What is A Candlestick Pattern?
The filthy lies about chart patterns that lead to profit.
After years of suspicion, he finally got caught. Red-handed. In the act. Where? On the toilet.
Such was the recent fate of grandmaster chess player Igors Rausis.
If a grandmaster chess player needs a little help during a chess match, shouldn’t you consider a little help identifying complex candlestick patterns?
Evidently, he snuck away during a game to use his phone to simulate his next best move. Apparently the pressure from his chess match was getting to the point where he simply couldn’t figure out his next move on his own.
So he cheated. And according to the International Chess Federation, he has been under suspicion for some time now.
Let that sink in for just a second. A grandmaster-level chess player essentially turned to a machine to figure out his next move. Shocking, right? If you read the articles, the uproar is impossible to miss — especially given his accomplishments.
However, after the shock and indignation starts to wear off... a very uncomfortable truth starts to set in that nobody wants to say out loud.
“Of course he cheated.” In fact, isn’t it shocking that someone hasn’t been caught doing something like this sooner?
Think of your results. The battle scars your account has withstood. The stress from second-guessing and losing. The ups and downs that come with profiting and then losing… starting over… profiting… only to lose again.
Eyeballing candlestick patterns on your own effectively makes trading an expensive game of frogger… with your account waiting to get squished.
And reading those charts? Trying to spot patterns and locate trades that will actually turn a buck without giving you an ulcer?
If you’ve experienced that stress and loss… or better yet, are looking to avoid it altogether… then this eBook is for you. If trading is a breeze and you never lose money, thank you for your time… go check out the article about Igors’ demise.
For the rest of you, here’s the first filthy lie you need to come to grips with about trading price action patterns:
Igors was only doing what institutional traders do every second of every day the market is open.
The only real difference? He was sitting on the can, hiding from public view.
Why Most Price Action Traders Fail Before They Even Enter A Trade
For those in the know, there was a dead giveaway that Rausis had likely been cheating for some time. The clue came within his rating — which was based on his win/loss record and match scores.
It was simply going up too fast.
It starts with a simple question: How long does it take you to spot locations and plan your trading session?
If the answer is anything more than 5 minutes, if that, then you should prepare your wallet for a beating.
Why? Isn’t preparation the key to trading success? Isn’t it the key to success with everything?
Not really. Not with price action trading anyway.
Look, we see it all the time. The routine is pretty much the same for everyone.
News, chart patterns and comment boards. It’s the perfect combination that leads to late, losing, and frustrating results.
First, it’s the cursory review of the headlines to see if there are any market-moving events that took place. Sure, that’s great for cocktail conversation, but not for consistently profitable trading. Why? Because by the time you’re reading about it, you’re already way too late.
Then, it’s a review of the economic calendar to see what big reports are being released. For many traders, this calendar simply tells them exactly when they’ll be incurring massive losses by attempting to trade these events. Why? Because the price action is so unpredictable and volatile.
From there, it’s the charts. ‘Look left’ is the battle cry for the next several minutes as millions of traders hopelessly try to eyeball support and resistance levels, trends, channels and major reversal points. What a colossal waste of time. Why? Because any hedge fund trader will tell you that it’s impossible to calculate the underlying mathematical sequences that are driving price action — simply by eyeballing a chart.
And then there’s the indicators. With the precision care of a heart surgeon they are fine-tuned and prepped for action. We have bad news for you. Those are likely leading you astray as well. Why? Because many price action indicators fail to account for the volume that precedes and drives price action.
Sprinkle on any of the additional steps you may have learned and presto! You’re ready to make some money that session? Nope. Not likely.
The rotten filthy truth? This is usually the most costly, most complicated and tiring way you can go about
trying to trade price action.
Indicators often bring more complexity than clarity to confirming profitable chart patterns.
Here’s why: For as disciplined as you might believe you are with this process — you really are just guessing at trade entries without any real confirmation.
Usually within minutes of the start of their session, millions of traders have tossed their carefully selected locations and are white-knuckling their way through mostly losing entries and exits.
Trading doesn’t have to be this way. It can be fun, profitable, and, believe it or not… stress-free too.
It starts with simplifying your approach.
In reality, price action can be boiled down to a handful of price action candlestick patterns. You’ve likely seen them before. You may even be trying to trade them now.
Price action can be boiled down to 8 Pure Patterns.
Pure Patterns You Can Take To The Bank
After just three moves in a chess match, there are over 9 million possible moves you can make. After four moves? 288 billion! No wonder ol’ Igors headed to the can for a few minutes to think things over (with a little help).
How many candlestick patterns are there?
Candlestick patterns are broadly classified into three categories:
Single Candlestick Patterns
They are the simplest patterns as they comprise one trading period and form the building blocks of longer patterns. The patterns are mostly made up of one candlestick, which provides valuable information of the ongoing trends and price action in the market. Such patterns include Doji Candlestick, Dragonfly Doji, Gravestone Doji, Hammer, and Inverted Hammer.
Double Candlestick Patterns
It is a pattern whereby a trading signal is generated from two consecutive periods or candlesticks. The patterns are mostly used to hint at potential price reversals. Engulfing, bearish, and bullish fall under this cluster. Harami and Tweezers are other good examples.
