When traders have spent a few years in the markets and have been analyzing charts every day, they tend to build various observations on chart. The observations could be the price behavior when a specific indicator is at a specific level, or even the patterns at a specific point on chart etc. These observations then become part of a trade setup that is unique to the trader’s trading style. These observations become an intuitive part of the trader.

In today’s newsletter, we discuss one of my observations on the candlestick chart that has helped me develop a strategy for intraday trading. I have used this observation for understanding the trend of an instrument for the day. The instrument could be index or stock. It is to be noted that this newsletter’s aim is to share the observation rather than giving the reader a full proof trading strategy. The reader can further use this observation and add their own unique touch to build a trade setup.

The Observation: Importance of the first 15-min Candle

The Indian equity markets open at 9:15 am and close at 3:30 pm. If the instrument has to be trending (bullish or bearish) for the day, it will show the demand or supply right from the first tick of 9:15 am. This demand and supply can be easily captured by candlestick charts. The price usually takes the first 15 min of the trading session to adjust to the previous day’s and pre-market session’s volatility. For this reason, 15-min timeframe of the candlestick chart is used.

It is established that the first 15-min candle is the deciding candle. My observation is that when the price of an instrument has to be trending bullish, the “Low” price of the first 15-min candle will be protected for the rest of the day. By protected, I mean that on the 15-min chart, the price will not close below the “Low” of the first 15-min candle. Similarly, when the price has to be trending bearish, the “High” price of the first 15-min candle will be protected. That is, the price will not close above the “High” price on the 15-min chart.

Observe the chart below of APARINDS on 15-min timeframe. On 3rd July 2024, the first candle that formed was a bearish candle. Just a few candles later, the price breached the high price of this candle and later saw a bullish trend. On 4th July, although the price breached the high of the first 15-min candle, the demand was not enough for the price to be trending. On 8th July, the price breached the low of the of the first 15-min candle and saw a bearish trend for that day

Observe the chart below of NIFTY 50. On 25th June 2024, the price formed a gravestone doji in the first 15-min. After a few candles, the price was able to breach the high this candle and later saw a bullish trend. on 27th June, the price formed a bearish Marubozu in the first 15 min. But subsequently, the low of the candle was protected and the high was breached and saw a bullish trend.

Can a trade setup be built around this?

Like I mentioned earlier, I use this observation to understand the trend of the instrument for the day.
When the price has to trend bullish, the “Low” of the first 15-min candle will be protected. At the same time, bullish trend is established when the price closes above the “High” price of the first 15-min candle. This shows the demand was enough to breach the highest price level of the candle. Similarly, a bearish trend is established when the price closes below the “Low” of the first-15 min candle.

This can be combined with multi timeframe analysis and other indicators to build a trade setup.

For example, if a trader wants to participate in a bullish trend, he/she can filter out the stocks that are in a bullish trend on the daily timeframe.

The next day, on the 15-min timeframe charts, the trader can participate in the stocks which have breached the high of the first 15-min candle. The low of the candle can be the stop loss. Of course, this is not a full trading setup in itself but rather a simple idea.

I have also observed that at times, the high and low of the first 15-min candle is breached the same day. These are the days when the price is expected to be sideways rather than trending. It is better not to participate on these days.

This is one of my observations I shared on my monthly webinars. These webinars are an effort by me to share the knowledge and observations, that I have gathered over the years, to market participants who, just like me, are passionate about the markets and technical analysis.

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