Entry Models: Type 1, Type 2, and Type 3
Entry Models
Overview
Entry models are a structured approach to timing entries based on specific candle behavior and market structure analysis. They help traders identify potential entry points with a higher probability of success.
The primary entry models include Type 1, Type 2, and Type 3, each with unique characteristics and applications.
These entry models are not mutually exclusive; experienced traders often find that aligning multiple models across different time frames can create powerful confluence, increasing the reliability of a trade setup.
Type 1 Entry
Type 1 entries primarily rely on observing candle behavior at key areas of interest, such as established support and resistance levels.
Bearish Type 1: Occurs when a bullish candle transitions into a bearish candle close, indicating potential downward momentum.
Following the formation of a bullish candle, a subsequent bearish candle closes, signaling a possible trend reversal.
At the opening of the next candle, traders look for the formation of a top wick. This wick suggests that the price attempted to move higher but was rejected by sellers.
Traders anticipate a reaction at this level of interest, expecting a bearish push as sellers take control.
Bullish Type 1: Develops when a bearish candle transitions into a bullish candle close, suggesting upward momentum.
After a bearish candle forms, a bullish candle closes, indicating a potential shift in market sentiment.
As the new candle opens, attention is given to the formation of a wick. This wick indicates that the price tried to move lower but was pushed back up by buyers.
An entry is anticipated at the wick formation, with expectations of a bullish push as buyers take over.
Scuffed Type 1:
A "scuffed" Type 1 refers to a setup that does not exhibit ideal characteristics, such as clear rejections or substantial trading volume. These setups are generally considered less reliable.
Candles with small bodies and without significant rejections are deemed less favorable due to the lack of clear signals.
Candle analysis serves as a simplified representation of market structure. Type 3 shifts observed on a one-minute timeframe can resemble Type 1 formations on higher time frames.
Larger candle bodies suggest reduced likelihood of tapping into the level, as they may indicate strong momentum in one direction.
Ideal Type 1:
In an ideal scenario, the wick extends beyond the high of the previous wick, followed by a bearish candle close. This pattern indicates a strong rejection of higher prices.
Look for a pronounced top wick, a small bottom wick, and a substantial body, all of which point to significant selling pressure.
Traders enter at the wick formation, anticipating a bearish push as sellers dominate the market.
Type 2 Entry
Type 2 entries are characterized by a candle closing beyond a significant level, indicating a potential breakout.
This occurs when a level is established (e.g., following a bullish Type 1), but the subsequent candle forcefully closes beyond that level.
Bearish Type 2 Example:
A bullish Type 1 establishes a level of interest.
A large bearish candle then closes beyond that level, signaling a potential shift in momentum.
At the open of the next candle, traders watch for the formation of a top wick.
Anticipation builds for a reaction at the level, with an expected bearish push as sellers gain control.
Bullish Type 2 Example:
Here, a candle closes beyond a level, suggesting a potential breakout to the upside.
At the opening of the new candle, traders look for a wick.
Anticipation is for a bullish push as buyers step in.
Unlike Type 1 entries, the candle in a Type 2 setup does not necessarily need to originate from a bullish or bearish candle.
Ideally, the wick breaks the previous low for a bearish Type 2, and the closing size is substantial, indicating strong momentum.
Scuffed Type 2:
A "scuffed" Type 2 is when the candle barely closes below the level without a significant wick break, reducing the reliability of the setup.
Type 3 Entry
Type 3 entries are grounded in low time frame market structure analysis, particularly shifts in character or changes of character.
This involves identifying a decisive change in market behavior, suggesting a potential trend reversal.
A shift from consistently making higher highs and higher lows indicates a potential change of character, signaling a possible trend reversal.
Increased trading volume during the shift adds conviction to the setup.
Entry occurs on the pullback or retest after the market structure shift has been confirmed.
A stop-loss order is placed behind the previous high to manage risk.
The target is set at the previous low, aiming to capitalize on the expected move.
Type 3 differs from a change of character in that, with a Type 3 entry, the high is broken, followed immediately by a break of the low.
Strengths of Type 3:
Mirroring candle analysis, the quality of a Type 3 setup depends on the decisive nature of the break and the accompanying volume.
A clean Type 3 is characterized by a significant break in market structure, indicating strong conviction.
Conversely, a scuffed Type 3 displays a weak break in market structure, reducing its reliability.
Connecting Time Frames
Entry models are most effective when used in conjunction with each other, aligning different time frames to achieve confluence.
Example:
A 15-minute Type 1 candle close coincides with a 1-minute Type 3 pullback.
The 15-minute candle closes around a significant level.
During the pullback of the 1-minute Type 3 setup, traders look for a top wick formation (Type 1 top wick).
A Type 2 entry can align with a break and retest scenario, adding further confirmation to the trade setup.
The market operates in a fractal manner; therefore, aligning Type 1, Type 2, and Type 3 entries across different time frames can yield high-probability trading opportunities.