Candlestick Patterns Money-Making Tricks (I made $8000)

Finding good trading opportunities is possible only by understanding candlesticks’ shapes and colors. In this section, you will learn a summary of how to read candlestick charts.

Candle charts and candlesticks pattern are important concepts that I will give a summary of what they are here. A candlestick chart is a type of financial chart used by traders to show how the price of a stock or other assets has changed over time.

The chart is made up of “candles,” which represent the price action in a time period, such as a day or an hour. You can easily change the chart’s timeframe. Each candle has a “body” that shows the opening and closing price of the asset for a specific time period and “wicks” or “shadows” that show the highest and lowest prices that the asset reached during that time.

The candle’s color is green or white when the price goes up and red or black when the price goes down. Candlestick patterns are special candle formations or structures that give traders information about future market movements. By analyzing candlestick patterns, traders can gain information about market trends and make better trading decisions.

The most important point is that candles are more valuable for us when they form in crucial areas such as dynamic or static support and resistance levels or trend lines. Make sure to spend enough time analyzing the market situation and charts before your next trading decision; as Aristotle Said:” Patience is bitter but its fruit is sweet.”

If you are not familiar with candlestick patterns and support and resistance levels, I recommend reading my articles about them and then coming back to learn trading in this article. With enough information about candlestick patterns and support/resistance levels, let’s move forward and find out how you can trade using candlestick patterns and gather market green Dollars.

In addition, correct Entry Point(EP), Stop Loss(SL), and Take Profit(TP) prices are as important. In this section, you’ll learn trading using different candlestick patterns.

At first look, it might seem hard to predict which side is going to take control of the market, but it gets easier when you do a complete analysis of the market. To predict the winner, you must find support and resistance zones, draw trend lines and look for near candlestick patterns. Then finding the next market movement will be much easier.

Each candlestick pattern has its special trading strategy with different Entry Point(EP), Stop Loss(SL), and Take Profit(TP) points.

Since I discussed the candlestick patterns’ psychology and structure in my “How to Read Candlestick Charts? (The Battle of 2 Species)” article, I won’t mention them again and cut straight into the trading part. Let’s start the list with the Hammer candlestick pattern.

Hammer

Finding the Hammer candlestick pattern can be a simple and effective way to identify potential buying opportunities in the market. The hammer candle has a small body at the top of the candlestick, with a long lower wick that is at least twice its body.

The hammer pattern is a bullish reversal and usually forms on a resistance zone. The long lower shadow shows a strong resistance zone. If you don’t know how to draw support/resistance zones, I highly recommend reading my support and resistance levels article.

You can enter a long position above the high of the hammer pattern. To enter a long position, it is better to wait for a green confirmation candle after the hammer. To manage your risk, I suggest you place a stop loss order below the low of the hammer pattern. This helps to limit potential losses in case the market turns against you.

As for the take profit price, you could aim for a target that is at least two times the distance from the entry point to the stop loss. This provides a favorable risk-to-reward ratio and helps ensure that you are taking profits before the market reverses.

You can use different technical tools like Fibonacci levels, classic, and harmonic patterns to find your take profit price. You can also use reversal candlestick patterns on important resistance zone to take profit. Don’t forget to consider your risk-to-reward ratio before entering a trade.

The Hammer pattern is normally a bullish reversal pattern unless this pattern fails to reverse the price. Then, the failed hammer pattern will become a bearish continuation pattern. It is interesting to know the hammer pattern has an inverted version, so stay with me to learn more about the inverted hammer trading strategy.

Inverted Hammer

The Inverted Hammer is an interesting candlestick pattern many traders love. Although the inverted hammer is less reliable and common, it can show a potential trend reversal in the market.

When you see an inverted hammer candlestick in the market, the price has been dropping but has found support at the bottom. This could be a good time to buy, as the price may start to go up from there.

To enter a trade based on the inverted hammer candlestick pattern, you better wait for the next candlestick to open and confirm the reversal. If the next candlestick starts to go up, that’s a good sign that the pattern works in your favor. You can enter the trade when the next green candle is closed.

When setting your stop loss, you should put it below the low of the inverted hammer candlestick. This way, you can limit your losses if the price goes down instead of up. As for take profit, you can follow the hammer take profit strategies. Of course, like any trading strategy, the inverted hammer candlestick pattern is not guaranteed.

