5 Candlestick Filter Technique: How to Improve Your Trading Entry Accuracy

Good day, dear Forex traders! You often ask me to share filters for various indicators and trading systems. And today I would like to tell you about one very simple, but effective method that will help filter out some false entries in your trading system. We will talk about the "five candles" filter, and it can be applied to almost any forex strategy.

The thing is that the market has memory. And a signal that has just appeared has much greater force than a signal that was somewhere back there a long time ago.

Why? Because something is constantly happening, new information is coming in, and many new technical signals appear from various indicators. Some news comes out, trading sessions and trading days change.

And what happened a certain number of candles ago already becomes of little importance. And this approximate number of candles equals five.

Let us look at an example:

Suppose you determined for yourself that the current trend on the chart is downward and that you should sell when a correction occurs:

And the market went against you. Here the five-candle rule will not work.

It is based on the fact that the market practically does not move from its place. That is, it ignores our signal. Of course, this is not always true. Movement in the direction of our signal can occur even after 5 candles. Naturally, that happens, and nothing can be done about it. Sometimes the market may have forgotten about us, but some other factors affect it. But overall, the five-candle rule helps filter out some losing trades. Therefore, I recommend applying it in your trading.

So, you enter on the signal of your strategy. And if the market stands still for five candles, then it is better to exit the position with whatever profit or loss is currently there:

It can be applied on all timeframes, starting from M15 and above. It should not be used on M1 and M5, because there is no logic in candlestick formations there. Therefore, you can apply this rule on M15 and above. Let us look at one more example.

This time it is the gap closing strategy on the H4 timeframe, that is, one candle equals 4 hours.

So, the market opened on Monday with a gap:

Suppose you entered a buy somewhere here in anticipation that the gap would close:

As a result, you would have gotten a stop loss and a loss. Therefore, the 5-candle rule protected you in this case.

Once again, I repeat that we exit the trade not when the price goes against us, but when the market stands still for 5 candles. That is, when the market is "dead," horizontal, and there are no strong or noticeable movements in it.

If you review the chart in the past, you can notice that there are not so many such moments. Therefore, do not think that the 5-candle rule is something magical. It works under certain conditions, when horizontal movement is present on the chart. Let us consider one more example.

We formed an engulfing pattern, and suppose you bought at the close of the candle:

You should be careful with such moments. We are looking specifically for a horizontal market within 5 candles after the signal, where very little is happening.

If this candle had not been present in this example:

Then we could have judged it to be a horizontal market. But it ruined everything.

Therefore, watch to make sure that the market is horizontal and that such movements are absent. Because the market can remain in place while each candle has a range of 50 pips. And they will jump in a zigzag. That does not suit us.

And one last example. Suppose your indicator system showed that you should sell:

You entered a sell trade and wait 5 candles:

The market stands still, and accordingly we exit the trade. In this case, this would have saved us from a stop loss.

I think the meaning of the 5-candle rule is now clear to you. Everything is very simple. If after the signal of your strategy the market stands still for 5 candles, the market is horizontal, and the signal is not playing out in any way, then most likely the impulse was forgotten or ignored and, as a rule, it is better at that moment to exit the trade with a small loss or profit.

This will generally improve the statistics of your strategy. But of course, it is worth testing everything specifically with your own strategy. How it will work specifically for you. That is all. Thank you for reading the article.

Respectfully yours, Pavel Vlasov
TradeLikeaPro.ru

I kak my vidim znachitelno pozzhe GEP tak i ne byl zakryt, i tsena upala eshchyo nizhe:

V rezultate vy by poluchili stop loss i ubytok. Poetomu pravilo 5 svechey vas v dannom sluchae ubereglo.

Eshchyo raz povtoryayu, chto my vykhodim iz sdelki ne togda, kogda tsena idyot protiv nas, a kogda rynok v techenie 5 svechey stoit na meste. To est kogda rynok "myortvyy", gorizontalnyy i v nyom netu nikakikh silnykh i zametnykh dvizheniy.

Esli prosmatrivat grafik v proshlom, to mozhno zametit, chto takikh momentov ne tak uzh i mnogo. Poetomu ne dumayte, chto pravilo 5 svechey - eto chto-to volshebnoe. Ono rabotaet pri opredelyonnykh usloviyakh, - kogda na grafike prisutstvuet gorizontalnoe dvizhenie. Rassmotrim eshchyo odin primer.

U nas obrazovalsya pattern pogloshcheniya, i, dopustim, vy kupili na zakrytii svechi:

Chto my nablyudaem dalshe? My nablyudaem gorizontalnyy rynok, no zdes stoit uchityvat, chto bylo otkrytie rynka v ponedelnik i mozhno rassmotret, chto tsena khodila v diapazone 25 punktov. I khot rynok silno ne sdvinulsya v techenie 5 svechey, no "sueta" byla:

S takimi momentami stoit byt ostorozhnymi. My ishchem imenno gorizontalnyy rynok v techenie 5 svechey posle signala, na kotorom malo chego proiskhodit.

Esli by v dannom primere ne bylo etoy svechi:

To togda my mogli by sudit o gorizontalnom rynke. No ona vsyo isportila.

Poetomu sledim, chtoby rynok byl gorizontalnym i otsutstvovali takie dvizheniya. Potomu chto rynok mozhet ostavatsya na meste, pritom, chto kazhdaya svecha budet diapazonom punktov 50. I oni budut prygat zigzagom. Takoe nam ne podkhodit.

I posledniy primer. Dopustim, chto vasha indikatornaya sistema pokazala, chto nuzhno prodavat:

Vy voshli v prodazhu i zhdyote 5 svechey:

Rynok stoit na meste, i my sootvetstvenno vykhodim iz sdelki. V dannom sluchae eto spaslo by ot stop-lossa.

Dumayu, teper vam ponyaten smysl pravila 5 svechey. Vsyo ochen prosto. Esli posle signala vashey strategii rynok stoit na meste v techenii 5 svechey, rynok gorizontalnyy, signal nikak ne otrabatyvaetsya, to skoree vsego impuls byl zabyt, libo proignorirovan i ,kak pravilo, luchshe v etot moment vyyti iz sdelki s nebolshim ubytkom ili pribylyu.

Eto v tselom uluchshit statistiku vashey strategii. No estestvenno stoit vsyo protestirovat imenno s vashey strategiey. Kak ono budet rabotat imenno dlya vas. Na etom vsyo. Spasibo za prochtenie stati.

S uvazheniem, Vlasov Pavel
TradeLikeaPro.ru