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Examples, candle stick patterns
To easier understand how to spot candle stick patterns you can see some examples here.
Dojis
Have a look at this beautiful picture.
"A picture says more than a thousand words", but here is a little explaination from one of my trades (+1200 pips ). The EUR/USD had been in a nice uptrend but had started to go down a couple of hundred pips (You will find how to spot trends at this page), so I knew it had to continue up in a while. I was looking for a confirmation, and one day it was there. Have a look at number 1, a nice dragonfly doji appears. I enter long because it was at a good spot. When number 2 and 3 appears, I moved my stop loss to break even. 2 and 3 indicates that the direction is not decided yet, and they are inside the candle between 1 and 2.
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But the EUR goes in the right direction (UP), 4 and 5 is a confirmation that the direction is UP. When 6 and 7 appears they say: "Hey, the buyers has started to loose against the sellers, watch out!". So I move my stoploss further up. But the trend continues and 8 say: "You are getting rich, hang in there", which I do until I see a gravestone doji a couple of days after and closing the entire position with a 1200 pip profit.
It's not an exact science, but you have to learn to interpret what the charts are trying to say to you. |
Bearish Engulfing
Engulfing patterns are pretty easy to identify, often they stick out alot from the rest of the candlesticks.
This picture is from an other of my EUR/USD trades. The EUR/USD had been in a small upward move but the candle sticks had begin to be smaller. If you look at number 1 you see a bearish engulfing covering the TWO previous candles which is my sign to go short. As I suspected the EUR/USD did go down, FAST! After a couple of days marked as number 2, the market has started to go in a sideways market. I started to be a little nervous, so I moved my stop loss to break even. If you look closer at 2, you see that most of the noses are pointing up which is good for us.
As I hoped for, the market continues down about 600 pips but at number 3 the noses are beginning to point down, which tells us the market don't want to contiue any further down. I am happy with my 900 pips profit, so I close the position.
You will not always find the most obvious candles like engulfing, dragonfly and gravestone, so you have to learn to watch out for the shapes of the noses. Long noses is one direction is often an indication to be careful.
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