How to Deal With “Indecision” Candlestick Patterns

Forex indecision candlesticks

Happy Friday!

This week’s question comes from Rahat, who asks:

What about indecision candlestick patterns that occur at support or resistance? Do you recommend using them?

This might surprise you, but I do in fact use indecision candlestick patterns such as dojis. But what may not be so surprising is how I use them.

As the name implies, an indecision candlestick is one with no directional bias. In other words, it doesn’t hint at the market’s likely path forward in the way a bullish or bearish pin bar does.

These formations usually occur during consolidation, but they can also form at support or resistance. They’re a sign that neither buyers nor sellers won the battle for that particular period.

So how do I deal with these candlesticks?

Well, the short answer is that I do nothing. But there’s more to it than that.

In fact, the question above touches on something that’s paramount to your success as a Forex trader. That something is your ability to identify and stay away from indecisive price action. 

Moreover, it’s about finding and taking advantage of quality trade ideas and leaving the rest for someone else to deal with.

But as you’ve probably already discovered, that’s easier said than done.

The good news is that the tips I’ve put together in today’s post will help you recognize what to pursue and what to stay away from. In essence, I’m going to share what it takes to find the best quality trade setups in the least amount of time.

As always, please leave your question or comment at the bottom of this post.

Let’s get started!

If You Have to Ask...

A basic rule I use when considering a possible setup is that if I have to ask if it’s worth the risk, it probably isn’t.

For instance, if the EURUSD just retested support and formed a relatively small bullish pin bar, you might find yourself wondering if you should take the trade. The pin bar has piqued your interest, but its smallish size has you questioning its viability.

That second observation should be enough to dissuade you from taking the trade. If it were a setup of the highest quality and thus begging for you to trade it, you shouldn’t have to question its viability.

Indecision candlesticks such as a doji are the epitome of indecisive price action. They don’t offer insight into whether buyers or sellers are in control, which leaves you guessing at the market’s next move.

In these cases, it’s usually best to stay on the sideline. At least that’s how I approach indecisive price action.

But before we go too far, let me illustrate what indecision looks like in the Forex market.

Indecision candlesticks

As you can see in the chart above, the EURUSD carved several days worth of indecision candlesticks. Notice how the highlighted area above is full of small-bodied candlesticks that have relatively long wicks in both directions.

Any time you see price action like this, it’s a sign of indecision. It’s also usually a good idea to stay away, at least until the market can break from consolidation.

Also, note the difference between the bullish and bearish formations and the period of indecision.

The bottom line is that you have to let trade setups come to you. The best ones will always jump off the chart right away. You won’t have to question their validity, and they should always offer clues as to the market’s likely path forward.

In other words, you’ll know what to do right away. Of course, there’s a learning curve for those just starting out, but the most profitable candlestick patterns are the ones that stand out from the surrounding price action.

So How Will You 'Know'?

Luckily, there are things you can do that will help you stay patient and only take the very best setups. To clarify, that means staying away from indecision candlesticks and only committing capital to the signals that have a directional bias.

Here are a few pointers that have helped me over the years…

1. Use the daily time frame only

At least once a day I get an email from someone who took the free pin bar course and wants to know if it works on the 30-minute or 1-hour charts.

My response is always the same…

It can work but the daily time frame is superior.

That’s a pretty straightforward answer. However, there’s an underlying message here that applies to any trader who is still struggling to achieve consistent profits.

Stay away from the intraday charts.

Seriously. Don’t even look at them because if you do, you’re sure to make more mistakes than not.

Everyone has this idea that if you trade from the higher time frames, you have to drill down to the 1-hour chart or lower to “fine tune” your entries.

That simply isn’t true.

If I find a quality setup on the daily time frame, I almost never drop down to a lower one. That’s true about 80% to 90% of the time.

Is it possible to fine tune entries or spot second chance opportunities from an intraday time frame?

Sure, it’s doable. But if you haven’t mastered the daily charts, you have no business on a 4-hour or 1-hour chart. It’s like trying to run before you can walk.

It’s your choice, but I can tell you that after more than a decade of trading experience, the daily time frame is superior particularly for those still learning the ropes.

2. Limit your trading to just one setup each week

How many trade setups do you need each week to make a considerable amount of money from the Forex market?

Five, ten, twenty?

Not even close. Just one favorable setup will get the job done.

