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Characteristics of Impulsive Move


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Impulsive moves tend to have three characteristics common among all of them. These three can help clue you in to when an impulsive move is starting, or in play. They are;

1. Large Candles (bodies)
2. Mostly of one color (green/.      bullish, or red/bearish)
3. Closes towards highs/lows of the move

Let’s examine all three points.

1) Large Candles communicate to us there is strong participation and order flow behind this particular candle. When you see large candles forming consistently in one direction, they indicate strong order flow behind them from the institutional side. Since the larger players are behind them, they give us a clue of the direction we want to take, essentially surfing the waves they (institutional) are creating.

Notice how in the above chart, the candles that stand out the most are the red ones, particularly the ones towards the top left, they are the largest in these entire series, communicating strong order flow behind them.

2) Mostly of One Color – this ingredient is also common among impulsive moves as it communicates something critical to us. More specifically, how the  bears were able to maintain control of the price action over time.

In the chart above you will notice in the down leg how bears had complete control of the market.

By maintaining control over time, the market is communicating who is the more dominant side because they are not allowing the other to take control of a candle for that time period.

It is important to look at price action not just based on structure of the candles, which is one dimensional. Price doesn’t just move in a vacuum, it moves in time, and HOW price moves over time can communicate a lot of information to us as traders.

3) Closes Towards the Highs/Lows of the Move – If you think about it, when the market is in a strong trending move, let’s say using a 4hr chart, and the candle that closed in the direction of the trend (in this case downtrend) has a very small wick, thus a strong close towards the lows, what does that communicate?
It should communicate that there is very little profit taking from the players behind that candle. If they were worried going into the close of that candle about an upcoming support level holding, or perhaps the bulls may take control of the market, they would likely close their position, or take profits right before the candle closed.
But when you have a strong close with a very small wick, this usually indicates very little profit taking, thus a confidence the move will likely continue. This is highly useful to us as traders, and will be common among impulsive moves like in the charts above.

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