March 28

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Candlestick Patterns for Day Trading PDF

I don’t particularly trade too many different candlestick patterns. I find it confusing to use too many patterns in making a decision. It’s as if some people believe they can actually read the hidden message the price is trying to tell them rather than simply a high probability opportunity.

So they memorize as many patterns as possible without understanding why and in what context they may be effective in the first place. Some patterns are neither here nor there in their effectiveness and certainly not with-ought the context of support/resistance, moving averages, trends, and fundamentals that drive these trades in the first place.

Compound this with the fact that there is no real proof offered that these patterns actually turn a profit and you have a recipe for failure.

Candlestick Patterns

I will refer to only a few candlestick patterns. You’ll need to download the PDF below to follow along with visuals.

My focus will be on exhaustion candle and indecision bars only. This short list of candlestick patterns is because I use only these patterns in continuation and reversal trades. They are the most consistent in their predictive power, but only when combined with other technical and fundamental factors. They are close to useless by themselves. I find these to be the most consistent among all the candlestick patterns

In both types of trade setups that I use these candles essentially help find a small reversal both in the direction of a trend and also exhaustion of the trend at a significant reversal.

It is better to keep it simple and use only a small selection of candlestick patterns and just the most reliable because they aren’t that reliable by themselves, to begin with. Keeping it simple helps us stay focussed when making a trading decision.

RSI, support/resistance, volume, and fundamental analysis all compliment your technical analysis. However, some of the critical candlestick stock chart patterns mentioned below add an essential layer to your trading. They help alert you to reversals. I said stocks because they’re used extensively in charting these markets, but they can be used in many markets including forex.

Candlesticks were created in the 1700s in Japan to help trade rice futures. Steve Nison brought them to English speaking communities through his famous book “Japanese Candlestick Charting Techniques.” Again, there are many patterns, but let’s focus only a few, the higher probability ones.

Bullish Candlestick Patterns

I will focus on three types of indecision candles and ton type of exhaustion: the Doji candlestick pattern, Gravestone Doji pattern, dragonfly Doji pattern and pin bars as exhaustion bars. These are shown in figures 1 through 6 in the downloadable PDF.

Diagram 1 shows a typical Doji occurring at the end of a downward trend. This reversal pattern must be taken in conjunction with a trend line, fundamental trend, support/resistance or round number. Diagram 1 also shows the corresponding levels of confluence of support needed to have a higher probability reversal.

Diagram 2 shows a reversal at a bottom near a Gravestone Doji or Inverted Hammer candlestick. This Doji is a level of indecision which in conjunction with the other factors shown provide a higher probability entry for a long trade.

Diagram 3 shows a Pin Bar reversal at a bottom. It is also known as the Hammer candlestick pattern. Here price tries to move lower but exhausts itself and move back near the price entry point.

Bearish Candlestick Patterns

Diagram 4 shows s typical Doji candlestick pattern occurring at the end of a rising trend. Again, this reversal pattern is not a guarantee of a reversal, but it can be a warning of one. It must be traded in conjunction with a trend line, fundamental trend, support/resistance or round number. Diagram 1 also shows the corresponding levels of confluence needed to have a higher probability reversal.

Diagram 5 shows a reversal at a top situated near a Dragonfly Doji candlestick. Again, with this sign of indecision is included the other factors of confluence needed for a higher probability entry. These other factors of convergence include support/resistance, moving averages, trend breaks, and oversold/overbought areas.

Diagram 6 shows a Pin Bar reversal at a top. It is also known as the Shooting Star candlestick pattern. Here price tries to move higher but again exhausts itself and moves back to the price entry point.

Day Trading Chart Patterns

Patterns are not enough. Most using technical techniques alone will fail. That’s why I’ve included other factors to consider with your trading. There’s a more thorough list of these factors in the downloadable PDF below.

You need to include meditation and visualization as well as intake of daily news and fundamentals as part of your trading. I’m sure some are successful incorporating volume with technicals, but the point is technicals by themselves are in general insufficient, The meditation and visualization habits are not as necessary for long term investing as they are for day trading since day trading results in intense, stressful decision making. Long term trading or investing tend to be more precise and less stressful.

Repetition

If I seem redundant in my continual drumbeat to move beyond the technicals such as candlestick chart analysis, it’s not because I view them as useless. They are insufficient alone to result in reliable trading success.

In the PDF below I include more on what’s necessary to combine with the candlestick patterns in forex. Please have a look.




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  • Day trading is something I haven’t tried yet and I would definitely be in need of a few visuals before I even attempt it, as I’ve heard from plenty of others how stressful it can be. On the other hand, just about all of my current stocks are set up for the long-term, which I agree is far, far less stressful than the day trades. That said, I can definitely use a few PDFs to sort of give me a bit of an idea as to how day trading works and what to look for as I assume it’s a little bit of a different strategy than going long-term. 

    • You can apply some of the same ideas to swing trading. I go over some of the types of candlesticks and their meaning dealing with mostly reversal candlestick patterns. These patterns include Doji candlesticks, shooting star candlestick pattern, inverted hammer candlestick, etc. Day trading in some cases just applying the same technicals to lower time frames.

      Don’t forget to have a hierarchy of factors to take into consideration. Before all else, I take into account the direction of the trends in the longer-term time frames and their support/resistance and then work down from there. Even more importantly, I zero in on the particular currency pair or instrument indicated by the short term sentiment.

