Kill Candle Trading: What is it? Shorting Strategy Explained

Trading concepts

Kill Candle Trading

Have you already become a victim to kill candle and want to know about kill candle trading strategies? Then you are on the right platform at the right time. 

Kill candle is among the most dangerous candlestick for bulls. It causes huge losses for traders all of a sudden. Therefore, it is imperative to know all about the kill candle and kill candle trading strategy to cope with it. 

In today’s post, we are going to explain what candlesticks are, kill candles, and kill candle shorting strategy. Let’s begin!

What are candlesticks? 

Candlestick is the building block of modern candlestick charts. It indicates the opening, closing, high, and low price of financial instruments during a particular period of time. It looks like a candle and therefore it is known as a candlestick. 

Why do modern traders prefer candlestick charts over the traditional line or bar charts? What is so special about them? Let’s try to understand. 

Benefits of candlesticks

Candlestick charts have become the most favorite charts because candlesticks have numerous qualities. They are packed with information. Besides indicating price movements of financial instruments, they also highlight market psychology. Candlesticks also offer versatility when it comes to time frames. You can choose any time frame of your choices such as 3-minute candlestick, 1-hour candlestick, and more. Moreover, candlesticks are the best tools for price action analysis. That means you can better understand where the price of a particular instrument is heading using candlesticks.

Brief history of candlesticks

The use of candlesticks isn’t a new phenomenon. Japanese rice traders used to measure market conditions through candlesticks back in the 17th century. The idea became widely popular and proliferated through numerous traders and across countries. Candlesticks we are using in the 21st century are the most modified, refined, and evolved versions. 

Candlestick structure and types of candlesticks

Moreover, if we look at the structure of a candlestick, it consists of three main parts – the body, upper wick, and lower wick. The body of a candlestick indicates the opening and closing price of a particular instrument during a particular period. Whereas, the upper wick indicates the highest price point and the lower wick indicates the lowest price point. 

Furthermore, there are different types of candlesticks. Each candlestick type conveys different meanings. Candlesticks are also divided into bullish candlesticks and bearish candlesticks. Bullish candlesticks highlight the bullish trend while bearish candlesticks indicate bearish trends. Moreover, each candlestick, whether bullish or bearish, indicates the strength of the trend. In short, candlesticks are full of meanings and convey highly useful information. Therefore, understanding candlesticks and candlestick patterns are crucial in modern trading.

What is a kill candle?

A kill candle is a candlestick that indicates huge price declines within a very short period of time. It is a bad omen that brings huge losses for bulls. That is why it is called a kill candle or a death candle. It is as terrifying as its name and rightly so because it brings the price from the sky level to the ground. Moreover, this huge red kill candle is difficult to anticipate and that’s what makes it more dangerous. In fact, it won’t be wrong to call it a dagger candle that pierces through green bullish candles. So, traders should watch out for this candle to avoid huge losses.

However, the good news is you can anticipate the kill candle and take necessary precautions. It is also a fact that it brings catastrophe for long-term traders at the one end of the spectrum. Whereas, skilled and intelligent short-term traders take full advantage of this on the other side of the spectrum. That means, they take full advantage of the kill candle at the lower end of the chart and you can also do the same. Yes, we are talking about the kill candle trading strategy. Kill candle trading strategy helps you take full advantage of the kill candle just like expert traders. 

What is Kill Candle Trading?

Kill candle trading revolves around taking advantage of the kill candle. However, successful kill candle trading depends on how good your trading skills and trading setup are. Moreover, the kill candle trading strategy is a short-term strategy that enables short-term traders to make substantial gains on the flip side.

There is no doubt about the fact that the trading arena is full of surprises, uncertainties, and risks. You never know what may happen in the next moment. The price of a particular security may go all the way to the top from ground level within a few minutes. On the other hand, the very next moment, the price of the same security may come back to the ground level. For example, Bitcoin’s price declined from a whopping $53,700 to $42,300 on December 04, 2021. 

That said, trading is scary. And the kill candle makes it even scarier. It can wipe out more than 20% of an asset’s value within just a minute. It has happened and will continue to happen because of low float and high volatility in modern financial markets. However, today’s guide on kill candle trading will enable you to correctly anticipate kill candles. We are also going to uncover a few kill candle trading strategies to make gains instead of being bullied by this notorious candle.

How to anticipate a kill candle

Correct anticipation of a kill candle is a prerequisite to successful kill candle trading. You cannot make gains if you don’t anticipate them. It is as simple as that. Why are candles so dangerous for bullish trends? Because they can kill a strong bullish candle or even reverse the trend with just one candle. That’s why this candle is known as the kill candle. 

