Candlestick Charts Patterns ReferenceCandlestick charts are a simple yet effective way to interpret price action. I particularly enjoy analyzing candlestick patterns due to their simplicity. In fact, candlestick pattern analysis forms the core of my manual trading system, where I look only on price action (i.e., no indicators) to determine my entry points.
A Few Preliminary TipsThe Japanese have identified many candlestick patterns. In general, some patterns provide stronger signals than others. However, keep in mind that when you analyze any candlestick pattern (whether weak or strong), its position should be taken into context. This means that where the pattern appears relative to trendlines and support/resistance levels must be taken into consideration. For example, a reversal pattern will provide a stronger signal when it appears at a support/resistance level than when it appears in the middle of a trend. Also, don't jump into a trade as soon as you see a candlestick pattern appear. Be patient and wait for confirmation. Confirmation comes in the form of an additional candle that closes in the same direction as the signal. If the candlestick pattern is bullish, then this confirmation would be an additional white candle. If the pattern is bearish, the confirmation would be an additional black candle. With that said, below is a list of the strongest candlestick patterns. Finding these in the right context and with added confirmation increases your chances of closing out profitable trades. Strongest Reversal Patterns
Fellow forex trader, Christopher Lee, wrote an excellent ebook called "Forex Candlesticks Made Easy". What sets this tutorial apart from other candlestick educational material is how Chris explains why certain candlestick patterns exist. He helps you to understand the trader buying / selling behavior that results in the formation of candlesticks and candlestick patterns. With this understanding, you will improve your skills not only in identifying candlestick patterns, but effectively interpreting them to better predict future price action. One useful skill that I took away from the book was how to interpret candlesticks to determine if a pullback is simply trader "profit-taking" or potentially a change in trend. Chris' ebook has definitely helped me improve my skills as a candlestick charts analyst. I can attest that in the long run, it's definitely better to understand the forces behind candlestick patterns rather than simply memorizing patterns by themselves. After reading Chris' ebook, you won't look at candlesticks the same way again! Build YOUR Best Forex Trading System
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