Candlestick price action patterns. Part 1
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    Candlestick price action patterns. Part 1

    Hi traders. This is Value trader.

    I see that many traders create complicated approaches to trading, so I've decided to share with you some simple candlestick patterns that you can use in your trading. But I must warn you that patterns itself are not enough to generate consistent profit. You will easily find conflicting patterns on the same price chart – one signal to the «long» side, one signal to the «short» side. You have to choose between those signals – which would you accept?

    So, patterns are not enough. You should sort of «big picture view». You should have idea of where the market is traded right now. I say – «idea», it’s not really «knowledge». Every view we have is considered to be an idea that we have to test – sometimes our ideas are good, sometimes not, but if we build our ideas basing on something that works, we increase our odds of success.

    Also, it’s more effective to use those patterns on timeframes starting from H4 and more. The lower your timeframe, the more noise you will have and the less importance candlestick formations have.
    By «candlestick formations» I mean something not too complicated. All those «Morning stars», «3 white soldiers» and other conventional candlestick formations create more complexity and push us to predict price action rather than to trade upon what we see.

    1. Congestion.

    Most of the time market holds in congestion. It is a price formation, that is built like shown below. We have measuring bar (candlestick), usually it’s a candlestick with elongated body. High and low of measuring bar become local support and resistance level. Also we have at least 4 candlesticks that don’t violate or at least touch high and low of a measuring bar. Duration of average congestion – about 10 bars/candlesticks.

    Congestion.png

    If we register that market is traded within congestion, all trading signals will be of low importance. Price movements within trading ranges can be a result of random move. Nobody really knows what do they indicate.
    Also, price will tend to find local reversal points within borders of congestion.


    2. Simple continuation pattern.

    If you see that price action emerges from congestion or some trading range (and you back up this pattern by understanding that main trend is headed in the same direction), you can use as simple pattern as shown below. First you identify directional bar/candlestick that is considered to have small or no tail at the upper side (for bullish pattern) or at the lower side (for bearish pattern).

    Directional bar.png
    Directional bar2.png

    Then you simple can divide this candlestick on 4 parts and place your buy limit order at the upper quarter (for bullish pattern) or at the lower quarter (for bearish pattern). Your stop-loss should be set with respect to volatility (say, ATR indicator)

    Let me know if this topic is interesting – should we continue talking about that?

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    Most of the traders like to use bar or candlestick charts. But candlestick chart is my favorite. Its easy to understand and also i think i can easily technically analyze the market. I feel comfort with it and also i know that most of the trader like to be with this. Its easy to using and understanding method makes it popular.

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    The majority of the dealers prefer to utilize club as well as candlestick stock chart. Nevertheless candlestick information will be the best. It's simple to implement plus i'm sure i'm able to easily from a technical perspective assess the market industry. Personally i think comfort and ease about it plus i'm sure that will a lot of the trader prefer to become on this. It's simple utilizing and also knowing procedure helps it be favorite.

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    Since there are many candlestick formations which may happen when we are trading in this highly risky forex market, then it is very much important for the traders that they keenly observe each candlestick formation which can give hint towards the possible market direction which may happen. And good explanation from value trader.

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    I think overall pattern is also important specially when happens after neutral days because if we start seeing congestion after strong breakouts the it is the pause of a trend and then any pattern after that could be reliable but I have my own way to define the patterns as I trade most of them with trend momentum candles. But I would like to know more and more about candlesticks as they tell you about the activity for a particular period and that is what we need to know who is dominating the market.

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    dear my friend, how to know directional bar and then we can put sell or short position ?because for several times i was trapped by this situation and the trend move back again, and although i have paid attention for candlestick with body and tail, or do we need to see the higher frames first to know the true trend and then set the position ? thank you very much

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    congestion patterns are reliable sometime specially when we have mature trend, and strong liquidation is there after that strong trend then we can see congestion candles after another strong candle is followed and then we can have shaved top or bottom patterns which are very helpful and if you good in spotting these type of candles and know the background well then with strong money management skills you dont need any other thing to trade. I have seen some strong elongated candles breakout often create rotation area but failed to test the high or strong bullish congestion candle is another way to trade congestion areas.

    Hope it helps

    regards

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    Forex trading is the one that makes traders get the right pattern on the trading chart, this is the basis of the trading of the candlestick as well, I believe well that the traders trading the price action will never survive without known the pattern of the market before trying to trade it, if you do, it might be an error before knowing it.

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    Quote Originally Posted by cozard007 View Post
    Forex trading is the one that makes traders get the right pattern on the trading chart, this is the basis of the trading of the candlestick as well, I believe well that the traders trading the price action will never survive without known the pattern of the market before trying to trade it, if you do, it might be an error before knowing it.
    remember candlestick also give fake signal,the most important thing i believe price action work with is the movement of the market on the highest time frame,i mean the monthly chart,if we can determine the support and resistance of the monthly chart and trend,one might not even need the attention of candle pattern much

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    I could reason well about this in helping the trader all the time in getting the secured trading environment. And to work in this market with safety in price action, the trader will need to be in the overall context seeking before trading order be placed. The issue of the market is direction mainly, and if you get this, you get all actually.

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