Candlestick formations & patterns

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Jason Sen started trading in 1987 on the floor of the London international financial futures exchange. A trader for over 35 years, he has also trained 100’s of traders over the last 15 years.
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As a middle-aged day trader who started trading on the London International Financial Futures Exchange in 1987, I can attest that trading derivatives on the floor required a unique set of skills.
To be successful, one had to be alert at all times, always on the lookout for market-moving news and changes in trading patterns. You also had to be aggressive, ready to pounce on any opportunity that presented itself.
Finally, intense focus was crucial, as you had to keep track of multiple trades simultaneously and be able to make split-second decisions.

However, in the year 2000, I successfully made the transition to digital trading. This shift required a different set of skills, as I had to rely on technical analysis to identify low-risk trade opportunities.
My focus shifted from watching the floor to monitoring charts and graphs, looking for patterns that could indicate potential trades.

I also started using stop-loss orders and targets to minimize losses and maximize profits. This approach allowed me to set clear parameters for each trade, ensuring that I wasn’t caught off-guard by sudden market shifts.
Additionally, I had to develop a new level of discipline, as it was easy to become distracted by the constant stream of information available online.

Digital trading offers many advantages, including the ability to access vast amounts of information, execute trades in a fraction of a second, and set stop-loss orders and targets with ease.
However, it’s important to remember that the key to success is the same as with floor trading: discipline.

No matter the trading platform, it’s essential to remain focused and alert at all times, and to use technical analysis to identify low-risk trade opportunities.
Additionally, it’s important to set clear parameters for each trade and to stick to them.
By staying disciplined, you can minimize losses and maximize profits, even in the face of sudden market shifts.

Overall, while the transition from floor trading to digital trading required a significant shift in my approach, I was able to adapt and develop the necessary skills to continue to be successful in the ever-evolving world of finance.

As a seasoned trader in forex, stock index, and commodity futures, I have discovered several key techniques to help me confirm trends and identify potential turning points.
One of the most important techniques I use is candlestick analysis.

Candlestick analysis involves studying the shapes and patterns of individual candles on a chart to gain insight into the market’s behavior.
By looking at the body, wicks, and shadows of each candle, I can determine the strength or weakness of a trend and identify potential turning points.

One candle formation that I frequently use is the Doji.

A Doji formation occurs when the opening and closing price of a candle are nearly identical, creating a small body with long wicks or shadows.
This formation often indicates indecision in the market and can signal a potential reversal or change in trend.

Another candle pattern that I use is the Hammer.

The Hammer pattern occurs when a candle has a small body and a long lower wick, and appears after a downtrend.

This formation suggests that buyers are starting to enter the market and can indicate a potential reversal in trend.

In addition to candlestick analysis, I also use other technical indicators such as moving averages, trend lines, and support and resistance levels to confirm trends and identify potential turning points.

Overall, by combining these techniques, I am able to gain a better understanding of market behavior and make more informed trading decisions in forex, stock index, and commodity futures.

Candlestick analysis is a powerful tool for traders to identify potential reversals and confirm trends. Here are my favorite candle formations and what they indicate:

Engulfing candles: Engulfing candles occur when a larger candle completely engulfs the previous candle.

A bullish engulfing candle forms when the current candle’s body completely engulfs the previous candle’s body during a downtrend, indicating a potential reversal to an uptrend.

Conversely, a bearish engulfing candle forms when the current candle’s body completely engulfs the previous candle’s body during an uptrend, indicating a potential reversal to a downtrend.

         

Shooting star: A shooting star candle forms when the price opens higher than the previous day’s close, but then the price drops significantly during the day, with a small body and a long upper wick or shadow.

               

This formation suggests that sellers are taking control and can indicate a potential reversal to a downtrend.

Morning star: A morning star candle formation is a three-candle pattern that occurs during a downtrend.

The first candle is a long bearish candle, followed by a small-bodied candle that gaps lower, and then a long bullish candle.
This formation indicates that buyers are taking control and can signal a potential reversal to an uptrend.

Evening star: An evening star candle formation is the opposite of the morning star and occurs during an uptrend.

The first candle is a long bullish candle, followed by a small-bodied candle that gaps higher, and then a long bearish candle.
This formation suggests that sellers are taking control and can indicate a potential reversal to a downtrend.

Overall, these candle formations are just a few examples of the many patterns that traders can use to gain insight into market behavior.
By combining candlestick analysis with other technical indicators, traders can make more informed trading decisions and improve their chances of success.

Head and Shoulders: The head and shoulders pattern is a bearish reversal pattern that occurs after an uptrend.

It consists of three peaks, with the middle peak being the highest, creating a “head” shape, and the two outer peaks forming the “shoulders”.
This formation indicates that buyers are losing momentum, and a potential reversal to a downtrend is likely.

Double Top: The double top pattern is a bearish reversal pattern that occurs after an uptrend.

                 

It consists of two peaks at approximately the same level, separated by a trough. This formation indicates that buyers are struggling to push the price higher, and a potential reversal to a downtrend is likely.

Double Bottom: The double bottom pattern is a bullish reversal pattern that occurs after a downtrend.

It consists of two troughs at approximately the same level, separated by a peak. This formation indicates that sellers are losing momentum, and a potential reversal to an uptrend is likely.

Wedges: Wedges are continuation patterns that can be either bullish or bearish.

A rising wedge is a bearish pattern that occurs when the price consolidates between two converging trend lines, with the upper trend line having a steeper slope.

A falling wedge is a bullish pattern that occurs when the price consolidates between two converging trend lines, with the lower trend line having a steeper slope.

Flags: Flags are continuation patterns that can be either bullish or bearish.

A bullish flag is a consolidation pattern that occurs after a sharp price increase, with the flagpole being the preceding price move.

A bearish flag is a consolidation pattern that occurs after a sharp price decrease, with the flagpole being the preceding price move.

       

Triangle patterns.

Ascending Triangle: An ascending triangle is a bullish continuation pattern that occurs when the price consolidates between a horizontal resistance level and an upward-sloping trend line.

This formation indicates that buyers are gaining strength, and a potential continuation of the uptrend is likely.

Descending Triangle: A descending triangle is a bearish continuation pattern that occurs when the price consolidates between a horizontal support level and a downward-sloping trend line.

 

This formation indicates that sellers are gaining strength, and a potential continuation of the downtrend is likely.

Symmetrical Triangle: A symmetrical triangle is a neutral pattern that occurs when the price consolidates between two converging trend lines.

     

This formation indicates uncertainty in the market and can lead to either a bullish or bearish breakout.

Overall, these chart patterns are just a few examples of the many patterns that traders can use to gain insight into market behavior.
By combining chart pattern analysis with other technical indicators, traders can make more informed trading decisions and improve their chances of success.

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