Working with Straightforward Single Stick Patterns

In This Chapter

^ Taking advantage of purely bullish single-stick patterns ^ Understanding bearish single-stick patterns and their uses f

■ t's time to begin diving into individual- and multi-period candlestick patterns. Many patterns give buy and sell signals, and some serve as a heads-up that a big move is on the horizon (although it's not always clear just what that big move will be!)

Most candlestick patterns are valid based only on the market activity of the previous few days. For instance, some patterns indicate a change in trend. Using one of these without knowing about the previous trend wouldn't be very useful. Usually, the context in which you find a pattern tells you a great deal about what you should do based on that pattern. There are, however, some single-stick patterns that are considered either bullish or bearish regardless of the context, and those patterns are what I focus on in this chapter.

This chapter explores the signals that may be given off from single-stick candlestick patterns, some bearish and some bullish. (The constructions of these patterns are covered back in Chapter 3 if you need to have a quick look at what's behind these patterns.) I demonstrate what may have happened during a particular day trading-wise to result in the formation of a significant single candlestick on your chart. (I say significant, because candlestick patterns are often used to forecast future price action.) I give examples of a candlestick signal working well and also cases where the pattern may not give such a positive signal. If you know how to recognize and trade on these examples, they should provide some reliable tools that you can add to your trading toolbox.

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