I recently showed you how you can use Japanese “candlestick” charts to detect real-time changes in the momentum of the market.
Knowing how to read these charts is critical to making sure you’re on the right side of the action, every time.
That’s because the charts themselves can fill you in on emerging trading patterns. Today I want to teach you how to spot some patterns that I tend to take very seriously whenever I see them playing out.
I’ll even show you how to spot a looming reversal. You can start using your knowledge of these patterns to outwit, out-trade, and outperform the competition today, so let’s get started.
Bulls and Bears: Who’s Winning Today?
It helps to think of bulls or bears as being “in charge” of the market on any one day, dictating that all-important price action. Lots of selling, and you know the bears are calling the shots. Heavy buying tells you it’s the bulls running the table.
We need to look for a sign (or signs) that whomever is in charge is running out of (orhas run out of) steam and a move in the opposite direction may be coming.
I favor using the following six patterns to position myself correctly when trying to find a reversal pattern and a move counter to the existing trend on the stock I’m analyzing.
Now, it’s important to note that these patternswon’t help traders pick precise market tops and bottoms, but when you trade on these patterns, you’ll be as close as makes no odds. You’ll get in near enough to a bottom (or top) to increase your earning power.
One more thing before we get started: The patterns you’re about to see are all one, two, and three days in length. And the longer the pattern, the more potent the market psychology playing out on that security. The three-day pattern is more significant than the two-day, and the two-day is more important than the one-day.
Now, here are bullish candle reversal patterns…
