5 Powerful Candlestick Patterns & Never-Losing Strategy
Candlestick patterns & Never-Losing Strategy article is to teach the anatomy and psychology of the formation of the basic 5 powerful candlestick patterns I use as a day trader.
the 5 powerful candlestick patterns & Never-losing strategy can also be employed by swing traders, position traders, and also every other kind of trader in the financial market.
Which candlestick pattern is most reliable? All candlestick patterns are reliable but as a never-losing strategy, you don’t have to trade candlestick patterns along with taking into consideration some other trading factors.
Does candlestick pattern really work? Yes. And absolutely, candlestick patterns work but a successful trader has to be smart in trading candlestick patterns.
Why? because many other smart candlestick pattern traders are in the same market as you and you have to play smart to outsmart others in the market.
What is Candlestick Pattern?
Candlestick pattern is the language of the financial market that deals with the study of both market structure and price action, price movement, and activities of both buyers and sellers.
Which candlestick pattern is most reliable for day trading? All candlestick patterns are reliable for day trading. The most important factor to be considered is the mastery of such candlestick pattern you intend to use for day trading.
A candlestick represents the details of market structure and price action in that particular time frame it was viewed or seen. For example, If a candlestick opens, closes, and has a high and low 1-hour time frame, such a candlestick has a piece of detailed information about price action only in that one-hour time frame.
Some candlestick pattern formation involves one, two, or three candlesticks.
A list of candlestick patterns has about 35 powerful candlestick patterns. Well, you don’t have to learn all 35 powerful candlestick patterns. Being a master at two or three can be the secret of a successful trader.
4 Components of a Candlestick
The basic components of candlesticks in 5 Powerful Candlestick Patterns & Never-Losing Strategy are:
- Candlestick Color – Green (or white) represent price increase, and Red (or black) represents a decrease in price.
- Candlestick Wicks (or Shadow) – The wicks or shadow means price-rejection, wicks could be above or below.
- Candlesticks appear on all time frames but are much stronger on higher time frames.
- Opening and Closing of Candlesticks – These represent the body of the candlestick which determines the strength of the candlestick.
Importance of Candlestick Charts
A candlestick could have a small body with a small wick, a small wick with a large body, and/or a small body with a long wick.
1. Candlestick charts talk more about the market – traders who are in control of the market.
2. Wicks help know-how price keeps rejecting a particular trend.
3. Candlestick chart is a crucial tool for technical analysis
4. candlestick charts contain a ton of data information in the market.
Combining Candlestick Patterns
A day trader or swing trader must learn how to combine candlestick patterns in different time frames so as to implement a good trading strategy. For example, a bullish candlestick on a 1-hour time frame followed by a bearish candlestick on the next 1-hour time frame will definitely form a Doji on the 2-hour time frame.
This Doji (or shooting star) is a candlestick pattern formation that can be mastered and traded both as a swing trader, day trader, position trader, or scalper.
Use trading view to navigate between so many different time frames for easy market analysis.
Oftentimes you do not get much information on the 1-hour time frame, then you have to go to the 2-hour time frame, if you don’t have much information, you can also navigate to the 4-hour time frame to see the hidden market structure and price action.
How ‘’Not’’ to Trade Candlestick Patterns
1. Define your trading plan – without a trading plan you can’t do well trading the candlestick patterns
2. Never trade candlestick patterns without sticking to other technical guidelines
3. Never go against the trend unless it has broken
4. At least use 1 key area of confluence to determine your entry position
5. Never stay too long trading a candlestick pattern without being flexible with your trades
5 Powerful Candlestick Patterns
The purpose of this article Candlestick Patterns & Never-Losing Strategy is to help reduce losses drastically to bearable risks. This is never a holy grail strategy but a skill that These 5 powerful candlestick patterns will help you become a successful day trader, and will help you trade better and as a pro.
1. Engulfing Pattern
The Engulfing pattern as it implies in its name is formed when a candlestick fully engulfs the body of the previous candlestick. The engulfing pattern can engulf more than one previous candle, but to be considered an engulfing bar, at least one previous candlestick must be fully engulfed.
1a. Bullish Engulfing Pattern – The bullish engulfing pattern consists of two candlesticks, the first one is bearish, the small body, and the second is the bullish engulfing candlestick. The candlestick must fully engulf the previous candlestick’s body.
1b. Bearish Engulfing Pattern – The bearish engulfing pattern consists of two candlesticks, the first one is the bullish, small body, and the second one is the bearish engulfing candlestick. The candlestick must fully cover or engulf at least the body of the previous candlestick.
2. Dragonfly and Gravestone Doji Pattern
The Dragonfly Doji is a bullish candlestick pattern that is formed when the open, high, and close of the candlestick are the same or about the same price. The uniqueness of the dragonfly Doji is the long lower tail which shows the resistance of buyers and their successful attempt to push the market up.
The Gravestone Doji is the bearish type of the dragonfly Doji, Gravestone is formed when both the open and close of the market price are the same or about the same value.
The difference between Gravestone Doji and the dragonfly Doji is the long upper tail of the Gravestone Doji. The formation of the long upper tail is a direct indication that the market price is testing a power supply or resistance area.
3. Hammer and Shooting Star Pattern
The Hammer candlestick is formed when the open, high, and close of the candlestick are roughly the same price; it is also distinguished by a long lower shadow that indicates a bullish rejection (as seen in Dragonfly Doji but with a small body) from buyers and their intention to push the market up.
The shooting star pattern formation is formed when the open, low, and close of price are roughly the same, this candlestick pattern consists of a small body and a long upper shadow (as seen in Gravestone Doji but with a small body).
It is a bearish type of hammer. Professional technical analysts say the shadow should be twice the length of the real body before you can have a well-defined shooting star pattern.
4. Morning Star and Evening Star Pattern
The morning star pattern has 3 candlestick pattern formations. It is considered a bullish reversal pattern, it is often formed at the bottom of a downtrend.
The first candlestick is bearish, indicating sellers are still in control of the market.
The second candlestick is a small one which represents sellers are still in control, but they could no longer push the market much lower and this candle can be bullish or bearish.
The third candle is a bullish candlestick that elongated above on the open and closed above the midpoint of the body of the first candlestick, this candlestick holds a significant trend reversal signal.
The evening star pattern is also referred to as a bearish reversal pattern that often occurs at the top of an uptrend.
The pattern is a formation of three candlesticks.
The first candle is a bullish candle. The second candle is a small candlestick, which can either be bullish or bearish, and/ or it can be a Doji or any other candlestick. The third candle is a large bearish candle.
This candlestick pattern is the direct opposite of the Morning Star pattern.
5. Tweezer Top and Tweezer Bottom
The tweezer top pattern formation is a bearish reversal pattern that can be seen at the top of an uptrend, and the tweezer bottom pattern formation is a bullish reversal pattern that can be seen at the bottom of a downtrend. In some cases, they both have wicks rejection on both candlesticks. They are both formed of 2 candlestick patterns.
Which is the best bullish candlestick pattern? From the above 5 powerful candlestick patterns, the reader can deduce what works for him after constant practice, back-testing, and forward-testing training.
Conclusion
The candlestick patterns & never-losing strategy article talks about a trading strategy where traders look to buy or sell using these basic powerful candlestick patterns with both support and resistance, or Moving Average, or Trendlines as an area of confluence to day trading. It is never enough to trade the candlestick patterns alone or in isolation without using other trading strategies.