It’s important to do your own research and analysis before making any trades. But if used correctly, it can be a useful tool for identifying potential trading opportunities.

With the inverted hammer candlestick pattern finished, let’s move to bearish battles that change the upward trend to downward, starting with the Hanging man.

Hanging Man

The Hanging Man is bad news for investors because it shows that the market might be near a resistance zone, and a bearish reversal is possible. When you see a hanging man candlestick in the market, it might mean that the price has been going up but has found resistance at the top.

This could be a good time to sell, as the price may start to go down from here. To open a short position, a bit below the hanging man pattern is a good entry point. However, I suggest waiting for a red confirmation candle after the hanging man pattern.

When setting your stop loss, put it just above the high of the hanging man candlestick. This way, you can limit your losses if the price goes up instead of down. You also can place the stop loss above the resistance zone to avoid the last kiss. The hanging man take profit price follows the same strategy as the last two patterns.

However, it’s important to note that the hanging man candlestick pattern is not always reliable and can sometimes lead to false signals. You can use other technical tools to filter false signals, for example, indicators like Relative Strength Index(RSI), Moving Average(MA), etc.

Shooting Star

Shooting Star candlestick pattern is the inverted version of the hanging man pattern. It is much more common and reliable than the hanging man candles. Like the Hanging man pattern, the Shooting star also points at a bearish reversal.

A strong resistance zone creates the shooting star’s upper shadow. The taller this upper wick the stronger the pattern. You can open your short position below the Shooting Star pattern or wait for a red confirmation candle and then enter the trade.

Based on your capital management strategy, you can even enter the market at two different points, one below the shooting star pattern and the other below the red confirmation candle’s low.

To limit your potential losses, you can place your stop loss just above the high of the Shooting Star candlestick. You can also place the trade above the resistance zone to avoid missing the trade because of the last kiss. As for the take profit price, you can use the same strategy as the previous patterns.

It’s important to remember that the Shooting Star candlestick pattern is not always accurate and can sometimes lead to false signals. This is because it’s just one piece of information among many that you should consider when making trading decisions.

So although the Shooting Star candlestick pattern can be a helpful tool, it’s important to use it in combination with other indicators and analysis to make better trading decisions. I have a lovely memory of making $8000 in profits with the Shooting Star candlestick pattern.

When I noticed one of the most reliable bearish reversal patterns(the shooting star) forming in the Bitcoin 4-hour chart(BTCUSDT), I entered my short position a bit lower than the shooting star’s low at $41980. Like other professional traders, I knew the importance of a proper stop loss, so I placed my stop loss at $44040.

As for my take profit price, I placed it at $30020. The pattern worked as I expected and started a downward trend which resulted in the price hitting my take profit level. That was how I added a sweet $8000 profit to my portfolio.

I would love to know your success stories with candlestick patterns, so make sure to share them with me in the comment section.

Marubozu

Marubozu candles are a type of candlestick pattern that can be useful in identifying strong current market movements. To use Marubozu candles in your trading strategy, you must first understand Marubozu candles. Many people mix up the marubozu candle with random large-bodied candles from a range market.

A marubozu candle forms in trending markets and always forms in the direction of the trend with high trading volume.You must consider several factors to enter a trade based on the Marubozu candlestick pattern. First is the location of the marubozu candle, whether it’s near an important support/resistance zone or not.

If it’s not near important areas and is backed by high enough trading volume, you can open a position to the direction of the trend and expect the price to continue pushing in that direction for the next several candles. A stop loss is always necessary; for example, in a bullish trend and a green marubozu, you must place it below the marubozu candle.

But what if the Marubozu acts as a breakout candle for a support/resistance zone? In that case, you must look for classic patterns such as Cup-and-Handle, Flag and Pennants, Wedges, etc.

These patterns and indicators, such as Stochastic, Moving average Convergence/Divergence(MACD), Trading Volume, and Relative Strength Index(RSI), can help you find valid breakouts and accurate take-profit points.

They can also help you identify fake breakouts(fakeouts) before it’s too late. Such fake outs are also known as Bull/Bear traps.

