As with long white candles, and any candlestick patterns for that matter, long black candles don't always work out perfectly. Long black candles do fail, as you can see in Figure 5-20. In fact, this figure includes two instances of long black candle failures!
Figure 5-20 contains a chart of the futures contract trading on crude oil from the summer of 2007. If you were involved with any oil or other energy-related commodity trading during that time, you'll remember that shorting was a hard row to hoe then.
Two long black candles appear in Figure 5-20. Both fail. One crashes and burns after a few days, and the other follows suit the very next day. For clarity's sake, I labeled them #1 and #2:
1 Long black candle #1 was followed by an up day, but this up day didn't break resistance or the high of the signal candle. It managed to stay below resistance for a few days before breaking out and then trading higher for several days in a row. Note that if you didn't get out of a short position on the day that resistance was broken, you never had a shot to get out at that level again. Without a protective buy stop at the failure level, your losses would've continued to pile up.
1 Long black candle #2 doesn't work out too well either, but at least it failed quickly. The possibility for a successful trade was clearly over at that point, and if you were involved, you could've moved on to the next trade. The trait that #2 shares with #1 is that if you didn't exit when the resistance level was violated, you basically didn't have a chance to get out at a lower level to limit your losses. Your losing trade would've just gotten worse. Getting out of trades quickly is just as important as finding and executing winning trades.
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