That might sound a little crazy especially for those of you coming from the 5 or 15-minute charts. You may even be wondering how you could call yourself a trader if you’re sitting on your hands for days at a time.

But here’s the deal…

The ability to put on trades does not make you a trader, at least not a profitable one.

I could teach my eight-year-old nephew to do that. However, the chances of him pulling out a profit by the end of the month and the in particular year are slim to none.

Also, crazy is good. If the 90% of Forex traders who lose money consistently decide what is “normal,” then I’ll take crazy any day!

If you want to be a part of the five to ten percent of successful traders, you have to stop following the crowd. Just because everyone in your favorite forum is trading 40 times a month doesn’t mean you should. In fact, it means you should probably do the opposite.

So how about one quality setup each week?

Now that sounds like something not too many Forex traders are doing which is a good thing for you.

The daily time frame is only going to give you a handful (sometimes two handfuls) of favorable setups each month. But that’s okay because it only takes one profitable setup each month to make it in this business.

3. Find something else to occupy your time

One of the more common questions I receive is, why start a website? After all, I should be busy trading, right?

Well, I trade, but I’m hardly “busy” trading.

There are a few reasons I started this website, and one is that I enjoy teaching and helping others. It’s my way of giving something back.

But I’d be omitting part of the story if I didn’t also admit that I had a lot of free time on my hands back in 2014 when Daily Price Action was born.

And honestly, the time I put into this site, and the member’s area far outweighs the time I spend trading. I’d bet it only takes me 20 to 30 minutes each day on average to manage any open positions and check for new opportunities.

But here’s the thing…

Having a hobby (no, I don’t consider this work) has only improved my trading performance over the years. Yes, even after eight years trading currencies I’m still looking for ways to improve.

Now, the fact that my “hobby” involves analyzing charts is neither here nor there. The point is that I’ve got plenty to keep me busy between running two websites that I’m not tempted to check my charts every two minutes.

As you may well know, checking your charts that frequently can be detrimental to your success. It leads to overtrading and emotional decision making, two of the most common destroyers of trading accounts.

So the moral of the story here is to find something else to occupy your time.

Don’t get me wrong; you should read certain trading books and spend time studying price action. But staring at charts all day hoping for a favorable setup to magically appear is not only a waste of time but also damaging to your overall performance as a trader.

Final Words

So there you have it. I do use indecision candlestick patterns but not to form an opinion about which direction the market might move next. Instead, I use them as a signal to stay on the sideline and wait for a better opportunity.

The very best price action signals will jump off the chart. You shouldn’t have to look hard to find them, and if you find yourself debating whether a setup is worthwhile, it probably isn’t.

Capital preservation is key to becoming a successful Forex trader. This is why I say that your number one job is to protect your capital, making money always comes second.

Using the daily time frame is one of the best ways to rid yourself of overtrading. It will also produce some of the most reliable and profitable setups of any time frame.

If you find yourself struggling to stay patient, find something else to occupy your time until a favorable opportunity presents itself. Finding things to do outside of trading will help reduce your trading frequency which will result in better quality opportunities.

Your Turn: Ask Justin Anything

I’d love for this new weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.

To do that, I need your help.

Here’s what you can do to get involved and have your question answered in next week’s post:

  1. Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
  2. Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.

Leave a Comment:

38 comments
Stuart says

Thanks, Justin.

Just one question, If you are only taking one trade per week, does that mean you need a big pot of cash to start with? what your money management strategy/rules?

Reply
    James D Holman says

    In my experience having more capitalk is always going to provide you bigger returns but I don’t think you want to look at it like that. Look at things in the aspect of % returns. If your starting with $5000 or $500,000 your returns from this are whats important. I think you can easily find setups with good returns if you are patient. Most are not and it’s always something I battle personally in my trading. Stay patient though and the returns will get you where you want to be

    Reply
      Darius says

      I see problems with waiting or checking charts rarely. First – how do I know if I am good trader if I only make 4 trades per month? As I understand from all pairs? My sample size will be very low.
      Even if I have done 6 months successfully, the sample will be super small. How will I learn?

      Another thing – even with patience and not making trades – I do like 6 months lets say, and see that I am still loosing. So then I have to slowly try another 6 months. That might take forever.

