Using Candlestick Patterns To Identify Entry Points In Trending Markets
Written by Bert De Graaf
Candlestick patterns, combined with support & resistance, trendlines or other technical analysis tools can be very powerful in finding possible market entry and exit points more quickly and with a higher degree of reliability. The great thing about candlesticks patterns is that they can be applied to pretty much all time frames and in both trending and rangebound markets.
Now, let's take a look how to identify possible entry points using candlestick patterns in trending markets:
Identify the overall trend drawing a trendline
If you forgotten already, for an up trendline to be drawn, connect the low points the currency pair hits as its price continues to rise. For a down trendline to be drawn, connect the high points the currency pair hits as its price continues to fall.
How to find an entry point to go short (again) in this down trending market?
1) Look for a retracement
2) Look for a candlestick pattern to confirm a possible reversal at or near the falling trendline:
Looking to the above chart:
We identify an Evening Doji Star candlestick near the falling trendline which indicates a bearish reversal signal in it's upwards retracement.
How to trade this bearish pattern?
We go short at the close of candle 3 with a stop 1 pip above the high of candle 2.
The Evening Doji Star reversal pattern consists of three candlesticks:
1. A large white body
2. A Doji that gaps above the white body
3. Black body that closes 50% or more into the white body.
Interpretation: A top (bearish) reversal signal
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