Top Candlestick Secrets – Why Candlestick Patterns Work
As a trader, you always have to remember that candlestick patterns cannot drive markets on their own. These patterns are not a yardstick or a template with which you can out rightly make market decisions without other variables of technical analysis like the support and resistance level.
That said, you should also beware of the fact that candlesticks work just as they are expected to. A candlestick pattern chart analyzes the market for a certain period and presents you with a summary. Your interpretation of the summary now determines the result you’ll get from it. In every chart, the OHLC is very important, such that by blending it with other features like the color of the candle, you can easily tell whether or not the market value appreciated or depreciated during the open or close.
These are the two major things that the candlestick shows you at a particular time;
1. The range of prices that are obtainable for the period under review.
2. The price movement during the said period.
When I said the candlestick, chart works as best as it should, this is what I meant. Now try not to let your emotions or imagination push you to want to force the chart to do more than this. It is as a result of such desires that you’ll hear people saying that candlestick charts don’t work.
The only way you can clearly interpret what a candlestick pattern is trying to tell you is by knowing how to read it. With this knowledge, you could easily tell what the pertinent market dynamics are, as well as the market trend. You will also be able to tell whether or not buyers and sellers control the market at a particular time.
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If as a trader you can follow price trends to interpret the psychology of major players in the market, you’ll be able to apply this knowledge to reading your charts and seizing every opportunity once you see one.
It isn’t uncommon to find traders who do not believe in the efficacy of candlesticks. A quick look at trading platforms will show you that there are a lot of trading techniques that use candlestick patterns to trade. Since these patterns are now applied to many trading strategies, it simply means that it works and it holds some sort of market advantage. The reason why it isn’t working for you is only because of your unrealistic, albeit uninformed expectations.
There is certainly no way to find out which percentage of traders have candlestick charts working for them because, of a truth, I haven’t carried out any of such survey yet, but if this pattern works for as much as 50% of traders, it means that you can find out which patterns hold the most potential for you. You should be able to make a good amount of profit by interpreting these patterns correctly, else you lose money.
These patterns already work for many traders and technical analysts,
including myself because we are able to marry the patterns with other technical indicators like the support and resistance level to give us the information we need. A candlestick pattern that is devoid of the support or resistance lines will not work as well as one that has the lines running throug.
A trader that knows how to interpret his candlesticks correctly can understand the information presented by the chart about market dynamics and psychology. Such traders will also know the predominant traits in traders at a particular time.
When a trader can trail the path of the price action and can give the right interpretation to the psychology of other market players, he will make a lot of profit. This profit will come from his/her expertise in blending knowledge with price action to read charts and make the best decisions.
Top Candlestick Secrets
To one who is just getting started with technical analysis, candlestick charting may seem too complicated, but it’s only normal. With time, as you continue to read and analyze charts, you’ll get a hang of it as the patterns will become more familiar by the day. You will also get to learn about the possibility of combining patterns to figure out the current state of the market and to get insights into future trends. You will also learn how to recognize patterns.
As you work towards becoming a professional technical analyst and a profit yielding trader, you need to start thinking in a smart way and learn how to avoid common mistakes, especially beginner mistakes. Remember that your goal with the candlestick chart is to know how buyers and sellers influence price, and to know who is in control of the market at a particular time.
Asides from knowing what a candlestick pattern presents to you, some other concepts will help you to spot high probability price action signals and to avoid those signals that are very likely to lead to a dead end. In trading price action, you need to be very thorough as you make sure that you don’t just hop on any signal that you see. To be a successful trader, you need to be flexible by understanding that there are no fixed rules in trading. Below are two important concepts that can lead you to a very successful trading journey:
Comparison of candles:
This area of trading when it comes to price action is often ignored because traders are used to focusing on the basic pattern which makes them concern themselves with single candlesticks.
Traders that want to be successful in trading price action must know how to set their recent prices based on the events of the past. Understand that a small pinbar, for example, which appears after a trend with big candles will have less meaning than a large pinbar that shows after a trend with small candles.
Another example is an engulfing candle that doesn’t fully engulf the preceding one. Such candles don’t have as much predictive power as the one that fully engulfs the previous one. You should learn to study the entire chart to fully understand all the variables.
Location: This is another concept that can help you get the best out of your candlestick chart. It simply means that the only time you trade price action signals that are close to high probability price levels. You don’t have to hop on every price action signal that comes your way, rather, you can boost your odds and make them work in your favour by setting your trade close to high impact support and resistance levels or the demand and supply levels. Even though trading requires more patience, you will reap the benefits of your patience tremendously.
Top Candlesticks Trading Secrets
Traders are faced with making different market decisions every day, due to the range of factors that influence the market. This is where candlesticks trading patterns come into play as they help you navigate a variety of options that the market bombards you with every trading day. Remember, market players take actions based on emotions like the fear of losses, the hope of gaining, stop-loss triggers, etc. the role of candlestick charts is to help you make informed decisions regardless of these emotions.
By learning how to trade with candlestick patterns, you would have armed yourself with a solid weapon for profitability. Every candle has a unique insight for the trader who can read and interpret the current state of price actions correctly. Once you are able to decipher the information about the market on the candlestick chart, you will have an edge over every other trader.
At this point, you might be wondering how you can trade with the long list of candlestick patterns and how they can give you the desired result. In fact, you even wonder how it is possible to remember all the candlestick patterns. Well, the truth is that you don’t have to remember all the patterns.
There are two important factors that you need to understand to get you started with analyzing your candlestick chart for the best results.
First, you should always ask yourself, where is the close price in relation to the range?
The second question is, what is the size of a pattern compared to other candlestick patterns?
Let us give answer and context to these questions.
1. Where is the close price in relation to the range?
This question is important to help you know those that are in control at the moment. When for example, the price closes around the highs of the range, it means that the buyers are in control at that time. There are contrary scenarios where bullish candles have sellers in control.
This happens when the price closes around the lows of the range indicating that there is a rejection of high prices. What matters most is that you always know who is in control by asking the simple question, where is the close price in relation to the range?
2. What is the size of a pattern compared to other candlestick patterns?
The answer to this question will help you understand if the price movement is a strong or weak one. To get the answer that you seek, simply compare the size of the current candle with that of the previous one.
if for example, the current candle is up to two times larger than the previous one, it means that the move is a strong one. The move will be a weak one if there isn’t, any strength behind the move because the size of the current candle is about the same, as the previous ones.
