Hello and welcome to another episode of the bulls and the bears. This week we’ll look at using all the candlestick patterns that we’ve studied this past few weeks to interpret support and resistance levels.In plain English, we’ll find out how a read on all the candlestick patterns we’ve studied so far using support and resistance. Some of you may have some inkling about support and resistance reading my post Identify Support and Resistance Levels with Price Action Analysis. If you haven’t I suggest you do it real quick before reading this post. Or else you will be totally lost in the wilderness here.
But before I go on, a little reminder. If you havent read my previous candlestick posts do so as soon as possible. Because if you try to make sense out of this post without reading the others, you may end up pulling your hair in utter frustration. Just so you know, we started by learning Fundamentals of Learning Candlestick Patterns.
Then we touched on How To Read Single Patterns To Identify Potential Market Moves . We then moved on to Dual Candlestick Patterns, and finally we ended on Triple Candlestick Patterns. So there you have it.
Now to today’s lesson
Applying Candlestick Patterns With Support and Resistance
Some say the easiest way to interpret candlestick patterns is by applying them with support and resistance levels. Some of you may be wondering”Now why is that the case?” because support and resistance levels reflects psychological areas where the bulls(sellers) and the bears(sellers) have set up their stalls. Also, trading candlesticks in isolation can be detrimental to the health of your trading positions, not to mention your trading account. You need to know the market environment and what price is trying to get across to you.
Also , Getting to know how candlesticks react to these psychological areas will help you establish which direction the price will head to next. To help clear the confusion, let’s look at a live price action situation using the three inside down pattern..
As you can see the resistance barrier has set up stall at the 1.49 level. You’re probably like like “Hmmm…. Looks like the breakout is on here. I better jump in” Not so fast buddy! See the bullish candle massaging the resistance barrier? You’d be better of waiting first for further confirmation. Jump in right now,and you’ll suffer a massive nuclear hit on your trading position and your trading account. Now let’s see how your patience is rewarded.
It’s a good thing you waited,. Because two candlesticks later, here comes a nice Three Inside Down formation knocking on the door. Now if you’ve been paying attention you’d know that a three inside out formation is a bearish reversal. It suggests the bears are taken over because the bulls have run out of steam. Since you smell blood, you decide to go short on the currency pair. This means you want to enter a trade to sell the pair. Now you know the breakout is really on here. And since you prefer to be safe than sorry you put a nice stop loss above the resistance pair as indicated by the red line.
By holding out for the Three Inside Down formation,you increased the odds of a making a nice profit. And your patience was also greatly helped by your knowledge you acquired from studying candlestick formations. Let’s see how your decision to sell panned out.
Now you see why it pays to be patient? By holding out for the Three Inside Down Formation the pair has immediately netted you a humongous profit.
Time to buy that SUV you’ve been fantasizing about. Even though you’ve made a huge profit,you still have this lingering question at the back of your head going like “Why do I have to trade candlestick patterns with support and resistance levels when I could get more signals and make more money with candlesticks alone? Well another look at this chart using only chart formations might cause you to rethink that option
See all the various candlestick patterns shaded in pink and blue? If you had traded based solely on these formations, your trading positions and your trading account would have suffered a nuclear hit so massive that it would have probably plunged you into a major depression .
So now you know it pays to pair up candlestick formations with support and resistance? You will be doing your forex account a whole world of good if you don’t jump straight into the fray. Just wait for confirmation from the bears or bulls depending on the direction of the trend.
Just so you know, this illustration does not apply to the three inside down formation alone. You can apply this illustration using the various formations in all the candlestick patterns that we’ve studied so far-be it bullish or bearish reversals. All you have to do is to wait for confirmation signals that these patterns have broken through the resistance and support barriers, and then you make your move. Anything less will be a monumental disaster.
That’s a wrap for ”How To Get a Read Like Clockwork all Candlestick Patterns using Support and Resistance Levels .” It also means we have come to the end of our candlestick pattern series. Hopefully you’ve gained a full understanding of how to read candlestick patterns on the price charts.
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