If a marubozu candle validly breaks the resistance zone, you can open a long position after a green confirmation candle and set your stop loss below the resistance zone to prevent exiting the market with a possible last kiss. I discussed two more trading strategies using breakout candles and support/resistance zones in my support/resistance article.

Bullish Engulfing

The Bullish Engulfing Candlestick Pattern is a powerful bullish reversal signal in technical analysis. It’s a two-candle pattern that shows a potential trend reversal from bearish to bullish.

You can enter a long position either after the engulfing candle or wait for a third green candle to confirm the trend reversal. The only downside to the second method is that you might miss the trade in strong market movements.

Bullish engulfing take profit strategy is not much different from the previous patterns, you should use the same technical tools and patterns to find your sweet spot. Whenever you join a battle, make sure to wear armor(stop loss). In this case, you can set your stop loss below the low of the green candle.

Bearish Engulfing

The Bearish Engulfing is the twin brother of the last, but unlike its brother, it reverses a bullish pattern to bearish. You can use the bearish version of bullish engulfing entry points. For example, you can open a short position when the third candle body drops below the engulfing candle low.

You can place your stop loss above the engulfing candle high, and as for your take profit price, you follow the same strategy as its twin brother. In both bullish and bearish engulfing candlestick patterns, if the engulfing candle covers several of the previous candles, it adds to the pattern’s strength and validity.

There are other similar candlestick patterns, such as the Dark Cloud Cover and Bullish Piercing line. The Dark Cloud Cover is similar to the bearish engulfing candlestick pattern, the only difference is that the second candle covers half of the first candle or more. The Dark Cloud Cover also is weaker than the bearish engulfing candlestick pattern.

As for the Bullish Piercing Line, it’s similar to the bullish engulfing candle, but the second candle covers half the first candle or more. The Bullish Engulfing candlestick pattern is a stronger bullish reversal pattern than the bullish piercing line.

Bullish Harami

Bullish Harami shows a potential trend reversal from a downtrend to an uptrend, which means it can be a good time to buy. The bullish Harami candlestick pattern has two candles, the first one(the mother) is a red candle, and the second one(the child) is a smaller green candle.

To find your entry point, I suggest you wait for a third green confirmation candle and enter your long position above the confirmation candle’s high. The second and more reliable entry strategy is to place your order above the mother candle.

Your stop loss should be placed below the first candle’s low, or you can place it below the support zone the pattern is formed on. As for take profit price, there is no specific target for the bullish harami pattern; you can use Fibonacci retracement levels, look for technical patterns or place it below the next resistance zone.

The Bullish Harami is generally less powerful than the Bullish Engulfing pattern. Both Harami and Engulfing patterns have two candles, but in Bullish Engulfing, the second candle completely engulfs the first candle, showing even stronger bullish momentum.

Bearish Harami

Bearish Harami is the twin sister of the bullish Harami candlestick pattern. The first difference is that mother and child candle colors have been switched. The second difference is that, unlike the last candlestick pattern, it reverses an upward trend to a downward trend.

The bearish harami entry and take profit formula is similar to the last. However, your stop loss should be above the first green candle.

Tweezer Top/Bottom

The Tweezer Top/Bottom candlestick pattern forms when two candles with different colors share a similar high or low. Tweezer Top/Bottom is nothing new, it is a special form of Engulfing, Harami, or other patterns.

Personally, I don’t use this pattern alone while trading and combine other candlestick patterns with the tweezer top/bottom pattern. In fact, the tweezer top/bottom pattern adds to other patterns’ validity.

Because I’ve already explained trading with Engulfing, Harami, and other patterns, you should not have any problem trading with the tweezer top/bottom candlestick pattern.

Morning Star

In a downward market trend, the Morning Star candlestick pattern is seen as a sign of hope. Usually, the “star” won’t share a price range with two surrounding bodies because of the price gaps. It means sellers aren’t selling as much as they were on the first candle, and a bull market is coming.

When the pattern is complete, a nice entry point would be above the third candle’s high. When it comes to your stop loss, you should place it a bit lower than the mid candle. As for the take profit price, you can use the same strategy as the previous patterns.

Evening Star

The evening star candlestick pattern is viewed as a bearish pattern that has three candles. Your entry can be below the third candle, and your stop loss above the upper shadow of the second candle.