      Another thing – I am copying a trader and I check his trades often, I see he trades on 4 pairs and does like 4 trades a day or so. I am copying him 2 weeks and he is doing profitably so far. And in copy trading site, it shows that his lifetime winnings are about 20%. As he writes – he trades using H4 charts. That looks very awesome.

      But if I do just few trades, then I should be learning very slowly.

      Good thing is that if you do not constantly trade, you have more time. Now I really see that after I get from work home, I have no time at all. I am trading on demo, and trying to learn as fast as I can. All my free time after work is occupied.

      If I use like half hour for trading each day, then I could be playing poker another time after work which I was doing also, and earning at least a little bit. Now I am not earning anything.

      Reply
        Darius says

        Oh, btw – if there is good trade setup, isnt it for very short time? I mean lets say there was good candle from previous day. Everybody sees that, and price sudenly change. For example it would be good to buy. But since everybody is buying, the price come to resistance level and so you missed setup. You can only put a pending buy limit order and hope the price will move down. But if it does not, you have missed. So I like to check charts like each hour, so see if there is some unexpected good oportunities by resistance and support levels. Or I could add pending orders with different prices. For all charts but thats a lot of work, unless there is some automated solution.

        For example you might be waiting for price to drop to buy. But there can be like 10 places where you could by. Lets say price dropped, you buy. Price droped more, you buy, and that continues till you buy like 10 times with better and better price. But that would need 10 pending orders for one pair. And if you look like at 10 pairs, its 100 pending orders. Thats a lot of manual work.

        So now what I do – I add few pending orders, but keep eye on charts from time to time and if I see price drops, I buy.

        Reply
      Darius says

      Plus once I learn lets say, then I would like to start with like 10 $ on cent account, then another 6 months. And grow bit buy bit. I would not like to try with 5000 $ when I just learned on demo, especially with sample size of 4 *6 = 24 trades.

      Reply
        Justin Bennett says

        Darius, that’s a lot to take in…

        I didn’t say someone should take just one trade each week. I said it takes just one favorable setup each week. You’re naturally going to have some losing trades each month as well.

        Reply
    Justin Bennett says

    You’re welcome. Not necessarily, as James mentioned, you should always evaluate your performance in percentages and ratios. What percentage did you make/lose this month and what were your profit/loss ratios?

    Looking at how much money you made or lost is meaningless without those percentages and ratios to back it up.

    I’ve added that last question to the list for future Q&A posts. Thanks.

    Reply
vidalis miya says

I’ve made a lot of mistakes by using lower time frame ill try to use daily and see the difference, however that’s true that you execute more trades then ever in smaller time frame. which strategy do you recommend that’s prosper to anytime frame?

Reply
    Justin Bennett says

    Vidalis, I don’t necessarily “recommend” a strategy for any time frame. If you look around this site, you’ll find tons of content on how to use things like the pin bar, engulfing bar and even chart patterns on the higher time frames.

    Reply
alex says

I just don’t understand,,,, let say pin par strategies will work,, when the good pin bar show us a good opportunity setup , and everybody user the same strategies..(i mean tis pin bar show us to long, now everybody go long too) is it still working ?

Reply
    Justin Bennett says

    Alex, the currency market sees trillions of dollars exchanged every day. There are also millions of traders out there who have an infinite number of strategies at their disposal when you consider all variables.

    Aside from the fact that it’d be impossible for everyone to go long or short at the same time, it wouldn’t happen due to the sheer size of the variables involved.

    Reply
Fabrizio says

Hi Justin as usual you are fantastic in the explanation. I think an interesting question also for the other people is:
how to recognize in a chart if we have a pullback only or it is present a trend reversal. Can you explain us ? Thank you very much

Reply
Olasunkanmi Abiodun says

Thank you so much for this valuable article.
This is my question , please can someone like me who does not have more than $250 to start with trade the daily time frame and be successful?

