Ihab Salloum[ad_1]
First of all, the trader should know by heart the 15 or so major Japanese Candlestick Reversal Patterns. We tend to forget, perhaps, that the most important single feature of the Candlesticks is their ability (when properly interpreted) to forecast reversals of trend. Every trader wants to know what prices are likely to do tomorrow. All trading and investing is built on guesses, or predictions, or forecasts, or hopes, for tomorrow. The Candlesticks are especially adept at discovering the mindset of traders which, after all, is the driving force behind price action. There are several rather daring Japanese Candlestick Charting techniques for taking advantage of early knowledge.
Let’s take the example of the Shooting Star reversal pattern The Shooting Star looks very much like its namesake. It will appear after a long uptrend, far above the last previous price, way up there in price clouds, sporting a tiny head, a long tail, and will be pointing at the Earth. It is a loner. We read the Shooting Star as a temporary price aberration which will very likely be cured soon, quite possibly even as soon as tomorrow. Some traders who are very much on the qui vive, upon seeing a Shooting Star forming, will wait until nearly the end of the trading day and if, just before Closing, it still appears that a Shooting Star will be the final pattern of the day, will buy a Put option on the spot. That’s ambitious trading. Others will wait until the next morning, to see whether prices opened lower, and if they do, then to take a bearish position at that time. Others will wait even longer. And some will do nothing, and the opportunity will evaporate.
Another one of the Japanese Candlestick Charting Techniques involves seizing upon a bullish opening such as occurred on March 6, 2009. Doji patterns and Spinning Top patterns had erupted after a very long downtrend. In concert with other indicators, the time appeared ripe to enter into a Long position, which seemed to be foolhardy at that time because, up to that point, price action in the major Indexes had been almost unremittingly Down. However, once again knowledge of the key Candlestick trend reversal patterns overcame some traders’ natural resistance; and those who did make the jump into Long positions were rewarded by a dramatic change in immediate trend and a very long and profitable rally in a bear market.
The point is this: being aggressive and striking “while the iron is hot” when strong reversal patterns appear is one of the more aggressive Japanese Candlestick Charting Techniques that can be very profitable. One of the keys is knowing by heart the 15 or so most reliable reversal patterns, and acting on them when they present themselves to you.
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