The key characteristics of a kill candle

A kill candle isn’t an ordinary bearish candle. It is a different one with different characteristics. Therefore, you need to consider the following aspects very carefully;

  • A large red candle with a large body
  • A huge volume accompanying that large-bodied red candle
  • All traits of bearish engulfing candles
  • Usually, such candles indicate failed breakout attempt

As we mentioned earlier, a kill candle isn’t an ordinary candle. A large red candle with a large body signifies something extraordinary. It means something significant as compared to other large red candles and accompanied by a significantly large volume. Moreover, sometimes one kill candle is followed by another big red candle or even more than two. 

Kill candle trading strategies

Once you correctly anticipate a kill candle, it is time to develop a perfect setup for kill candle trading. There are multiple ways to trade a kill candle. However, we are going to cover a few that are comparatively easy but highly effective. 

The 2-3 pm bloodbath kill candle trading setup

Almost all momentum day traders are well aware of this pattern forming in the afternoon. It has different names such as 2-3 pm selloff, late-day faders, etc. These are dangerous patterns. There are certain factors that you need to pay attention to. Firstly, float size is the most important thing you need to consider. Secondly, the number of shares traded is also very important to kill candle trading based on this setup. 

Let’s try to understand why the 2-3 pm bloodbath pattern forms. As we all know, big institutions close their open positions before the day ends because they cannot hold. So, these big institutions and hedge funds try to manipulate the market. They do so by manipulating the float so that bid up gets enough support until the evening. At the end of the day, institutional investors close their positions, and the price collapses. That means stocks with lower floats are more prone to manipulation. Whereas, stocks with larger floats are not because there are numerous holders of that particular stock. Manipulation is only possible when fewer players are involved. 

For example, let’s consider a stock with low float is at the highest levels. Suppose the highest price is $16. So what is actually happening? Big players of the market continue to up the demand and the stock price continues to rise as a result of high demand. They try to indicate that a squeeze is near. So, retail traders begin to buy into a dip or cover their shorts. However, time runs out, big players simply walk away at the high, and as a result, stock price begins to fall dramatically. In fact, a kill candle may make prices of financial assets retrace half of their value. 

However, short-term traders need to anticipate the pattern quickly and act fast. They can sell at the high and when the price of that particular asset falls to their desired level, buy back stocks and return to the broker.

The opening bell kill candle trading setup

The opening bell kills candle is also among the best shorting opportunities. It usually happens at the open when bulls try to push the stock price higher but end up meeting with the highest selling pressure. They try for a breakout but the price reverses and forms a kill candle. 

You can anticipate the dramatic fall in prices by looking at the big red candle. The long upper wick clearly indicates the high selling pressure. The selling pressure gets so increased that it can easily overpower any level of bullish strength. 

Again, traders can act swiftly to capitalize on this setup. They can sell at the high and when the price of that particular asset falls to their desired level, buy back stocks and return to the broker.

The chat pump exit kill candle trading strategy

As we know, low-cap and low float stocks are prone to manipulation. When there are a few holders, they can easily manipulate the stock. For example, a chat group of thousands of retail traders circulates a demand for buying a particular stock. It results in an increase in the price significantly. As soon as the bubble bursts, bears are ready to bounce. The price begins to fall dramatically and forms a kill candle. 

Again, short-term traders can sell at the high and when the price of that particular asset falls to their desired level, buy back stocks and return to the broker. This is how you can use a kill candle for shorting stocks.

Other considerations for successful kill candle trading

A kill candle forms within no time. So, traders looking for shorting opportunities must act fast and swifter. However, it is always possible in such a fast-moving environment. So, it is an issue to get filled because of slow trading platforms. Moreover, your broker may not offer all securities for shorting.

Therefore, it is important to consider some other factors for the kill candle trading. Firstly, you need specialized trading tools to get filled immediately. Secondly, you need a broker that offers a wide variety of stocks available for shorting. 

The wrap-up

A kill candle is one of the most dangerous bearish cables. It wipes out more than half the value of a financial asset. If you are ready to consider the kill candle trading, it requires you to know about certain things. Firstly, you need to understand the reasons behind the formation of a kill candle. Secondly, you need to consider different factors such as float and volume. Stocks with low float are more susceptible to manipulation. Moreover, a robust and powerful trading platform is a prerequisite to successfully kill candle trading. The platform must also offer a wide variety of stocks for shorting. In short, kill candle trading setups revolve around shorting stocks. You can make a huge profit through the kill candle trading. However, it is important to consider all the factors we discussed. 

Russell Crane

Russell Crane

Russell is an Algorithmic & Technical Analyst Trader @ PatternsWizard.
His passion is to share his knowledge about TA, patterns & more. Why hope for your trading to work when you can precisely know the performance stat of every pattern?

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