The Indecision Candle(s)
A reversal setup will have one to three indecision candles. The indecision candles need to form on or near to the support and resistance area.
If indecision does not form on or near to the area of support and resistance, it is not a valid reversal setup.
Why does it need to be on a support and resistance area?
An indecision candle in a bullish preceding trend indicates that buyers are possibly losing control, and sellers may be gaining control. In a bearish preceding trend it indicates that sellers are losing control and buyers may be gaining control.
However, an indecision candle does not indicate that price will reverse with any degree of certainty.
An indecision candle indicates only one thing…
Indecision!
You cannot take a trade based solely on indecision. The image below shows indecision forming between support and resistance. If you were to enter reversal trades based solely on indecision, it wouldn’t work out too well…
What about when a bullish preceding trend heads into an area of resistance (sell area) or a bearish trend into support (buy area) and indecision forms?
Well, then we get the makings of a high probability reversal setup.
But we cannot enter just yet, we need confirmation, which comes in at part three of a reversal setup.
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