Learn how to use candlestick patterns to trade successfully. Combine them with key levels and areas of confluence for higher quality trades. There are several effective patterns to use, including long wick candles, multiple long wick candles, inverted long wick candles, and inside bar candles. Understanding these patterns can provide directional bias for trading by signaling buying and selling behavior in the market. Subscribing and hitting the like button supports the production of more free trading videos.

Mastering Candlestick Patterns for Successful Trading

Introduction: The Importance of Understanding Candlestick Patterns

To effectively trade in the financial market, one must understand the role of candlestick patterns. However, many traders use these patterns incorrectly, leading to low quality trade entries and outcomes. In this article, we will explore everything you need to know about trading candlestick patterns effectively.

Candlestick Basics Recap: How to Read and Use Candlesticks

Candlesticks are used to give a directional bias on market trends by indicating the buying and selling actions at any given time. It is important to understand that green candles are bullish, while red candles are bearish. The candle body is the key area to observe, and the wicks point to the high and low price points of the candles. Combining key levels and areas of confluence with candlestick patterns can increase the quality of trades and overall trade outcomes.

The Effective Candlestick Patterns to Use for Trading

There are numerous candlestick patterns that traders use, but only a few are highly effective and occur frequently. We will examine the following four patterns: Long Wick Candle, Multiple Long Wick Candles, Inverted Long Wick Candle, and Inside Bar Candle.

Long Wick Candle: Sticking to the Moving Trend

This pattern is characterized by a candle with a wick sticking out in the same direction as the moving trend. A longwick candle has two variations: the smaller the body of the candle, the better the candle; and the longer the wick, the better the candle.

Combining the longwick candle with key levels shows how it presents a trade opportunity. When in an uptrend, price hits and reverses, giving a key level of resistance. A perfect longwick candle will then form at the key level of resistance, providing a trade opportunity to go short. The longwick candle forms when buyers take profit at the key level combined with sellers opening new short positions, causing price to stall and react to the key level at that particular moment in time. The psychology behind this pattern is that buyers tried to push price higher, but failed to close it out with momentum, causing the wick to stick out. This validated the key level of resistance and presented a trade opportunity.

Going in the opposite direction, in a downtrend, price hits and reverses, giving a key level of support. A perfect longwick candle will then form at the key level of support, providing a trade opportunity to go long. The longwick candle formed through a combination of sellers taking profit at the key level as well as buyers stepping in and opening new long positions at the level.

Multiple Long Wick Candles: Clustered for a Stronger Signal

This pattern entails multiple long wick candles clustered together, indicating a stronger signal. For example, when in an uptrend, price hits and reverses, giving a key level of resistance. Multiple long wick candles will form at the key level, presenting a trade opportunity to go short. This shows that buyers tried over and over again to breach the resistance level, showing that the sellers held the level strong and that the level is valid this time around.

In the opposite direction of a downtrend, price hits and reverses, giving a key level of support. Multiple long wick candles will form at the key level, presenting a trade opportunity to go long. The psychology behind this pattern shows that sellers tried over and over again to breach the support level, but failed, showing that buyers held the level strong and that the level is valid this time around.

Inverted Long Wick Candle: Stick Against the Trend

This pattern is similar to the longwick candle, except the wick sticks against the moving trend. When price is in an uptrend, a perfect inverted longwick candle will form at the key level of resistance, providing a trade opportunity to go short. The psychology behind this pattern is that once the price gets to the key level, there is a strong selling presence that immediately enters the market, causing the wick to stick out below and against the moving uptrend, validating that the level is in play and respected this time around.

In a downtrend, when price hits and reverses, giving a key level of support, a perfect inverted longwick candle will form at the key level of support, providing a trade opportunity to go long. The psychology behind this pattern is that once the price gets to the level, there is a strong buying presence that enters the market, causing the wick to stick out above and against the moving downtrend, validating that the level is in play and respected this time around.

Inside Bar Candle: High and Low Contained within the Previous Candle

This pattern is where the candle’s high and low are contained within the high and low of the previous candle. For instance, when in an uptrend, price hits and reverses, giving a key level of resistance. An inside bar pattern will form at the key level of resistance, presenting a trade opportunity to go short. The psychology behind this pattern is that price failed to make a higher high candle, indicating a loss of momentum from the buyers in the market, which is an early signal that buyers are no longer in complete control of the moving trend direction.

Going in the opposite direction of a downtrend, price hits and reverses, giving a key level of support. An inside bar pattern will form at the key level of support, presenting a trade opportunity to go long. The psychology behind this pattern is that price failed to make a lower low candle, indicating a loss of momentum from the sellers in the market, which is an early signal that sellers are no longer in complete control of the moving trend direction.

Conclusion: The Benefits of Utilizing Candlestick Patterns

To effectively trade in the financial market, understanding the role of candlestick patterns is crucial. Combining key levels and areas of confluence with these patterns can increase the quality of trades and overall trade outcomes. Through mastering these patterns, traders can have an edge in the market, leading to increased success in their trading strategies.

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