Trade Tip Candles

Trader Tip – Understanding Candle Deceleration

In trading the markets, a key skill is being able to identify the turning points, or "Pivot Points" in price.  Support or Resistance lines, Trend lines, Reversal Candles or Moving Averages can help, but we are still missing one confluence factor.  As smart traders, the more confluence factors we can identify before placing a trade, the better.  This raises the probability of the trade going in our favour.
This brings me to deceleration.  Being able to identify deceleration on your charts will help you decide when a RUN is coming to an end and a new PULLBACK is about to commence (or vice versa), otherwise known as Pivot Points.  These represent great entry points when they occur on Support/Resistance lines and in conjunction with key Reversal Candle patterns.  It will also help you analyse the momentum in the market and assess whether the buyers or sellers have control of the price.

Candle Deceleration 

Deceleration is very simple to identify, it occurs when the size of the candle bodies gets smaller as the days progress.  This is a signal that the market is losing momentum and could potentially change course and move in the other direction. 
This could be either;
(i) a PULLBACK coming to an end and a new RUN beginning (in the diagram below), or
(ii) when a RUN is coming to an end and a new PULLBACK beginning.
These are the best times to be looking to enter the market.  

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Candle Deceleration Candle Deceleration

Trader Tip Deceleration

Candle Acceleration 

Conversely, price is accelerating when successive candle bodies are getting bigger, this is a sign that the market has commenced a new RUN/PULLBACK.   It is better to enter a trade at the start of a RUN/PULLBACK so that you can maximize your profits.
Entering in the middle of the RUN/PULLBACK is not recommended as your REWARD/RISK ratio will most likely be lower.  That is, you are risking too much on the trade.
Trader Tip Acceleration

In Summary

It is important to understand that Deceleration is just one confluence factor, but you never want to enter a trade based on this alone.  To increase your edge, it is wise to identify as many confluence factors as possible.  I recommend watching my 5 Steps to Trading Success video to understand confluence factors and how to apply them.
The next confluence factor to learn is How to Use the 50 Exponential Moving Average. 
Happy Trading
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