Reply
    Justin Bennett says

    You’re welcome, Olasunkanmi. I’ll actually be answering a question similar to yours in the next Q&A segment. 🙂

    Reply
Maurice says

Hi Olasunkanmi,
I can tell from my own experience that you can start trading the daily as with only 250 euro.
The only thing is that you will have to trade very small volume like 0.01, or 0.02 (depending on your risk/ place of your s/l). If you are still in the learning curve and have to experience all the emotional stuff that comes with trading real money, I’d say; keep your volume as small as a micro-lot If you don’t, you will loose it all. Once I managed to let my account grow from 134 euro to 1100 in only two weeks. After that I followed a trade alert from two mentors on internet for one pair. I was at the office and started to get excited when I sam my position grow to 300 euro…I opened up another, raised volume, and another, raise volume..etc… After a few hours -believe it or not- my 4 positions where about 2500 in total! Problem was…I was in-experienced, started to get greedy, and opened up even more positions. My account grew that day towards 4000 euro! But then, I closed the positions, opened up another 3 and went home. Checking my account when I came home and saw I was allready at 600 euro +. After dinner The pull back came in…my positions (6 open positions of one lot…how crazy…) showed -1100 ….I went to sleep…thinking everything would be fine…but then at 3.00 at night I wake up checking my account…it was now at -2700 …And getting worse. Started to close one position. Was not enough…long story short…. I lost everything including another 1000 euro i had to fund to let not wipe out my account. The last positions I closed out during my office work…that hurted a lot! The last 1000 euro were the left overs of my account. Then the next day…starting to look for opportunities again…but it was revenge…of course. Long story short, I lost the last 1000 also, because of over leverage of positions….part of the learning progress….will never happen again. I hope. So stay cool and think before any trading action!

Grtz
Maurice

Reply
Darryl Collins says

Hey Justin, just started reading thru your site and enjoying it. Hey, I am trading in Demo and have a trade on GBP/JPY. bought 145.444 and power went out. Could not get back to account before market end on 6/30/17 same day. when I did get power back price is at 146.338 and trading has ended for the week. trailing stop of 300. Wandering if there is a clue to what will market do on opening day with the holiday falling on the 4th? Any insight?

Reply
Sello says

Thanks very much for the member who asked this question. Thanks Justin for the clear explanation. I’m now empowered.

Reply
Olajire says

Hi Justin
Thanks for this beautiful mail.But I have a questions
How do you choose the currency pairs to follow as we have so many currency pairs,and third could be a good setup on any of this pair
Thanks

Reply
Elvis says

Pls can one trade $500 ECN account on a daily time frame with 0.1 lot .

Reply
    Justin Bennett says

    Elvis, that depends on a couple of factors, but yes, it should be possible.

    But just because you can do something doesn’t mean you should. The answer to your question comes down to the risk of a particular setup relative to the potential reward.

    Reply
alsayyedemam says

To what extent can strong news affect a strong pin bar trade setup,thanks?

Reply
    Justin Bennett says

    Thanks for the question, but there’s no way to know how news will affect the market from one day to the next. The best indication of what is likely to happen comes down to the price action on the chart, which is what I teach throughout this site and in the member’s area.

    Reply
FABIO RAMIREZ says

Hi Justin. Thank you for the reminder and practical advice. Happy fourth

Reply
john says

Thanks for the post

Reply
William Beverly says

Since one daily candle is a composite of the information from 1440 one minute candles, why is the daily candle superior to the one minute candle?

Reply
Paul Littlejohn says

Your approach to trading is helpful and trading daily charts does make you commit to slower trading. However I am starting with a small bank. I have been trading on 15 min to 1 minute time frames scalping what I can some good trades some bad. i am using 2:1 PL ratio using 5% capital risk but finding stopped out on longer time frames. Using a small capital stake is it still a wise trade on daily chart? If it is a stronger trade would that be a time to increase risk than scalping shorter hit and miss time frames?

Reply
son quotes says

Hey There. I discovered your weblog the usage of msn. That is
a really well written article. I will be sure to bookmark it and come back to read more of your useful information.
Thanks for the post. I will definitely return.

Reply
olode segun says

Hello, this has always been my major problem ever since i started trading price action. i have done well in my demo trading but i have found it difficult to replicate that in my live trading, simply because of scenario painted above.
However, again i think the fact that my capital investment is relatively small contributed to the emotions and urge to want to trade more. i think if i were to have a capital big enough it could have been a different ball gain.
anyway, i will try and learn more from this piece.
cheers.

Reply
Chioma says

Pls kindly explain hedging IN forex trading? How it’s done

Reply
Chioma says

Can I day trade with a small amount, as low as $100….to start with?

Reply
Uche Abugo says

I was trying to Join your Webinar, but unable to join, how can i join

Reply
Add Your Reply

518 Shares