Everyone knows candlestick pattern trading strategy is one of the easiest ways to make money. But learning about the candlestick patterns is not that easy. There are more than hundreds of candlestick patterns in the market. Based on the position of the Japanese candlestick, it also gives different signals. For instance, if you spot a bullish pin bar at the bottom of a trend or near a support level, you should be expecting a strong bullish rally. On the contrary, if you spot the same pin bar pattern at the top of an uptrend or near the resistance level, it is an indication that the price is ready to fall.
So, is there any way by which we can become good at price action trading strategy without giving much effort? Well, you need to learn about the popular candlestick patterns in the market. Once you study them, you are going to become much more confident with your actions. Now let’s learn about the top 4 candlestick patterns frequently used by retail traders.
The pin bar
The pin bar pattern is one of the most popular reversal patterns used in the options trading profession. A pin bar has a small body and a long tail. Usually, the tail is 3-4 times bigger than the body of the pin bar. But remember, if you spot the pin bar in the middle of nowhere, you should not take any trade. To open the long trade, you need to spot the pin bar near the support level. In such a case, the tail of the pin bar will be pointing south.
On the contrary, if you wish to execute the short trade, you should be looking for the bearish pin bar near the resistance level. The tail of the pin bar should be pointing north. Based on the position of the pin bar, you should be taking the trades with low risk. To get more info regarding money management techniques, you may visit the official website of Saxo.
The engulfing pattern
The engulfing pattern is a very powerful reversal pattern. Usually, advanced traders use the engulfing pattern to trade the key reversals in the market. However, you can also use this pattern to trade the end of a retracement. An engulfing pattern is formed by the combination of the two candlesticks. The first candle should be a part of the long-term establish trend. And the second candle will completely engulf the first candle. Once you spot such a pattern at the important trading level, you should be able to execute high-quality trades in the market.
The doji pattern is often ignored by rookie traders. But the professional traders consider these patterns as an early indication that something big is going to happen in the market. So, how do we use the doji pattern and find the direction of the trend? You need to wait for the next candlestick which has a strong bullish or bearish body. That candlestick will determine the direction of the trend. But remember, you should not rely on the doji patterns which are formed on the lower time frame. If you do so, you will keep on losing money most of the time and thus you will lose a big portion of your capital.
A bullish and bearish candlestick
You might be thinking that there is nothing to learn about the strong bullish and bearish candlestick. But the professional traders consider it as a confirmation tool. When you look for this pattern right after the doji, you will know about the potential direction of the trend. So, learn to analyze the bullish and bearish candlestick in any time frame. But remember, you will still have some losing trades after using the price action confirmation signals. So, do not trade the market with high risk by ignoring the basic rules of money management. If you do so, you are going to lose like the majority of the traders.