Candlestick Patterns
Candlestick Patterns |
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How To Use Candlestick Patterns
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Japanese Candlestick Patterns Part IIIJapanese Candlesticks In the last article, we learned about two of the most basic Candlestick patterns: The Doji and Bullish Engulfing. In this article, we’ll learn about two more basic patterns and discuss a few points about successful trading. What makes a successful Trader?
Here’s how to solve the money problem. Before deciding to become a trader, you must make a budget. After doing that, ask yourself if you have funds for at least six months of expenses. If the answer is “yes”, then ask yourself if you have the necessary insurance coverage. If the answer is “yes”, what are left over will be your trading funds. Once you have that figured out, you will trade no more than 10% of that fund on any trade. If you follow these rules, losing money will not have the emotional impact that distracts most traders. Remember, money is just a way of keeping score.
The fear of being wrong is all ego. Leave your ego at the door and realize that you will lose. Once you have chosen your system, you must trust in that system and realize that if you are losing more than you think you should (most successful traders will lose almost as many trades as they win-its all in the profit margins), it is probably in your system. Stop trading and refine your system. Losing is nothing personal. It comes with the territory. As a matter of fact, a side benefit of trading is that you learn to be humble. There is a lot more to discuss when it comes to being a successful trader and we’ll talk more about this in subsequent articles.
Candlestick Pattern # 3: Bearish Engulfing
Secondary signals enhance probability such as when there has been large After an uptrend has been in effect, the price opens higher than where it closed the previous day. Before the end of the day, the sellers have taken over and moved the price below where it opened.
After a downtrend has been in effect, the atmosphere is very bearish. The price opens and starts to trade lower. The bears are still in control. The bulls then step in. They start bringing the price back up towards the top of the trading range. This creates a small body with a large lower shadow. This represents that the bears could not maintain control. The long lower shadow now has the bears question-ing whether the decline is still intact. A higher open the next day would confirm that the bulls had taken control. Next article: More tips on how to be a successful trader and more Candlestick patterns.
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Candlestick Pattern Article # 1
Candlestick Pattern Article # 2
The reverse of the Bullish engulfing, is a major reversal pattern comprised of two opposite colored bodies The Bearish Engulfing Pattern is formed after an up trend. It opens higher than the previous day’s close and closes lower than the previous day’s open. Thus, the black candle completely engulfs the previous day’s white candle. Engulfing can include either the open or the close is equal to the open or close of the previous day, but not both. 
volume on the engulfing day in comparison to the previous day. If the shadows of the previous day are also engulfed, that also adds confirmation. Also, the greater the opening price gaps up from the previous day, the greater the probability of a strong reversal.
Candlestick pattern # 4: Hammers and Hanging Man:
Secondary signals are: 1) the longer the lower shadow the higher the potential of a reversal occurring. 2) A gap down from the previous day’s close sets up a stronger reversal move provided the day after the Hammer signal opens higher. 3). Large Volume on the Hammer day increases the chances that a sell-off day had occurred.