Triple Candlestick Patterns
Such patterns comprise three candlesticks and are used to warn of a potential price reversal. They are Morning Star and Evening Star.
The same is true with price action patterns for day traders. There are countless bullish, bearish, breakout, reversal and continuation patterns. Everyone has heard of them… and for good reason.
There are thousands of bullish and bearish continuation and reversal trades floating around. Only a handful consistently make money!
Fortunately, there are only EIGHT price action patterns or candlestick patterns that you need to be on the lookout for in any given futures market.
Even better? They show up all the time and can unlock lots and lots of profitable ticks.
These are market layups that you should be cashing in on every time they surface. They have predictable price action and they’re really easy to spot… AFTER they surface and the money has been made.
For reference, here’s a rundown on each of the eight price action patterns you should keep an eye out for.
Flag: Perfect as an entry point for a continuation trade when a trend starts, and briefly pauses before continuing.
Cup With Handle: Great for trend trading once price stabilizes after a big rip or dip down.
Symmetric Triangle: High probability entry point for continuation trades as price retraces to prior support.
Ascending / Descending Triangle: Price consolidates, almost like a spring ready to uncoil ahead of a breakout.
Double Top/Bottom: Ideal candlestick pattern for reversals after price tests a high or low for the second time.
Rectangle: Multiple entry points and exit points are created as price ranges with reliable highs and lows.
Head & Shoulders: Proven reversal candlestick pattern for swing traders looking for big price moves.
Triple Top/Bottom: Highs or lows are tested before price makes a significant reversal.
Okay, so you’ve seen or heard of these candlestick patterns before... But have you had any success trading them with consistently profitable results?
How To Interpret Candlestick Chart Patterns
Interpreting candlestick chart patterns comes down to the time frame. Different time frames will come with a different formation that may paint a different picture of the direction price is moving. In most cases, traders start with longer time frames, such as weekly and daily charts, to affirm the direction the market is moving.
Depending on how the candlestick patterns form on the daily and weekly chart, it becomes easier to ascertain support and resistance levels. In addition, the alignment of the candlesticks will also provide valuable insight into market sentiments.
If most candlesticks are bullish, it implies bullish momentum and the likelihood of the price moving up. Similarly, if most candlesticks are bearish, it implies bearish momentum and the likelihood of price edging lower.
Once the trend and prevailing market condition are ascertained, it becomes much easier to ascertain entry levels in the lower time frames. The emergence of a bullish engulfing candlestick in a downtrend will signal trend reversal and the prospect of price moving up. Similarly, the emergence of a bearish engulfing candlestick in an hourly chart could signal the start of a downtrend and the need to enter short positions.
If you’re like most traders, you struggle with two VERY common problems:
Confirmation: As you start to see the candlestick pattern unfold, you’re not entirely sure that it will hold. You’ve probably been burned before and understandably, you’re gun-shy.
Complication: To help with confirmation, you’ve likely added indicators or oscillators to your chart. Before you know it you have so many things blinking and beeping at you — with very mixed accuracy.
Sure, you may have tried to establish ‘rules’ that you need to follow before you enter the trade based on the pattern. Isn’t that what most educators teach? But, let’s be honest: In the heat of price action does it really help or hurt to have 42 (or however many) rules that you need to follow?
Then of course, there’s your support and resistance lines… the same ones you added at the beginning of your session. How many times has price plowed right through those levels without so much as a wink or a nod?
In the end, despite your best efforts, you’re left watching and losing out on MASSIVE price moves that deliver hundreds of ticks to SOMEONE’S account. Just not yours.
Or worse yet, you’re on the losing end, dealing with another loss.
Here’s the deal: It’s not the candlestick patterns that are the problem. You just need a reliable, proven way to trade them.
Specifically, you need early confirmation so that you can get in on time. AND you need stops and targets that you can take to the bank.
Perhaps it’s time for a hard truth: If you think that a hedge fund trader sits at his or her desk, with billions of dollars at their disposal, eyeballing a candlestick pattern and triggering a trade by the feel of it… think again.
They’ve got a down-and-dirty formula that works… pretty much all the time.
How To Confirm Price Action That Profits
You have to imagine that a chess player who’s reached the ‘grandmaster’ level has a pretty intimidating presence coming into any match. But the second you find out that they need to head to the bathroom to figure out their next move?
All their brilliance instantly evaporates with the sound that only a whoopie cushion can make… probably with the stench that goes with it.
Keep that image, sound and even smell in your head for a moment. Now swap out the grandmaster chess player for a typical hedge fund trader.
They’re not that much smarter. They’re not that much better-looking. But they are minting money with a high percentage of their trades.
Why? They’re following a very simple, easily repeatable formula.
That formula? It’s given to them right on their chart with paint-by-numbers clarity. At its core? Ironclad price action pattern confirmation.
To be clear, we’re not just talking about your typical ‘green light or red light’ confirmation. Nope. In order to consistently function as a profitable system, three types of simultaneous confirmation are required.
