2. Wait for Confirmation Candle
This is where your screen time pays off. At this stage, the asset has already alerted VC for it is being OB/OS. And there are a few ways to play the Hubba Hubba's style.
(a) Exhaustion trade (Counter trend trading)
This is the most common trading-play. This could either be a momentary pull back or a full reversal. We are not concern about how it played out because we couldnt tell the future anyway. But we do want to have some form of odds stack on our side. And this odds is the appearance of the first counter trend candle after the VC alerted.
When this first counter trend candle closed, it must have some of these characteristics.
It must tells us DECISIVELY that there will be continued momentum at the same direction that follow after this confirmation candle. How do we know if there is going to be continued momentum? Look for wicks or shadows at the correct side of the confirmation candle. Appropriate candle size. Some basic examples are candlesticks in the form of Pinbars, Hammers and full bodied length ones.
This is where your knowledge of PA comes in. I am not skilled nor trained in this, so i am only using what i know. Pinbars, wicks, shadows and full bodied candles.
In a nutshell, we want the Confirmation Candle single-handedly disrupts the trend for as long as possible. Within the range of 5-15 mins.
(b ) Ride the train (Along the momentum trade)
This is a play where it sets u apart from many of the traders here, who cry Armageddon when they spotted a 'waterfall' or a strong convicted trend.
This Confirmation is similar to the one mentioned before but with a twist. This Confirmation Candle may or may not has to be the same colour as the candle before even after VC alerted.
And based on the same logic as mentioned in my last point, this Confirmation Candle shows us the continued strength it has to go in the same direction DESPITE being in the OS/OB region.
Like i mentioned earlier, read the levels of the VC not only as how much OS/OB it has been. but also how much strength it has to go further.
Besides the illustration for a waterfall scenario, a breakout UP/DOWN from a channel which is actually within the confines of an Inside-bar (PA) also serves as a good setup.
( c) Tight range bounce (Trapped range and trade off the channel's extremities)
This play may or may not require the VC alert. Most times, it is dependent on the SR levels.
Zoom out of your charts and see the established SR levels. Based on the template i have uploaded, the basic indicator serves this function well. U can add your own too.
My recommendation for this would be during Sydney to London (an hour before opening). There are pockets of such channel-based setups throughout the week.
Identify the channels and watch for PA to determine if the setup is viable.
(d) Reflex Bounce (Continued trend with EMA)
This is a play where it can be done only when asset is in a trend.
This again may or may not require the VC alert. The theory is that for every new HOD\LOD and BRN is breached, either direction. There is a momentary dip or pause which seems like a momentary pull back.
And this happens even without having the asset being OB/OS. And for this, we trade with the prevalent trend AFTER the momentary dip or pull back.
The most credible setup for this is when the first counter trend or same trend candle appeared. It closed with a wick which has cut through the EMA while trending.