In this video:
00:30 – View my Trade of the Week videos.
01:03 – Most candle patterns do not work.
02:28 – Putting the candle in the right context.
04:05 – Looking at the market action at the time of the candle pattern.
05:11 – Trading with the trend and Strength & Weakness.
05:48 – Lifetime access option now available.
06:24 – Check out my Masterclass and Book a call.
06:33 – Blueberry Markets as a Forex Broker.
Do you get frustrated and confused when you see the same candle pattern working sometimes, and then failing the rest of the time? It’s a big issue that a lot of people have when they get into technical trading. And today I’m going to help you to resolve that. So let’s get into it more right now.
Hey there traders! Andrew Mitchem here at The Forex Trading Coach with video and podcast number 654.
View my Trade of the Week videos.
Now if you watch my trade of the week videos that come through each week, you would see the quality of the trades that we take and we place on a membership site and we take for ourselves, and we help our clients by learning about those patterns and also to earn from those trades.
Now we use candle patterns a lot here at The Forex Trading Coach. In fact, it’s the main item that I look at on my charts when I’m 1st considering a new trade. And we use engulfing candles and outside bars and pin bars.
Most candle patterns do not work.
Now there are hundreds and hundreds of candle patterns. The trouble is, I found when I started that most of them don’t work in the market.
And you know, they are designed for other markets that have like opening gaps and things like that. Now, in the Forex market, I personally find there’s just 3 or 4 candle patterns that I need to look at and focus on and and that’s it. Now of course, over time we’ve developed this to work on cryptos and metals indices, commodities as well.
But predominantly there’s 4 patterns that all shapes that I look for. But let’s say an engulfing candle, which is quite a common, candle that you would know about when the body of a candle engulfs the body of the previous candle. The problem is, is you can’t go out there just looking for every engulfing candle and go, well, Andrew says engulfing candles work or pin bars work and just take every single 1 as a trade.
You can’t do that. It’s going to fail. And that’s why when you go through your charts, you will see some engulfing candles and you go, wow, that’s a brilliant engulfing candle and look what happened. The price went in the perfect direction and it worked a treat. And then you’ll find multiple engulfing candles after that 1 that just if you’d done the same thing and treated it the same day would fail.
And so it becomes very frustrating. And people lose, I suppose, confidence in technical candles and technical charts when they don’t quite know how to interpret them.
Putting the candle in the right context.
So a candle is just the starting point for me. I then need to put it in the right context, which means in the right part of the chart, does it show in the right part?
Does it have some previous indecision? So I’m looking at maybe the previous candle as well. If it’s a bullish engulfing candle has there been a prior downtrend. If the market is flat and then you suddenly get a bullish engulfing can do it has very little relevance. And then always look left and look right. And what I mean by that is if you look left on your chart you will see previous bounce levels.
So let’s say you’re bullish and engulfing candle has bounced off a previous low. And that’s going to add more weight to it. Let’s say if you look left there was a previous uptrend and it hit a resistance level and then bounce back. Went through that and then came back and bounced at that level again. You then have a support resistance flip.
So now you’re starting to add a little bit more context to that trade. The bullish engulfing candle has happened and pulled back and bounced for a reason. Now because it’s off of previous swing high or swing low support resistance level. It could be off the daily pivot point. And then you look to the right and you look to see has it bounced off let’s say a round number.
And I just find it incredible that so few people out there look at the actual price. So you start to put all this together and then you say, okay, is it in the right part of the chart? Is there any obvious barrier that it’s buying into let’s say. And again, you can’t just say what it bounced that support and it’s engulfing candle. Andrew says take a buy. No you can’t do that.
Looking at the market action at the time of the candle pattern.
You know you have to look at the market action at the time. Is there plenty of room for the trade to move? Are you buying directly into maybe another resistance area, another round number? And so just because it’s an engulfing candle, it may not actually work because of something else in the way.
So all these type of things need to get put into context. Likewise. And I’ve said this many, many times or many videos and podcasts just like this 1. Look at the protection of your stop loss. So again use the context use. Have we got a level to the left or with a pricing to the right that’s going to help protect that stop loss position to give your engulfing candle more chance of success.
And we look at other things like divergence etc. like that. And we use Bollinger bands. And there’s other things that we look at to put that candle in the right part of the chart. Has it got stop loss protection? Has it got room to move to the profit target? Is it bouncing at a certain level? Has there been previous indecision?
All those type of things need to come into your decision making at the time of the day, for example. Can be very important as well. What time frame are you on.
Trading with the trend and Strength & Weakness.
And are you are you looking at strength and weakness? You know, just because it’s an engulfing candle. And yes, it may have got room to move, but let’s say it’s trading against like the main strength and weakness of that currency pair for the day.
It might just pull back a little bit and then turn around again and drop. And you look at it and go well there’s a bullish engulfing candle. And it failed. Well maybe there was a reason for that. You know maybe the setup wasn’t quite there. And so you have to add all these pieces of information together to give yourself that best opportunity of a successful trade. And that’s exactly what we do and teach how to do that.
Lifetime access option now available.
Now, you may have seen that we’ve just put together a new pricing structure for the course where we’re giving people the opportunity to join with our daily trades, our webinars and our forum site for 12 months, still unlimited access to the course and the software and email help.
But we’re also offering a lifetime option as well. And we’re offering the 12 month option with 3 split monthly payments to help people in terms of getting in and, you know, splitting the payments up so that they can get into the course straight away, learn it, start making money, and then that will help them with the following 2 payments. So I’ll put a link to that as well if that interests you.
Check out my Masterclass and Book a call.
Our masterclass is available to watch if you’ve not been on that. If you’d like to book a call with 1 of us, you can do that as well and have a chat through your trading and how we can help you to see if we’re right fit for each other.
Blueberry Markets as a Forex Broker.
And if you’re out there looking for a really top quality broker, I can highly recommend Blueberry Markets and I’ll put a link to them there. MT5 platforms. Awesome. They’re constantly adding more and more markets to their platform. Really good tight spreads, great people to deal with and withdraw speed to dislike. Really, really fast. Some of the best I’ve ever seen.
So that’s it for this week. Don’t forget, candles are great, but not all candles are equal. So, make sure you are aware of that next time you look at a candle shape or pattern for your trading decision. This is Andrew here at The Forex Trading Coach. I’ll see you this time next week. Bye for now.
Episode Title: #654: Why the SAME Candlestick Pattern Works… Then Fails