Squat Candle Strategy
The Squat Candle Strategy focuses on identifying candles with strong volume but limited price movement — a sign of a power struggle between buyers and sellers. These candles often appear before sharp breakouts or reversals, helping traders anticipate turning points and improve timing and confirmation.
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Overview
- The Squat Candle Strategy identifies potential reversals or points of market exhaustion.
- It relies on spotting a unique candlestick with high volume but limited price movement.
- Squat candles often form near the end of a trend or around support/resistance levels, signaling indecision and potential reversal.
1. Identifying a Squat Candle
- A squat candle has a small body, meaning limited movement between open and close.
- It features long wicks, showing strong price rejection on both ends.
- It has unusually high volume, revealing strong activity or struggle between buyers and sellers.
- It often forms near key support or resistance levels, hinting at possible reversal or breakout.
2. Squat Candle in an Uptrend
- Formation: Appears during an uptrend near resistance with a small body and high volume.
- Interpretation: Suggests buyer exhaustion as price fails to break resistance.
- Confirmation: A bearish candle following the squat candle confirms potential reversal.
- Trade Execution: Traders may short when the next candle closes below the squat candle’s low.
3. Squat Candle in a Downtrend
- Formation: Appears during a downtrend near support with a small body and high volume.
- Interpretation: Indicates seller exhaustion as price fails to push lower.
- Confirmation: A bullish candle after the squat candle confirms possible reversal.
- Trade Execution: Traders may go long when the next candle closes above the squat candle’s high.
Using the Squat Candle Strategy
- Combine squat candles with volume indicators to confirm the strength of the signal.
- Focus on squat candles forming near major support or resistance for higher reversal accuracy.
- Use stop-loss orders just beyond the high or low of the squat candle for risk management.
Pros
- Early reversal signal – indicates market exhaustion before trend reverses.
- High-volume confirmation improves signal reliability.
- Works well with other tools like volume, moving averages, and support/resistance zones.
Cons
- Requires confirmation – needs a follow-up candle to avoid false signals.
- Less effective in ranging markets – may trigger false reversals in sideways conditions.
- Volume sensitivity – strong volume without price movement can be misleading.
