FX.co ★ Farhan Ali Shakir | USD/CHF

Market Analysis A structured market analysis begins with defining the broader context in which price is moving. Traders first identify the dominant trend on higher time frames, such as the four‑hour or daily chart, and then refine their view on lower time frames. By combining technical tools like moving averages, trendlines, and oscillators with key horizontal levels, they can distinguish between trending and ranging conditions. Fundamental factors—interest rates, economic data, and news events—also play a role, influencing volatility and directional bias. A thorough analysis seeks to answer three questions: what the market has been doing, what it is doing now, and under what conditions it is likely to change behavior. Only after this framework is clear should a trader look for specific entries, because a well‑defined environment dramatically improves the probability that a setup will play out as expected. Price Action and Liquidity Price action reflects the constant battle between buying and selling pressure, and liquidity reveals where that battle is most intense. Markets tend to gravitate toward zones where a large number of orders are clustered, such as prior highs and lows, consolidation ranges, and round numbers. These areas attract stop orders from retail traders and large orders from institutions, creating pockets of liquidity. When price approaches such zones, traders watch closely for how it responds: a sharp rejection hints at absorption of orders and potential reversal, while a clean break with momentum suggests that one side has decisively overwhelmed the other. Understanding liquidity helps explain why false breakouts and stop‑hunts occur. Instead of seeing them as random noise, a price‑action trader interprets them as deliberate moves to capture liquidity before the next genuine impulse in the prevailing direction. Candlestick Behavior and Confirmation Individual candlesticks and their combinations offer insight into the psychology of participants at key levels. Long wicks indicate rejection, wide bodies indicate commitment, and small indecisive candles reveal balance between buyers and sellers. However, a candle pattern has meaning only when viewed in context—particularly around important support, resistance, or liquidity pools. Confirmation comes from observing follow‑through: a bullish rejection candle at support becomes more reliable if the next candle closes higher with increased volume or momentum. Similarly, a bearish engulfing pattern at resistance suggests a shift in control from buyers to sellers, but the setup strengthens only when subsequent candles fail to reclaim the broken level. Traders avoid acting on isolated candles in the middle of a range and instead wait for behavior that aligns with the broader narrative established by their market analysis.

Trade Setup and Risk Management A high‑quality trade setup emerges when market structure, liquidity, and candlestick behavior all point in the same direction. The trader defines the entry trigger, usually a break or rejection of a precise level, along with a clearly reasoned stop‑loss placement beyond the structure that would invalidate the idea. Position size is calculated based on a fixed fraction of account equity, ensuring that no single trade can inflict unacceptable damage. The target is chosen using logical reference points such as previous swing highs or lows, measured moves, or key Fibonacci levels, always aiming for a reward‑to‑risk ratio that justifies taking the trade. Risk management goes beyond simple stop‑losses: it includes limiting the number of open positions, avoiding over‑concentration in correlated markets, and respecting a daily or weekly loss limit. In practice, disciplined risk control often separates long‑term profitability from random success. Conclusion Mastering trading requires integrating market analysis, price action, and risk management into a single coherent process. The trader begins by assessing the environment, identifies where liquidity is likely to reside, and then studies candlestick behavior for clues about shifts in sentiment. Only when these elements line up does a valid trade setup present itself, with predefined entries, stops, and targets that align with a consistent risk policy. Over time, this structured approach reduces emotional decision‑making and helps the trader focus on executing a proven edge rather than chasing random moves. While no method can eliminate losses, combining thoughtful analysis with strict risk management creates a framework in which losses remain manageable and winners can compound, allowing the trader to survive the inevitable drawdowns and steadily refine their strategy.