Price Action Pattern: Instead of eyeballing a candlestick pattern on your chart, and dealing with the panic and second-guessing that goes with that process — simply have them automatically drawn on your chart. Not after the fact, but as they start to emerge.
Volume Support: Price moves of any kind need fuel… and that fuel comes in the form of supporting volume. Without volume — you’re dead in the water. Before even considering an entry with a confirmed candlestick pattern, you need confirmation that the volume will be there to support you.
Entry: Not an entry ‘zone’ — but rather a to-the-tick entry point that you can rely on. Any entry recommendation worth its salt will come with a clear profit target and an unmovable stop.
We’re not just talking about access to this information. We’re talking about artificial intelligence tools that automatically detect these profitable price action pattern conditions — and draw them on your chart.
Check out the ES chart below. During any given session, there are usually plenty of profitable price action pattern opportunities — regardless of your preferred time frame.
In this instance, using a 5-minute chart, a reverse head and shoulders starts to emerge. In a matter of seconds, we can quickly confirm our trade:
>> Price Action Pattern: Yes. There’s no mistaking the setup as it’s drawn for us directly on the chart. Instead of secretly wondering whether or not it’s a mirage — each anchor point of the pattern is plotted for you.
>> Volume: Yes. The volume profile directly above the plotted pattern tells you that volume is picking up. There’s gas in the tank to support the next price action move — which happens to end up being a breakout.
The result? Plenty of ticks for any trader to hit their profit target.
If at this point you’re reading this and thinking… ‘oh great... another supposed ALGO’... think again. We’re not talking about your brother-in-law’s ‘algo’. We’re talking about institutional-grade tested and back-tested systems that deploy trades and help grow capital in seconds.
They scan the market in real time looking for every possible LONG and SHORT variation of the patterns.
Here’s another example. This time on a 3-minute chart, with a Descending Triangle. When price grinds sideways, many traders are left paralyzed not knowing what to do. Often they end up on the wrong side of a breakout — or worse, they end up trying to chase one.
Again, the trade is laid out for us, with confirmation at every step of the way:
>> Price Action Pattern: Yes. The edges of the range are immediately recognized and bracketed for us.
What to the naked eye could look like a basic rectangle or range is revealed as a descending pattern by the system.
>> Volume: Yes. Note that the volume is fairly minimal, until the market decides to fill the tank and hit the gas. This is immediately detected and a green light is given for a trade.
>> Entry: Yes. The entry is logically plotted at the breakout point of the bottom of the established part of the range. Instead of chasing this candle rocketing down — you would have been sitting and waiting with a sell parked at that precise price level. The stop? At the top of the range — that’s it.
Finally, note that the profit target isn’t greedy. It’s logically placed at what clearly turns out to be a support level.
This simple, easy-to-follow system puts consistent intraday profits within reach for day traders. It also removes the stress that comes with the doubt and second-guessing that spotting price action candlestick patterns can create.
The best part? These candlestick patterns are spotted in advance, allowing you to make an entry at least three ticks ahead of the projected price move.
And the timeline doesn’t really matter. 30 minutes, 15 minutes, or as you saw, 5 or 3 minutes, are all easily plotted for you. This essentially helps you automate every aspect of your trading — just like a hedge fund trader.
If you’re a futures day trader, you know the ES, NQ, and CL are price action pattern machines. On any given day, there are several continuation, reversal and even short-term scalp opportunities. If you’re like many day traders, you’re looking to nail 5-6 profit trades in any given session.
You just need to have the right ones selected for you.
How To Automate Your Price Action Profits
In the never-ending chess match of the market, there’s absolutely no reason to be outgunned. And the path to consistent profits and explosive gains doesn’t have to be filled with losing trades.
If you’d like to make the leap to consistently profitable trading with price action, here are three basic, yet powerful steps you must be willing to take:
REFUSE to eyeball charts on your own, looking for shaking support and resistance levels that you’re not really sure about in the first place.
STOP second-guessing yourself with low-probability, low-confidence entries that don’t consistently pay out.
PUT AWAY the conflicting and confusing indicators along with the time-consuming process of trying to analyze charts on your own.
How? Simply put: Have an automated recognition system do it for you.
Pure Pattern Trader is a perfect, affordable place to start.
Using the proven anticipation algorithms, you can:
Have the 8 Pure Price Action Patterns you need to consistently profit plotted for you right on your chart as they surface.
Confirm EARLY entries with to-the-tick precision using volume.
Manage explosive profits and minimal losses with exacting targets and stops that are marked in advance.
Here’s the best part: You don’t have to be a massive hedge fund or institution to add this automated price action intelligence to your chart.
That’s right. In a sea of go-go gadget indicators and gongulators there are tools and systems that actually work! Pure Pattern Trader has been priced for traders simply looking to get started down the right path.
This means that ANYTIME the 8 pure price action candlestick patterns surface, you’ll have them plotted on your chart AUTOMATICALLY.
Talk about making the most of the natural trading edge the market is giving you.
This positions you to cash in on the explosive trend, reversal, pullback and continuation candlestick patterns 3 to 10 ticks early… on ANY TIME FRAME.
Now that you know the dirty little truth about price action, it’s time to focus on the patterns that will profit — automate your trading and start profiting.