CANDLESTICKS

Candlesticks .. those cute little things that were used by the Japanese in rice trading many many years ago and ....

Never mind .. how can they make us money?!

There are dozens of candlestick patterns, but we're just going to learn 7 to help with confirmation of our trading setups. However, please memorize these 7 patterns as they are very strong signals when used with this method. Also keep an eye out for doji candles as they indicate 'indecision' and often signal a reversal point.

If you know nothing of candles, perhaps best to spend 30 minutes or so at LitWick.com just to get the basics down. Better yet check out the forex candle course featured at the bottom of this page.

#1 - Morning Star(bullish):

Look for this at the bottom of a downtrend. The "star" (gray) candle can close up or down.

#2 - Evening Star (bearish):

Look for this at the topof an uptrend. The "star" candle can close up or down.

#3 - Bullish engulfing:

The 2nd candle opens lower and closes higher than the previous bear candle.
Stronger if it occurs at bottom of a downtrend.

#4 - Bearish engulfing:

The 2nd candle opens higher and closes lower than the previous bull candle.
Stronger if occurs at top of an uptrend.

 

#5 - Hammer:

IF this occurs at the bottom of downtrend. it can be a strong reversal signal.
The body can be bullish or bearish.

#6 - Shooting Star:

Opposite of hammer, when it occurs at top of an uptrend, a strong reversal signal.
Body can be bullish or bearish.

 

#7 - Tweezer tops or bottoms:

Tweezer tops can be a strong bearish reveral signal especially when up against
a resistance trendline or area of confluence.

Tweezer bottoms can be a strong bullish reversal signal when up against
a support trendline or area of confluence.

Color of candle body is not important for tweezers, but length of the stem is.

The tweezers are very strong signals when up against trendlines. They get their name from the long stems and to be valid tweezer signals, the stems must be obviously long. The longer the better. If you see two long bodies with shorter stems, this is not a good tweezer pattern.

You watch for one of these patterns occuring at fractal or pivot tops or bottoms or against a trendline. When you see them, if in agreement with other signals, your trade just became even higher probability.

 

NEXT: TRENDLINES

 

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