Volume Candlestick Strategy

2023.08.28 2023.08.28 Volume Candlestick Strategy

Artem Parshinhttps://www.litefinance.org/blog/authors/artem-parshin/

Today I will teach you to use the most effective Forex strategy - Volume Candlestick. For a start, let's have a look at it.

What is a volume candlestick?

This strategy is very different from all other Forex strategies. Basically, all strategies are built on the basis of signals received from mathematical indicators, which are troublesome to say the least. The indicators have a large margin of error, and it is very difficult for an unexperienced user to figure out whether the signal is correct, when exactly they should open a position, etc. A volume candlestick is not an indicator, it is just one small Japanese candlestick in the chart. It is very easy to find and very hard to miss.

It is a candle with a very small body or no body at all and very long shadows. You must admit that you don't see such candlesticks every day, and it is quite easy to tell it from all the others. I call this candle a volume candlestick because at the time of its formation, there are very large trading volumes on the market fighting among themselves. And it turns out that by the time the candle formation is complete, the market has not yet decided which volume is stronger, since supply and demand are almost equal. After the candle has finished forming (closed), time passes (several hours or even days), the volumes of either the buyers or sellers outweigh the others, and the price begins to move in the direction of a new trend. At the moment when the price exceeds the low or high point of the volume candlestick, we will have the opportunity to join the winning side and open a position in the direction of the new trend. This makes our position almost guaranteed to be successful, since we trade in the direction of the largest volume. In other words, this candle allows us to receive a specific signal for opening a position on the current trend, which most experts consider the only way to make money on Forex.

How to find a volume candlestick?

Now let's learn how to find a volume candlestick in a chart among the multitude of other various candles.

In the chart above, I marked all the volume candlesticks in red. The period covers a calendar year. In the yearly GBP/NZD chart, I found 12 volume candlesticks, and all of them worked out successfully for profit, i.e. they gave a 100% result. So how de we distinguish them from others? There are 5 rules:

1. Volume candlestick can be used only in the daily timeframe (D1);
2. Volume candlestick should be fully formed, i.e. a new candle should appear after it;
3. The body of the volume candlestick should be at least 10 times smaller than the entire full length of the candle;
4. Each of the shadows (wicks) of the candle should be at least 400 points.
5. Volume candlestick can only be used on major or cross instruments.

How to trade with a volume candlestick

Now let us have a look at how to apply these 5 rules and open positions:

In the chart above, you see one of the candles that have already worked successfully. By the way, I traded on it myself. This is how it goes:

1. Use the first rule: switch the chart to the daily timeframe and zoom in for a more convenient separation of the candles;
2. Start searching for candles that fit the description.
3. After a suitable candle was found, use the rules 3 and 4: take a ruler in the trading terminal and measure the body and shadow of the candle. If at least one of the candle’s shadows is less than 400 points (even 399), forget about this candle - it will not do. If both shadows are more than 400 points, measure the body. If the body, for example, is 100 points, then the total length of the candle should be more than 1,000 points. If both of these conditions are fulfilled - the candle is almost a perfect candidate;
4. Now return to rule 2. A new candle, or even several, should appear after the one under consideration. But the price must not go beyond the high and low of our candlestick;
5. Check the instrument: if it is a major pair or a cross-rate - you can start thinking about your profit;
6. Start setting orders. Yes, volume candlestick trading is done only with pending orders, such as Buy Stop and Sell Stop;
7. Accurately measure the length of the candle's shadow. In our case, the upper shadow is 748 points, and the lower one is 646 points;
8. Now measure out 646 points down from the low of the candle and draw a horizontal line. Measure 748 points up from the high and draw another horizontal line;
9. At the low level of the candle (sell level), set the Sell Stop order. Set Take Profit to our pending order at the level of the lower horizontal line (profit level sell), and Stop Loss at the level of the candle high (stop level sell);
10. At the candlestick high level (buy level), set a Buy Stop order. Set Take Profit to our pending order at the level of the upper horizontal line (profit level buy), and Stop Loss at the low level of the candle (stop level buy);
11. If you did everything correctly, the grid of orders should look like in the figure above. If the price goes down, the expected profit is 646 points, and if it goes up, we get 748 points.
12. Everything is ready! You have set orders for the broker, and they will do everything for you.

As you can see in the figure, a sell order was triggered, and after another 2 candlesticks, it closed by Take Profit, bringing in profit of 646 points, or about 500 USD if the trade volume was 1 lot. The strategy is really very simple, all you need to do is strictly follow the rules and become a very successful trader.

It's time to try it yourself, for example, on EUR/USD. If you have questions, please ask them in the comments below.

Good luck and see you on the pages of my articles!

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Price chart of GBPNZD in real time mode