Disclaimer: THERE IS A RISK OF LOSS CAPITAL,
*This article refers to Trading with a Demo account only.
One of our regular readers has shared his story with us. This story is related to the candle colours strategy described in our blog.
Our reader prefers to remain anonymous. For the purposes of our article, let us call him John. After many hours spent on a demo account and a small real account, John decided to spend $1000 on investments. This was money he could live without. Remember that trading carries risks and you should not invest money whose loss puts your personal finances at risk.
A brief recall of candle colours strategy
John decided that his main method of trading will be the simplest one that does not require additional technical analysis indicators. A clean chart should be sufficient.
The basis of the strategy is to observe the naked candlestick chart. A trader’s task is to quickly identify the so-called true candle. True candles are candles with a much larger body than the others. The shadows of this candle should not be long. The green candle is a signal for further price growth. The red candle is a signal for future price drops.
In this strategy, we omit all special candles known as candlestick patterns.
The strategy works best on the 5-minute charts from 9 am-10 pm. The best instrument to trade is the EURUSD currency pair. John pointed out that the strategy can basically be used around the clock as long as there is sufficient price volatility.
If a signal appears, open the transaction for the duration of the next candle, that is 5 minutes. The speed of opening a position is very important here. Late entry may cause the transaction opening price to be worse than the candle opening price. Of course, it can also be better. The strategy uses martingale money management. This presupposes a sequence of transactions. If the first trade after the signal ends in a loss we open another one by increasing the position size. If the next one is also a loss, we open another one and so on. The strategy allows you to open up to 5 positions in a sequence. For a $1000 account, John uses $5 as the initial amount. Any subsequent transactions in the sequence look like the table below.
Some good sequences of candle colours strategy from last week
John sits on the trading platform when he knows he will have a few hours to trade. It is important that no other activities and tasks prevent him from focusing on observations of the chart.
Digging into the next few pictures will help you better understand the strategy. Look at the graph below.
John started at 9 am. The first green long body candle appeared, giving a signal to open a position for a price increase. The first trade of the sequence ended at plus $4.15. The sequence was completed. The second signal was a red candle. The first trade after the signal lost, but then the second one yielded a net profit for the +$7.45 sequence. The third signal candle with a very large body is a signal to start the next series on the price increase. The first and second trade ended in a loss. The third trade yielded a net profit of $17.35. The fourth series was only one trade that ended with a successful +$4.15. The fifth sequence only finished on the fourth trade so the profit is $47.05. The last series ended with one trade on +$4.15. In total, it is $84.30. Pretty good for 3 hours of trading.
Now, look at the next chart.
- The sequence completed on the first transaction +$4.15.
- The next +$4.15 after the first trade.
- And again +$4.15.
- Sequence completed on 3 trades +$17.35.
- And another +$4.15.
In total, a short trading session completed in +$33.95.
Another day and another 6 signals.
- The sequence ended on the second trade +$7.45.
- This series ended with the third trade +$17.35.
- Only one transaction in this series +$4.15.
- The sequence ended with a second trade +$7.45.
- The sequence ended with a third trade +17.35.
- The sequence ended with the fourth trade +47.05. Note that the candle after the signal is green, but the opening and closing prices are the same. John’s entry was minimally late and the price went off, so he continued the series.
The excellent end result of the session at +$100.80.
The pros and cons of candle colours strategy by John
First the cons:
- Quite high initial deposit amount. A minimum account of $1000 is needed to start the sequence from $5.
- If 5 trades in a row in a series are lost it means a total loss of $605.
- The strategy evokes a series of not necessarily positive emotions during trading. Especially when a series reaches large position sizes.
The advantages of the strategy:
- No indicators needed, trading based on a bare chart.
- Simple rules.
- Clear rules for capital management.
- Some days can positively surprise you with a considerable profit.
Remember that in order to use any trading strategy you have to prepare yourself for it. Here, in addition to understanding the rules, it is important to work out the speed of starting orders and changes in position size. Practice first on the demo account on Binomo. If the results are satisfactory, go to the real account. Start with small amounts.
Have you already used the candle colours strategy? Share your experience with us in the comments section below.
We wish you successful trading!