Trading Candle Colors strategy for perfect 5-minute trades


 

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Trading candle colors is one of the easiest strategies you'll come across. It's a low-risk strategy. The reason for this is that your main objective is identifying a real candle (with the large body) and placing your trade based on its color.

Candles with large bodies indicate strong price momentum in a specific direction. For example, a large green candle shows a strong uptrend. Therefore, placing a buy position after the green candle closes is very likely to result in a winning position.

In this guide, I'll trade 5-minute interval candles for the EUR/USD currency pair. I'll also use the Martingale money management strategy to ensure that each trading session ends up profitable.

Key Takeaways🔑

Trading candle colors is an easy and low-risk strategy, focusing on identifying candles with strong price momentum in a specific direction.
The strategy works best with real candles that have large bodies and small or no wicks, indicating a strong trend.
Although effective, trading candle colors alongside the Martingale system may yield low profits in comparison to the total amount invested.

Guidelines for trading candle colors on IQ Option

If you don't know much about the Martingale system, the Is the Martingale Strategy Suitable for Money Management in Options Trading? will get you started.

I've also created the Ultimate Guide for Trading Candles on IQ Option to help you learn more about trading candles on IQ Option.

But for purposes of this guide, I'll go through the rules to follow when trading.

What Colour is a bullish candle?

In my opinion, the best candlestick colors for trading are red for down candles and green for up candles. These colors intuitively suggest the market direction and at the same time the direction of my trades.

Which candle is best for trading candle colors strategy?

Once I identify a real candle, I'll wait until its close. Then I'll enter a trading position based on this candle color. For example, if I find a bearish candle, I'll wait until it closes. I'll immediately enter a 5 minute sell position meaning the next candle will close lower.

But what if the trade loses? As the candle closes, I'll immediately enter the same position at the open of the next candle. I'll continue doing this until I encounter a similar colored candle.

Another important rule I'll observe is alternating between green and red candles. If I enter a buy position that ends up profitable, my next step will be to wait until an red candle develops. Then, I'll enter a sell position.

Take a look at the chart below.

signal candles

How did the trading color candles work out?

First transaction with candle colors

The markets were ranging and no apparent candle was developing. However, a solid bullish green candlestick started developing. At its close, I immediately entered a 5 minute “higher” position. This trade ended up profitable.

trade one with true candle

Second transaction with candle colors

The second trade didn't go as expected. The first bearish candle signalled price consolidation rather than a trend reversal. The first 5 minute “lower” trade wasn't profitable. However, I immediately entered a “lower” position at the opening of the next candle. This ended up profitable.

trading candle colors

Final transaction using candle colors strategy

After waiting for a bearish red candlestick to appear, it eventually showed up. At its close, I entered a 5 minute “higher” position. This resulted in a losing position. However, I entered a similar “higher” position at the opening of the next candle. This trade also ended up profitable.

trading candle colors

The candles to avoid when trading using this strategy on IQ Option

As mentioned, the candles to look out for are true candles. These have large bodies and small or no wicks. The types of candles to avoid are special candles. There are special types of candlesticks and their meaning. These have small or no apparent bodies as well as long wicks. Some of these are included in the image below.

candles to exclude for one candle

All trade entry points are at the open of the next candle. The trades should last 5 minutes.

With the Martingale money management strategy, I entered 5 trades in total. 2 resulted in losses. Below is a table explaining how the Martingale system works.

table with martingale money management

Pros and Cons of Trading Candle Colors Strategy

💡Pros:

  • Easy to learn and implement, suitable for beginners.
  • Low-risk strategy with a focus on strong trends.
  • Can be combined with the Martingale money management system to increase winning potential.

🚧Cons:

  • Low profits compared to the total amount invested.
  • Special candles with small bodies and long wicks should be avoided, as they may not provide clear signals.
  • Not suitable for all market conditions, particularly during periods of consolidation.


Effective Strategies Tools and Indicators
Trading candle colors strategy Candlestick chart
Martingale money management system Trade duration and investment amount adjustment
Trend-following approach Support and resistance levels

Trading candles alongside the Martingale system is effective but has little returns

Since I traded 5 times, my cumulative trade cost was $121. The second and fourth trade were unprofitable meaning I lost a total of $44. The cumulative profit for the three trades was $36.42.

This means that even though I made a profit, it was quite small compared to the total amount invested.

Trading candle colors alongside the Martingale system is a simple and low-risk trading strategy. However, the low risk also comes with low profits as you've seen.
Now that you've learned how this strategy works, try it out today in your IQ Option practice account.

Good luck!

Common Questions About Trading Candle Colors Strategy

  • Q: What is the main goal of the trading candle colors strategy?A: The primary objective of this strategy is to identify real candles with large bodies, indicating strong price momentum in a specific direction, and placing trades based on the candle color.
  • Q: Can this strategy be used for all types of assets?A: While it can be applied to various assets, the effectiveness of the strategy may vary depending on the asset's market conditions and the specific timeframes used.
  • Q: What are the best candlestick colors for this strategy?A: Generally, green is used for up (bullish) candles and red for down (bearish) candles, as they intuitively suggest the market direction and the direction of trades.
  • Q: What type of candles should be avoided when using this strategy?A: Special candles with small bodies or no apparent bodies and long wicks should be avoided, as they may not provide clear signals and could lead to false entries.
  • Q: Can I expect high returns when trading candle colors alongside the Martingale system?A: Although the combination of these strategies is effective, it may yield low profits compared to the total amount invested due to the low-risk nature of the strategy.

GENERAL RISK WARNING

The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose.
Kindly note that this article does not provide any investment advice. The information presented regarding past events or potential future developments is solely an opinion and cannot be guaranteed as factual, including the provided examples. We caution readers accordingly.

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Niels Hammer

Trading and investing are lifelong pursuits for me, and I will most likely never stop learning about them. I started trading with IQ Option in 2014 and have been with them ever since. And I've seen the platform mature. Nowadays, I'm very interested in cryptocurrency and am attempting to learn and invest my time and money in it. On the other hand, I try to help you guys as much as I can with this blog. Happy trading!

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