Candlesticks are used by investors, swing traders and day traders regardless of the instrument being used.

Whether your trading stocks, commodities, currencies or ETF's candlestick patterns will add a greater insight to the supply and demand relationship between buyers and sellers.

However, a single candlestick or even a combination of candlesticks is enough to put the odds on your side.

Quite the contrary, candlesticks alone are likely to get to run over trading against a trend because of a momentary reversal signal.

Any Master Trader strategy includes a combination of technical concepts.

Below is an example of how a single candlestick can be deceiving and put you on the wrong side.

A Student Emails Me For Trade Advice 

This week I received an email from a student (Dan and I get them every day) asking if I would review a chart and give an opinion on the current pattern that he was considering shorting.

Below is his question, the chart set he sent and my response with an updated chart.

Thanks Greg for getting back to me. You’re a champ!

The pic is a 60 min chart in an uptrend.

But I Enter off a 2 min or 5 min chart.

I’m looking at the last red inverted hammer candle.

I believe it’s a bearish candle due to the idea that it was once a green candle but closed as an inverted hammer.

So, I’m thinking many traders got caught out and are exiting their lost positions.

Would it be a good time to consider shorting it on a smaller time frame if a picture is there?

Or stay away of shorting because it’s still in an uptrend on a longer time frame?

Your advice would be greatly appreciated.

Thanks,

Mike

Greg’s Answer


Hi Michael,

First, that reversal at the beginning of the day was bullish because it was a breakdown that was completely reversed.

That sharp reversal created a void below (no support). However, even with no support below buyers stepped up on a shallow pullback creating new support.

Prices broke out of that consolidation of new support, and that candle was a Wide Range bar, and that is bullish.

While the second candle is a topping tail it retraced very little into the Wide Range bar, which is also bullish.

The Topping Tail (TT) bar tells us that there were sellers above but could not retrace far into the bullish pattern.

This is not a reason to short on a smaller time frame, rather look to buy it on a smaller time frame when that time frame forms a bullish pattern in alignment with the higher.

A single candlestick can mean absolutely nothing unless it is put in the context of what preceded it. If that candle formed in a downtrend and an area of resistance it would have meaning as a topping tail bar.

I hope this makes sense, and a "light-bulb moment"

All the best,

Greg

Learn Master Trader Technical Strategies for Swing and Options Trading - HERE

Candlestick Mini Course and a Lot More - HERE

Master Trader and You Building Your Financial Future Together!


Happy trading!  If you have any questions or comments,

please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com

All the best,

Greg Capra
Managing Director of Master Trader

Dan Gibby
Chief Options Strategist