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Learn how to identify trade opportunities using candlestick patterns for price action in the market. Focus on five types of candlestick patterns for trading decisions based on buyers and sellers actions. These are long wick candle, inside bar, momentum candle, multiple candle rejections, and shrinking candles. Use a combination of these patterns with key levels to find opportunities and understand other buyers and sellers’ psychology. Comment with your questions and thoughts to receive more videos.
Mastering Candlestick Patterns for Identifying Trade Opportunities
Introduction
In this article, we will be discussing the importance of candlestick patterns in identifying trade opportunities and how to combine them with key levels. Candlestick patterns are an essential part of price action, and understanding them can give traders a significant advantage in trading. In this article, we will go through the specific candlestick patterns that we look for, their use in trading, and their significance in terms of price action.
Why Candlesticks are Important to Understand
Candlesticks tell a story and reflect what buyers and sellers are doing in the market. The candlestick pattern that forms tells a lot about what is happening in terms of buying and selling within the market. There are many ways to use candlesticks, but in this article, we will be focusing on combining candlesticks with key levels.
The Long Wick Candle
The first candlestick type we look for is the long wick candle. This candlestick has a long wick sticking out, and the longer the wick, the better the candle. We use this candle type to look for potential resistance levels in the market. We look left to notice that price came up, hit, and reversed drastically, giving us a good level of resistance. As price came back up to this level, we waited for price action to form at this key level. When we got a long wick candle that rejected the resistance, we saw this as a good opportunity to enter a short position.
The Inside Bar
The second candlestick type we look for is the inside bar. This candlestick has the high and low of the candle completely inside of the previous candle, which shows momentum loss. We use this candle type to look for potential resistance levels in the market. We look left to notice that price came up, hit, and reversed giving us a good level of resistance. When price came back up to this level, we got an inside bar candle, which showed us that there was momentum loss because price failed to make a higher high.
The Momentum Candle
The third candlestick type we look for is the momentum candle. This candlestick has a bigger body than the previous candle, showing a gain in momentum. We use this candle type after any form of rejection candle such as after a long wick candle or after an inside bar. As sellers step into the market, this causes the bigger body momentum candle to form, signaling a potential trade opportunity.
Multiple Candle Rejections
The fourth candlestick pattern we look for is multiple candle rejections. This pattern occurs when price tries over and over again to push through a level but fails. In this case, sellers tried five times in a row to break lower and through support but failed. This caused these multiple long wick candles to form, creating a good long opportunity. The psychology behind this candlestick pattern is that as a seller, you may be thinking of closing your position when you see these multiple candle rejections, and as a buyer, you may see sellers taking profit at this level and other buyers possibly stepping in.
Shrinking Candles
The fifth candlestick pattern we look for is shrinking candles. This occurs when price approaches a key level, and we see a series of smaller and smaller candle bodies, indicating a loss of momentum. As we mentioned earlier, this signals a potential trade opportunity.
Conclusion
In conclusion, candlestick patterns are an essential part of price action, and understanding them can give traders an edge in trading. By combining them with key levels, traders can identify potential trade opportunities and make better-informed trading decisions. As a trader, it is crucial to pay attention to what other buyers and sellers are thinking and doing and use this information in your trading decisions.
