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Here’s a recent trade I just finished and I am extremely thrilled about the outcome. I managed to achieve a huge 10% gain, which has greatly benefited my portfolio. This trade has provided me with a massive profit and has significantly boosted the overall performance of my investments. I attribute the success of this trade to my ability to accurately analyze and interpret chart patterns, specifically the candlestick pattern that I identified in this particular chart. In this video, I will be sharing my favorite candlestick patterns, similar to the one I used in this trade, which I utilize on a daily basis. By understanding and being able to read these chart patterns, you can predict the direction of the market and become a more successful trader, just like me. So, without further ado, let’s dive right into it.

One of my favorite candlestick patterns that I frequently use in my trading strategy is the engulfing candle. I have discussed this pattern in many of my previous videos because of its strength and reliability in indicating potential reversals. The name itself describes the pattern, as it represents a candlestick that engulfs the previous candle in terms of color. A bullish engulfing candle opens at or below the previous candle’s close and closes above the previous candle’s open, essentially engulfing it. This creates a larger candle that visually appears to engulf the previous one. Let me provide you with an example to illustrate this concept.

In the chart, we can identify a strong support level where the price has bounced off multiple times, indicating its significance. As the price returns to this support level, we anticipate a bounce back up. However, instead of solely relying on assumptions, we seek confirmation through a bullish engulfing candle. This particular candle completely engulfs the previous red candle and aligns perfectly with the support level. This is an extremely bullish sign and provides us with a high level of confidence that the price will move upwards from this point. Therefore, we enter the trade and witness the price move in our predicted direction.

It is important to note that although a bullish or bearish engulfing candle indicates a potential reversal, it does not guarantee that the price will reverse in that direction every time. It is crucial to not solely rely on candlestick patterns for trading decisions but rather use them as hints or indicators of market direction. These patterns should be complemented with other tools such as support and resistance levels, indicators, and various strategies. By combining these elements, you can make more informed trading decisions.

Let’s explore a bearish example now. In a similar setup, we have identified a strong resistance level where the price has respected multiple times in the past. As the price returns to this resistance level, it begins to slow down, signaling a potential reversal. This is confirmed by a bearish engulfing candle that completely engulfs the previous green candle. This indicates that the price has been rejected at the resistance level and provides us with a good opportunity to enter a short position. As expected, the price moves downwards from this point.

Moving on to another powerful candlestick pattern known as the momentum candle. This pattern is relatively easy to spot due to its size, as it is two to three times larger than the candles preceding it. The significance of this pattern lies in its ability to indicate potential continuation of trends. It is particularly effective in choppy markets where the price is moving sideways. In such cases, if you come across a huge momentum candlestick that is significantly larger than its preceding candles, you can be fairly confident that the price will continue in that direction.

The reasoning behind this is quite simple. During sideways markets, many traders are caught in their positions and are hesitant to exit because the price is not showing clear directionality. These traders often set their stop losses near support levels, awaiting a breakout to either side. Therefore, when a sudden price movement occurs and hits this liquidation zone, triggering these stop losses, it adds fuel to the fire and propels the price further in that direction. Additionally, when the price breaks out of a choppy market, it typically initiates a trend in that direction. The same principle applies to short positions as well. If you encounter a choppy sideways market and notice a huge red candle that is two to three times larger than its preceding candles, it serves as an excellent indicator to enter a short position as it is likely that the price will continue moving downwards.

Next up is the multiple candlestick pattern. This is another one of my favorites due to its reliability on charts and its simplicity. This pattern involves three or more candles with wicks pointing in one direction. The more candles there are, the stronger the signal becomes. I often combine this pattern with support and resistance levels for better accuracy. Let’s analyze an example to better understand its effectiveness.

In this chart, we can observe a key support level where the price has bounced off multiple times in the past. We also notice multiple candles with wicks pointing downwards right at this support level. These candles indicate that sellers are attempting to break through the support, but buyers are successfully defending it multiple times. This confirms that this support level is significant and increases the probability of a bounce upwards. As mentioned earlier, the more candles exhibiting this pattern, the stronger the probability becomes.

Now let’s discuss the doji candlestick pattern. This pattern consists of a candlestick with a thin body and wicks on both sides. Its significance lies in its ability to indicate market uncertainty or resistance. Whenever there is uncertainty or resistance, the price tends to move in the opposite direction. Let’s examine an example to illustrate this concept.

In this scenario, we observe a downward movement in the price followed by a green doji candle. This signals that sellers are becoming less confident while buyers are starting to enter the market. This presents us with a potential point of entry for a long position. To increase our confidence in this reversal, I personally prefer waiting for two or more candles of the same color after observing a doji candle. In this example, we witness two additional green candles moving upwards, which strengthens our conviction that the price will continue in that direction. Therefore, this becomes an opportune moment for us to enter into a trade.

It is important to note that there are various variations of doji candles, such as long-legged doji (which has longer wicks), dragonfly (which has a small body and a long bottom wick), and gravestone (which has a small body and a long upper wick). Despite these slight differences in appearance, they all convey the same story of an impending reversal in price.

Moving on to another powerful pattern called the hammer. The hammer is typically characterized by a decent-sized body accompanied by a long wick. This pattern tells us that sellers were able to push the price down significantly but buyers stepped in and pushed it back up again. This is generally considered an extremely bullish sign and suggests that the market will continue moving in that direction. The shooting star is similar to the hammer but has a small wick on the opposite side. It signifies potential reversals and should be approached similarly to how we analyze hammers.

Let’s now discuss the tweezer candlestick pattern, which is a reversal pattern that consists of two candles with equal or nearly equal highs or lows. The tweezer top pattern occurs when two consecutive candles have identical or similar highs, indicating resistance at that level. Conversely, the tweezer bottom pattern occurs when two consecutive candles have identical or similar lows, suggesting support at that level. These patterns are significant as they indicate a potential shift in market sentiment.

When we spot a tweezer top pattern, it suggests that buyers were unable to push the price higher, resulting in a rejection at that level. This often leads to a reversal in the market, with sellers taking control and driving the price lower. Conversely, when we identify a tweezer bottom pattern, it indicates that sellers were unable to push the price lower, leading to a rejection and a potential reversal to the upside as buyers regain control.

To increase the validity of these patterns, it’s beneficial to look for other confirming factors such as the presence of key support or resistance levels, trendlines, or other technical indicators. By combining multiple signals, we can make more informed trading decisions and enhance our chances of success.

Moving on to another popular candlestick pattern known as the evening star and the morning star. These patterns are formed by three candles and are considered highly reliable reversal signals. The evening star pattern appears during an uptrend and consists of a large bullish candle followed by a smaller candle, often a doji or a spinning top, which indicates indecision in the market. Finally, the pattern concludes with a bearish candle that closes below the midpoint of the first bullish candle. This sequence suggests a potential reversal from bullish to bearish momentum.

Conversely, the morning star pattern occurs during a downtrend. It begins with a large bearish candle, followed by a smaller candle indicating indecision. The pattern concludes with a bullish candle that closes above the midpoint of the first bearish candle. This indicates a potential reversal from bearish to bullish momentum.

Both the evening star and morning star patterns are powerful signals of market sentiment shifting, but it’s important to consider other factors such as trendlines, support and resistance levels, and volume to confirm the validity of these patterns.

Remember: Candlestick patterns can provide valuable insights into market dynamics and potential reversals. While they should not be used in isolation, combining them with other technical analysis tools can significantly enhance our trading strategies. It’s crucial to practice and gain experience in identifying and interpreting these patterns accurately. By doing so, we can improve our ability to make informed trading decisions and increase our chances of success in the market.

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