less of a session as the institutions are going flat into the close.

Furthermore, a lot of trading today is done via algorithms which will often as well exit their positions causing strong spikes in price going into market closes. You can often observe this in the US equities markets as traders eliminate risk by not holding positions overnight to avoid the risk. Another example is in the London close as you will often see a strong push at the end to only see if fade just before or even perhaps just after the market London close.

Such price action patterns are common and by waiting for the candle to close, you are trading off real price action triggers. If the trading candle pattern is still forming, unless your system is specifically tailored to getting in mid-candle, it is often recommended to wait for the candle to close because up till that point, anything can happen and the formation of the candle and price action signal can change drastically.

Lastly, if something is strong into the close, once the candle closes, it often displays the final intentions of the market in the current move. Closes towards the highs/lows of a candle often indicate there is little profit taking so if you are trading in the direction of such a move, this can be a good confirmation sign. However if you are in a long position and the candle closes with a strong rejection/wick on the topside, the closing of that candle could be indicating the markets intentions to reverse it as price failed for that candle to maintain a strong high and close.

Thus, its always important when trading price action to look at candle closes and entering on them as much as possible.

For those of you looking to learn how to trade pure price action with no indicators, make sure to check out our Trading Masterclass where you will learn rule-based systems for trading Price Action.