Forex Tips – Advanced Master Candle Trading

Updated on June, 12th, 2015

Master candles do not work anymore

Sorry to tell you this, but master candles do not work anymore. This post was originally written in late 2010, and Forex trading has changed since then.

How exactly has Forex changed? Well, check out this picture…

Average daily range per year for AUD/USD

The chart above shows the average daily range of AUD/USD, for each year, since 2006. As you can see, in 2010, the average daily range was around 120 pips. These days, the average daily range is less than 100 pips.

This has not only happened on AUD/USD, all the Forex majors are moving much slower today. Since master candles rely on explosive breakouts, the drop in average daily ranges has made them impossible to trade.

So, what is the solution?

Trade price action reversals!

Now that average daily ranges have returned to 2006 levels, I have gone back to trading price action reversals. If you want to see how I trade reversals, check out my free price action strategy.

If you do not know much about reversal trading, here is a basic set up I took this week…

Description of a reversal trade taken using price action

By combining support and resistance, with advanced candlestick analysis, I trade trend reversals. Not every trade works out as well as the one above. However, reversal trading does have a very high success rate.

How to learn price action

If you want to check out my free strategy in more detail, check out my recent free webinars. There is over five hours of webinars below, and they are all about advanced price action trading.

Hopefully you can adjust to Forex without master candles!

Below is the original article, I have kept it here for posterity…

2010 – Advanced Master Candles

Over the past few months my trading has been evolving. I have started looking away from simple S+R line trading and looking more at candles. Don’t get me wrong S+R lines still make up a big part of my trading but they have taken a back seat to candle patterns.

This is because I have been delving into price action analysis. This is the analysis of the movement of price as it is happening. The major benefits of price action analysis are:

  1. It isn’t lagging. You trade based on what is happening right this second.
  2. You can adapt to changing market conditions quickly.
  3. You can trade at pretty much any time.

The main forms of price action analysis I am using are reversal trading and master candles (MCs).

I am already doing a few videos on reversal trading. I released the first last Friday and will release another tomorrow. So I thought I would do a few posts on master candle trading. I will also start doing MC analysis for some of the main pairs daily.

Filtering Out Bad Master Candle Trades

This was contributed by forum users Samarkand, djcash, and Wombles.

Master candles tend to give a lot of false breaks especially on volatile JPY pairs such as g/j and e/j.

One thing you should look out for is Scouting Parties these are candles that break through the MC line, reverse, and close. Check out the example below.

Master Candle Scouting Party

Scouting Parties can cost you some serious pips. For this reason some traders do not enter on the first MC break. They wait for a Scouting Party to form and then place a limit order with a 5-10 pip buffer just beyond the bounds of the Scouting Party candle. This way they only enter the trade after the Scouting Party candle is broken.

Master Candle Trade

As you see in the picture above. When the price broke the scouting party high it pushed through and it ended up being a +50 pip trade.

I will be doing a few more posts soon discussing some more awesome master candle techniques. As I said I will also be posting some master candle set-ups daily. So keep an eye out on the blog for master candle analysis.

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11 thoughts on “Forex Tips – Advanced Master Candle Trading
  1. I like the name “scouting party” but it is also called a “Hikake” or fakey candle. I like Nick’s approach to dealing with it as it is a nuisance ! Makes much sense if you think about it.

  2. Well done Nick, simple clear and to the point. I like the term scouting parties. That’s a break through that hasn’t grown up yet.

  3. Nice post Nick, thanks. I’m not going to bother posting(sorry) but I have some nice scrnshts of trades I have taken with exactly what you’re talking about. I used to jump in at the first brk but learned some serious -pip lessons about doing that!!! It’s also something to watch for in a trendline breakout.

  4. Hi Nick,
    I am experiencing exactly what you describe on a master candle setup
    from last night 1 hour AUD/CAD 22/09 @ 16:00 GMT

  5. Thanks guys. Good to have improvements to a system. My Mt4 is set to a different time than others so the MC setups can be different. Although they seem to work well still it makes me a bit uneasy. I guess i just have to deal with it and stick to the system as it stands.