In my trading, I have stripped away everything that doesn’t provide value and I have optimized the points on my checklist that I use to read price charts. Below you see the current EUR/USD chart on the and it offers a great learning opportunity because it shows us that ‘something’ is happening here.
Price is/was in a strong uptrend and now things are slowly turning. The amateur/losing trader will make the mistake of jumping in too early because he ‘feels’ that something is happening here but he is too early. Price is NOT yet ready to move lower and it’s too early to jump on the signal. But let’s start at the beginning and let me give you a few key principles that will help you understand trends and consolidations better:
1. Count of vs. candles
When you suddenly see that price is showing more candles after an uptrend and the ratio between and candles changes, it can be a first important signal that a trend is losing momentum.
2. Ratio between wicks and bodies
During a trend, there are usually smaller wicks and larger bodies as the price keeps trending into the direction of the trend. When candles start to show longer wicks and smaller bodies, something is happening and momentum might be fading.
3. Length of trendwaves
When the trendwaves lose strength, they become shorter. Before a market turns, you can often see that the final trendwave is becoming much shorter
Once price starts breaking the “higher high / higher low” or “lower high / lower low” sequence that describe healthy trends, you know that something big is happening. When, like in the EUR/USD example, price breaks the blue marked level, price will make the first lower low for the first time in over 4 months. Putting it all together with the previous points, we can then see that the trend is likely going to reverse.