Thinking that the shape of a single candle or an isolated pattern is enough to trade is one of the most common and costly mistakes.
Let's expand on that very important idea:
The Japanese Candle: Just the "Tip of the Iceberg"
The candle tells you WHAT is happening (compression, indecision, buying/selling strength), but it doesn't tell you WHY it is important or if it is reliable. For that, you need the context.
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The "Complete Panorama" You Should Combine
Here are the key elements that a successful trader always analyzes BEFORE looking at the entry signal of a candle:
1. Main Trend (The Higher Time Frame)
· Are you in a bullish, bearish, or sideways market? A "hammer candle" (bullish reversal signal) in a strong downtrend carries much more weight than the same candle in the middle of a sideways trend. The trend is your friend. It is more likely that a correction in a strong trend is an entry point in favor of the trend than a total reversal.
2. Key Support and Resistance Levels
· Has the candle formed at an important level? An exhaustion or reversal candle is much more significant if it appears:
· At a strong support (previous lows, important moving averages, demand zones).
· At a strong resistance (previous highs, supply zones).
· This gives you a "why" for the price reaction.
3. Volume
· Did the reversal or continuation candle have high volume? Volume is the "fuel" of the movement.
· A bullish candle with high volume confirms buying strength.
· A reversal candle with low volume is suspicious and likely won't last.
4. Multiple Candle Patterns (Sets)
· A single candle can be noise. Two or three candles forming a pattern are more reliable.
· Examples: Three white soldiers (bullish), Three black crows (bearish), Harami, Engulfing, Dark cloud, etc. These patterns show a more sustained momentum change.
5. Confirmation (The Golden Rule)
· NEVER trade solely on the signal of a candle. Wait for the next candle to confirm the direction.
· If you see a bullish hammer, wait for the next candle to close above the body of the hammer before buying.
· This avoids "false signals" and "whipsaws" (when the price takes you out of the trade just before moving in the right direction).
📍Final Summary
You have a trader's mindset. Remember this analogy:
· The Japanese candle is like a word in a sentence.
· The candlestick pattern is like a complete sentence.
· The context (support/resistance, volume, trend) is the complete story.
Do not trade solely on words. Always read the complete story.
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