  • I have used the candlestick patterns for day trading in the forex markets in the past. I followed a few good teachers online as they explained the ‘ins and outs’ of the patterns. I agree, using them to see a reversal of a pattern coming [due to exhaustion] is merely a part of the entire picture. When working with this with forex, I found it to be vital that I used RSI as well. Thinking that the pattern could “predict” movement, rather than the “probability” of the pattern is key, I agree. Good explanation here. 

  • Hi,

    Thank you for this article on candlestick patterns which both interesting and informative. Although your thrust is that these must be used sparingly and in conjunction with other trading methods for them to be effective. I see the your point entirely and wonder how these in days gone by worked by themselves without any other trading methods as they where unavailable then and wonder what your view on that is? I know there are people in Japan until today use the candlestick method solely however they are also masters at this form of charting and with constant use are actually able through the psychology of markets and trading combined actually get results. It is no easy feat to remember all the patterns and indeed combination of patterns let alone understand the psychology they are portraying. Thus I agree with your suggestion to use sparingly with other methods to obtain best results. Thanks again for this useful article.

    Rami

    • I think there’s more to trading than reading candlestick patterns. Bullish and bearish candlestick patterns are insufficient when deciding on high probability trades. One must combine them first with higher time frame support and resistance and trendlines.

      These are just some of the methods I used as a means of confluence to determine when to enter a trade.

  • I have been looking for trading advice due to current market uncertainties and found your site.  Your video presentation and blog on Candlestick Pattern trades is helpful. The concept that you keep things simple with such C*******k trades is clearly a wise approach. Fascinating that the approach has a Japanese origin. For anybody serious about trading your site offers some practical and useful advice for which I am grateful.  What has been your average return since you started using this approach? And when do you see market confidence returning?  Where do you see the best opportunities in current market conditions?

    • I don’t use candlesticks and price action alone. I use it in combination with support and resistance zones as well as the fundamentals. There are certain patterns that I find especially helpful at reversal points. These are the ones I emphasize in the article above.

      These can be useful on any time frame and so are applicable to swing trading as well. The markets have changed since you posted this response. It seems for the most part they’ve turned risk on, which favors the antipodean pairs and disfavors the save havens.

  • I’ve been doing a lot of thinking about the current opportunities and opportunities to come amidst this time of global uncertainty. It’s interesting to consider how (and why) certain businesses are failing right now while others are receiving more demand than ever. For those that have the ability to do so, this time will present a significant investment opportunity. What I learned from your article is to keep it simple, focus on higher probability patterns, and avoid stress with longer-term trades or investments!

    • The key is a higher probability setup which means lining up the candlestick pattern with a longer time frame and shorter time frame trend. Focusing on the fundamentals helps me find these more powerful trending currencies. Some traders use all sorts of different candlestick patterns; Bearish Harami, Bearish Harami Cross, Bullish Harami, Bullish Harami Cross, Dark Cloud Cover, Dark Cloud Cover, Dark Cloud Cover, Evening Doji Star, Evening Star, Gravestone Doji, Hammer, Hanging Man, etc. You can see how easy it is to become overloaded. I stick to only a few of these as highlighted in the PDF download below.

  • Thank you for this amazing and great information about Candlestick Pattern for day trading. I have often heard that Japanese are very good at it but had no idea how it work until I read your Article . But please I have a question to ask . Which Candle stick is actually more reliable since there are many types. 

    • I tend to use the candlesticks as continuation patterns at support and resistance. What’s most important is to find the trend that is consistent in both the longer and then your shorter entry time frame. Then find points of resistance in a downtrend and support on an uptrend.

      Finally, use your candlestick to narrow down your point of entry. Test it yourself, but I find pin bars and indecision bars to be the best triggers for your entry. Engulfing bars are a close second only because they do not always allow as good an entry as the previous candlesticks mentioned.

  • Hi! I’m a newbie in the trading world but I have quickly arrived to this conclusion you mentioned here: patterns are not enough. I thought I could make it only paying attention to patterns and have learnt it the ugly way. I’m really interested in all the valuable points you still have ahead. Thank you very much!

    • What you need are candlestick patterns explained with examples using fundamentals news, trend lines and key levels. I’ll try to provide future articles with this. In the meantime see my articles on money management to remind yourself of the key fundamental things you should practice to become profitable.

  • I first familiarized myself with the drumstick patterns when I met with a friend who was telling me about forex. I didn’t know that it has been used in some other aspects of life as well. I must say that it is very beautiful to see that you can give the awesome information that I have gotten here. I see that there are some different strategies to take when doing this.  I will like to try it

    • Candlestick chart patterns in forex such as the inverted hammer candlestick, doji candlestick pattern, pin bars, and even some indecision bars all have something in common. They all tend to have extended wicks. When found at key levels, in the direction of a trend backed up by fundamental news, these wicks can be powerful clues of a trend continuation and good point of entry.

      Candlestick chart analysis is not as complicated as some people make it out to be. Only with a combination of something like support and resistance are these most profitable chart patterns actually valid.

  • WOW, great content!

    I love to invest in Crypto. but I didn’t have a place to get information until I found this place.

    After I read your PDF I got a clear idea about candlestick patterns. that PDF has visuals patterns. Those visuals helped me to clearly understand the patterns.

    Realy appreciate sharing valuable content. Keep it up!!

  • Hello John, I must commend your honesty in this post. Investing in cryptocurrency and forex have been one of the coolest means to having some money without stress like so many people. However when it comes to keeping track of ones wallet and making sure he doesn’t run at loss, its been an issue for lots of people  and this have been my reason for not investing in any just yet. Hearing about candlestick seem like a really nice means to educating people more about their buying and investing, and I’ll love to learn more about it. Thanks for sharing.

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