Inefficient Candles
Larger than normal candles, where price has never returned to its 50% position.
The candle immediately before the inefficient candle can square it up, or any candle after it.
Price Magnet Effect
Inefficient candles act as a magnet - price tends to return to "square them up" (reach the 50% level).
In your trade direction (beyond PCL): These are in your favour. If an unsquared inefficient candle sits slightly past your PCL, you can extend your TP to just before its 50% mark. This improves your risk to reward ratio.
Against your trade direction (between entry and PCL): These can work against you. An opposite-direction inefficient candle very close to entry creates high reversal risk - consider passing the trade. However, if it's further away toward the PCL, it's less of a concern.
Key Points
- Inefficient candles in your trade direction = targets (price magnets that help your trade)
- Inefficient candles against your trade direction, very close to entry = potential roadblocks
- If there's a resistance/support line before the inefficient candle, don't push your luck. Keep the take profit just short of the S/R line. Better to be safe and consistent.
Not a Roadblock by Default
Inefficient candles are primarily opportunities to extend targets, not obstacles. Only treat them as roadblocks when:
- They're in the opposite direction to your trade, AND
- They're very close to your entry point