When you’ve just opened a trade, but a reversal candlestick appears right in front of your nose, close the position immediately: In a rising market, one shouldn’t go short based only on a bearish reversal signal, but it’s better to exit your long positions. Close positions based on candlestick signals When most traders are buying, why go short? On the contrary, you need to wait for someone to “stumble” and make the wrong decision … and enter the market against their position. The trend exists because trading psychology doesn’t change as the years go by. When the market is moving up and demonstrates a clear uptrend, what is the point of trading against it?Īs you can see from this chart, just one trend trade can make you a fortune, while four trades against the trend can wipe out your account completely.

It’s an extremely simple rule, but many traders somehow ignore it. “An important principle is to place a new position (based on a reversal signal) only if that signal is in the direction of the major trend.” As we can see, the trend hasn’t reversed but changed into a sideways trend. In the chart above, the price starts moving sideways right after these reversal candlestick patterns appear. Although in fact these candles always indicate just one thing: the change in the mood of market participants. There are 2 reversal signals on the chart: a shooting star (red arrow) and a hammer (green arrow).īoth signals can be interpreted as reversal signals. And we’ll just show you how it looks on the chart: Now, read this last passage again, try to comprehend and visualize it in your head as you read it. Trend changes usually occur slowly, in stages, as the underlying psychology shifts gears.” Hearing that term may lead you to think of an old trend ending abruptly and then reversing to a new trend. “The term “reversal pattern” is somewhat of a misnomer. In his book “Japanese Candlestick Charting Techniques: A Contemporary Guide to the Ancient Investment Techniques of the Far East” Steve Nison writes: This is exactly the knowledge base every trader needs to be successful.

How to open and close positions based on these patterns.How to interpret candlestick patterns correctly.We’ve prepared the top 6 tips on how to trade candlestick patterns.

3 Close positions based on candlestick signals.

1 Not a “reversal”, but a “trend change”.

Candlestick pattern book by steve nison