3 Powerful Bullish Candlestick Patterns
These three patterns can help the average trader identify key turning points in a market.
Background
A particular candlestick pattern should never be the single reason why you buy or sell a particular stock. Though, it can be a trading execution tool that assists in timing.
The use of candlestick patterns can be dated back all the way to the 18th century. Japanese businessman Moneisha Homma used candlesticks to track the price of rice contracts. He took on more of a psychological approach to the market.
By utilizing candlesticks, Homma was able to analyze the fear and greed in the rice market. More specifically, the herd mentality. Through practice, the businessman found a precise way of observing the behavior of the masses that allowed him to exploit them.
The more generalized the candlestick pattern is, the less it will work on consistent basis. An example of this is a ‘hammer’ candle. When you look at a chart, you will probably notice countless hammer patterns. Though, if you were to buy every single one, you most likely would not be profitable in the long run.
Personally, I believe candlesticks to be extremely valuable to my style of trading. Over the years it became apparent to me that there are couple ones that are far superior to the rest.
Psychological Aspect
The three patterns have a psychological aspect to them, which is why they constantly work. The key part of these sequences is they allow the human eye to see where and when money is trapped.
The goal as a trader is to take advantage of fear in the market and to intuitively identify when and where money is trapped. Once this is done, you simply take the other side.
These patterns are essentially footprints of the ‘last shorts’ being forced out of their positions, representing a turning point in the tape.
Trend Focus
As I said previously, a particular candlestick pattern should never be the single reason that gets you in a trade. Though, it can be an essential trading execution tool.
When trading these patterns, you want to make sure that you are trading inside the trend. The key is where these patterns are showing up. Logically, the patterns have a higher probability of working in your favor when they are in the direction of the general trend verses not.
Trading these bullish patterns in areas on the market profile where there is significant lower supply will give them a higher probability of working out.
Pattern #1: Abandoned Baby
Pattern #2: Piercing Line
Pattern #3: Harami
The Challenge
I am a firm believer that everything that happens in a market is unique. Every pattern will look different to the human eye each time. The goal is to get the brain to categorize it as actually the same pattern.
Once this happens, hesitation of the mind will no longer be present. You will be able to look at the pattern, and automatically know. If you think even for a second, the trade shouldn’t be put on. Don’t look for the trade, let the trade come to you.
Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.