LWP :-
LWP is the price level in our setup location where you expect the stop losses of those traders who are fighting the high probability direction we have predicted are going to trigger.
The definition here is a bit subjective and is a bit hard to understand and apply by a trader who is new to PA trading. So I would like to elaborate a bit about this.
I have been repeatedly saying like a humming bird that there are four important things to evaluate the odds in the favor of a swing trade.
1. Short term Bias. This is a must. If the bias is not clear, there is no point in looking for a trade.
2. Corrective move against the bias to fade. I have already explained how we can identify whether the swing is corrective or impulsive on the right side of the chart using the bar by bar candlestick analysis. This corrective move confirms that the market is weak against the bias and gives enough confidence to take a trade in the direction of the bias. It doesn’t mean that the pullbacks cannot be impulsive. They can be, but that rarely happens. It often gives a CPB or some sort of a trap type entry if the first leg is impulsive in the move against the short term bias. It just means that the odds are in the favor of the trade when the move against the bias is corrective.
3. Price level. The supply/demand level which can provide some orderflow in the direction of the bias to stop and reverse the corrective move.
If you are clear with the things so far, congratulations. You have done a great job and are few steps away from placing the entry order.
Now lets move on to the next step of the above procedure, Price level. When market corrects to the price level, the first candle that shows strength in the direction of the bias or/and weakness against the bias is known as the signal candle.
Signal Candle:-
The candle that closes strongly in the direction of the bias or weakly against the bias, at the price level is a signal candle. Like a pin bar, candles that close near high/low, inside bars etc. etc.
LWP:-
If the bias is up, the high of the signal bar is the LWP. If the bias is down, the low of the signal bar is the LWP.
Trigger Candle :-
The candle that triggers the stop entry order that is placed just above/below the LWP is known as the trigger candle. Once that entry is triggered, the low/high of the signal candle becomes the stop. In stead of triggering the entry order, if the market breaks the other extreme of the signal candle, better to cancel the order and wait for another signal candle.
So in short, Signal candle is the one that forms the LWP. Trigger candle is the one that breaks the LWP.
LWP is the price level in our setup location where you expect the stop losses of those traders who are fighting the high probability direction we have predicted are going to trigger.
The definition here is a bit subjective and is a bit hard to understand and apply by a trader who is new to PA trading. So I would like to elaborate a bit about this.
I have been repeatedly saying like a humming bird that there are four important things to evaluate the odds in the favor of a swing trade.
1. Short term Bias. This is a must. If the bias is not clear, there is no point in looking for a trade.
2. Corrective move against the bias to fade. I have already explained how we can identify whether the swing is corrective or impulsive on the right side of the chart using the bar by bar candlestick analysis. This corrective move confirms that the market is weak against the bias and gives enough confidence to take a trade in the direction of the bias. It doesn’t mean that the pullbacks cannot be impulsive. They can be, but that rarely happens. It often gives a CPB or some sort of a trap type entry if the first leg is impulsive in the move against the short term bias. It just means that the odds are in the favor of the trade when the move against the bias is corrective.
3. Price level. The supply/demand level which can provide some orderflow in the direction of the bias to stop and reverse the corrective move.
If you are clear with the things so far, congratulations. You have done a great job and are few steps away from placing the entry order.
Now lets move on to the next step of the above procedure, Price level. When market corrects to the price level, the first candle that shows strength in the direction of the bias or/and weakness against the bias is known as the signal candle.
Signal Candle:-
The candle that closes strongly in the direction of the bias or weakly against the bias, at the price level is a signal candle. Like a pin bar, candles that close near high/low, inside bars etc. etc.
LWP:-
If the bias is up, the high of the signal bar is the LWP. If the bias is down, the low of the signal bar is the LWP.
Trigger Candle :-
The candle that triggers the stop entry order that is placed just above/below the LWP is known as the trigger candle. Once that entry is triggered, the low/high of the signal candle becomes the stop. In stead of triggering the entry order, if the market breaks the other extreme of the signal candle, better to cancel the order and wait for another signal candle.
So in short, Signal candle is the one that forms the LWP. Trigger candle is the one that breaks the LWP.
