Candlestick patterns

Candlestick patterns are one of the various ways to represent price behavior and relationships.

It is one of the preferred representations of market movement where a relatively high amount of data gets transferred to the observer in a compressed simplistic manner.

This being said, we want to point out to the novice trader that as much as the fundamental candlestick patterns are highly valuable and essential in a trader's repertoire, more complex pattern figurations quickly lose their individual edge in probabilities to be helpful as a tool.

The most efficient shortcut through a lot of terminology and understanding of this Japanese way of reading charts is twofold:

1.Location-It is of the absolute essence to not watch candlesticks in isolation but understands that their meaningfulness relates to their position in time on the chart.

2.Interpretation-It is not important to know that a small range sideways day where open and close prices are nearly identical is called a doji.

What is essential is to imagine that it represents a pat situation between bears and bulls, representing emotional uncertainty. Therefore dojis stand, based on location in the chart, for uncertainty or a possible starting point of a shift in conviction introducing a potential turning point.

The differentiation we like to make here is that it serves the trader more help instead of learning complex relationships of candlestick patterns in relationship and sequence to each other to think from the end how bulls and bears feel by the end of a candlestick print.

For example, a "bearish engulfing pattern."

should not be seen as an entry signal short after this formation has completed printing on your chart but rather represent in your mind that all buyers in the previous candle have been proven wrong and are now in losing positions.

Thinking in these terms of how bulls and bears feel at the completion of a chart pattern will be a conducive way to add to your stacking of edges in a much more helpful manner than rigid interpretations of events that are dependant on a much broader scope than "long/short/sideways."

We generally favor alternatives to strict order instructions of tools that support price interpretations like indicators and oscillators, which typically heat up emotions.

Traders need clarity and unemotional interpretations that lead to an executable rule-based system approach.