How To Trade Using Candlestick

I believed candlestick patterns were of great importance in successful and consistent trading and offer a further level of odds enhancement to a trade, only if used in the correct manner. Like anything else, candlestick patterns will provide some powerful clues to what is going on in the market, but only if used in conjunction with another reliable strategy, as well.

There are many different candlestick patterns which form over and over again in the market. In my opinion, we should just pay attention to high reliable reversal patterns only. But its all depend on your trading style also. Candlestick is very good as a reversal trigger on support and resistance level.

Well, here is my fovourite candlestick patters which i use to trade everyday:

Bullish Reversal
1. Shooting Star
2. Bullish Engulfing
3. Bullish Abandoned Baby
4. Piercing Line
5. Morning Star

Bearish Reversal
1. Hammer
2. Bearish Engulfing
3. Bearish Abandoned Baby
4. Dark Cloud Cover
5. Evening Star

Below is some example how to use the candlestick pattern with Support and Resistance level. It's so easy.. :)

Candlestick Combination

Candlestick patterns are made up of one or more candlesticks and these can be blended together to form one candlestick. Trader can blend candlesticks to observe candlesticks for longer periods of time. This blended candlestick captures the essence of the pattern and can be formed using the following:

• The open of first candlestick
• The close of the last candlestick
• The high and low of the pattern

For example 30 minute candlesticks would blend into a different 1 hour candlestick pattern. If you had 30 minute candlestick patterns as presented below you would also have a 1 hour Hammer and 1 hour Shooting Star.

These candlesticks are only a few of the various patterns that traders look for trading the price action. A trader's ability to see these patterns in real time allows for the execution of better trades.

Psychology Behind The Candlestick

One of the most significant goals of technical analysis is to identify changes in direction of price action. Candlesticks give visual insight into what the market is market psychology, one of the most useful aspects of candlestick analysis is its ability to suggest changes in the sentiment of the market, and reversals in trend.

Most of the traders use candlesticks on their charts but don’t fully understand the signals given by candlesticks. The learning curve on how to correctly interpret a candlestick pattern obviously begins with studying what the shapes and shadows mean, and then seeing if a trend is indicated.

Understanding the psychology behind the candlestick is far more important than the pattern itself because in reality, when you’re trading live at the right hand edge of the chart, the patterns are not so easy to see. They never quite look as picture perfect as they do in the textbooks.

Long vs Short Candlestick

Long bodies indicate strong buying or selling. The longer the body is, the more intense the buying or selling pressure. Short bodies imply very little buying or selling activity.

The Shadow

If a candlestick has a long lower shadow and short upper shadow, this means there is a buyers rejection.

1. Sellers force price lower, but for one reason or another, 
2. Buyers came in and drove prices back up to end the session.

If a candlestick has a long lower shadow and short upper shadow, this means there is a sellers rejection.

1. Buyers force price higher, but for one reason or another,
2. Sellers came in and drove prices back down to end the session.

How to trade using support and resistance

Role Reversal
One of the most interesting phenomena regarding support and resistance occurs when the price is finally able to break out and go beyond an identified support or resistance level. When this happens, it is not uncommon to see a previous level of support change its role and become a new area of resistance. As you can see from the chart below, the blue zone represents the price that was able to prop up the price movement at points 1 and 2, but this support turns into resistance once the price falls below it. Points 3 and 4 is the best place to trade as a low risk setup.

The opposite of this process occurs when the price breaks above resistance. As you can see in the chart below, points 1 begin as price barriers, but once the bulls are able push the price above the blue zone, it becomes an area of support. Then price retrace back to RBS zone (as illustrated by points 2) for a test.

How to trade?
In my opinion, this setup is easy to spot on any time frame. Keep in mind, the breakout is required and really important as a trend confirmation. The best place for order entry would be a test of SBR or RBS zone. See the chart below for more detail.

SBR setup

RBS setup

Support And Resistance

Supply and demand create price movement. Specifically, should supply exceed demand, price declines; conversely should demand exceed supply, price advances. This is the basic economic theory accepted by all traders that creates the market.

• Supply (resistance): A price level in a market where willing supply exceeds willing demand.
• Demand (support): A price level in a market where willing demand exceeds willing supply.

In order to illustrate this we use some basic tools; harizontal line, trendline or boxes. The difficulty in constructing support and resistance becomes  apparent when choosing the specific points to select and connect creating the line. One thing to remember is that support and resistance levels are not exact numbers.

Often times you will see a support or resistance level that appears broken, but soon after find out that the market was just testing it. With candlestick charts, these tests of support and resistance are usually represented by the candlestick shadows.

As in many aspects of trading, human nature tends to interfere greatly in the proper construction of support and resistance level. Personally, i'm prefer to draw support and resistance as a zone..

Price Momentum

There are two essential moves in forex market:


Impulsive Moves
An impulsive moves always run in the same direction as the primary trend. An impulsive move is characterized by a strong/fast move in one direction, thus producing some of the larger candles. It is also usually followed by several candles moving in one direction, or the bulk of them in a move. The candles are often signified by closes towards the top or bottom of the candle, depending upon the direction of the impulsive move.


Corrective Moves
Corrective moves are the most common moves to follow an impulsive move, also known as retracement;  temporary price reversals that take place within a larger trend. They are practically the inverse of impulsive moves. The candles are usually smaller in nature with closes not particularly aligned to the top or bottom. They are usually a mixed with both bullish and bearish candles and generally have little or no bias.

Market Trend

There are only three ways the market can go;

• Up
• Down
• Sideways

Uptrend is price movement of a financial asset when the overall direction is upward. A formal uptrend is when each successive peak and trough is higher than the ones found earlier in the trend. For example, the peak at Point C is higher than the peak at Point A. Uptrend continue when price making new high at point E. The uptrend will be deemed broken if the next low on the chart falls below Point D.

A formal downtrend occurs when each successive peak and trough is lower than the ones found earlier in the trend. For example, the low at Point C is lower than the low at Point A. Downtrend continue when price making new low at point E. The downtrend will be deemed broken once the price closes above the high at Point D.

Sideway trend is horizontal price movement that occurs when the forces of supply and demand are nearly equal. A sideways trend is often regarded as a period of consolidation before the price continues in the direction of the previous move.