Like the other examples, you can also set the stop loss above the resistance zone. Like the morning star candlestick pattern, to find a profitable exit point, you should use classic patterns, technical tools, etc.

Three White Soldiers

The Three White Soldiers candlestick pattern is one of the most reliable and powerful technical analysis patterns. It consists of three long green (or white) candles, each higher than the last candle.

It can work both as a bullish reversal and an upward continuation pattern. When it forms at the end of a downward trend, it highlights more buying pressure coming to the market and marks the beginning of an upward trend. It is a huge sign that the price will go up. It shows that buying pressure is getting stronger over time.

The entry price for a trade based on the Three White Soldiers pattern is usually the opening price of the fourth candlestick. The fourth candle should continue the upward trend created or continued by the Three White Soldiers pattern.

For a trade based on the Three White Soldiers pattern, the stop loss is usually set below the low of the first or the second candle in the pattern. This level should be at a point where the pattern is invalidated if the price goes below it. There is also a third potential stop loss, and it is below the support zone on which the three white soldiers’ pattern is formed.

Can you guess how you should find a good take profit price? You would be right if your answer is to use the same strategy and tools as the previous patterns.

Three Black Crows

The Three Black Crows candlestick pattern is an important signal to watch for in trading. It signals a bearish reversal at the end of a bullish trend. It shows a strong selling pressure as buyers can’t support the market, suggesting that a downward trend may come.

The Three Black Crows pattern can also act as a continuation pattern in the middle of a downward trend. When this pattern forms mid trend, it signals a bear-controlled market likely to continue downward. The trading strategy is similar to the three white soldiers’ strategy. To enter a short position, you must wait for the last candle to form and complete the pattern.

There are three possible stop loss levels. The first way is to set it above the second red candle of the pattern. The second stop loss is above the first candle’s high, and the third is above the resistance zone. I guess you already know what I’m gonna say about the take profit price, the same as the previous ones.

Rising Three Method

The Rising Three Method is a bullish five-candle continuation pattern. To trade using the three rising method, you enter your long position when the fifth candle finishes the pattern.

As for your stop loss, place it below the first green candle’s low. To find the take profit price for the Rising Three Method pattern, you can use the same mentioned tools and techniques in the first pattern section.

Falling Three Method

Like the Rising three method pattern, the Falling three method is also a continuation five-candle pattern. The only difference is that the falling three method is bearish.

To trade using the falling three continuation pattern, you should enter the trade with the fifth candle completing the pattern and set your stop loss above the first candle’s high. As for your take profit strategy, it should be similar to the last pattern’s take profit strategy.

Many amateur traders mix up the Rising/Falling three method with the three rising valleys(or three falling peaks)pattern. Make sure you avoid this common mistake.

With the last pattern explained, you know almost all famous battle reports(candlestick patterns), and you can practice them in different charts. Make sure to analyze the market carefully before picking the winning side because if not, you will lose money on the losing team.

What is a weak candlestick pattern?

A weak candlestick pattern is a signal that is not strong enough to provide a reliable indication of market direction. These patterns may have small price ranges or lack significant volume, making it difficult to predict future market movements.

Weak patterns may also be too common or occur too frequently, reducing their reliability. As a result, traders may need to look for other signals or confirmations to make trading decisions.

Why do candlestick patterns fail?

Candlestick patterns can fail for different reasons, including unexpected fundamental news or just weak pattern. Trading volume is a very important factor to consider. Low trading volume shows that there is not much market participation which means that the formed candlestick pattern is weak and will probably fail.

How to trade with candlestick patterns?

To trade with candlestick patterns, you first should learn about their formation and support/resistance zones. Then, finding a good entry point for each candlestick pattern is very important. After that, you must learn how to find good stop loss and take profit prices. This is possible by combining candlestick patterns together and other technical tools.

How to find an Entry Point(EP) for candlestick patterns?

Depending on the candlestick pattern you are using, the Entry Point(EP) differs, but usually, you should wait for a confirmation candle after the candlestick pattern to confirm that the pattern is working as intended. Then you can enter a trade in the direction of the pattern.

How to set Stop Loss(SL) for candlestick patterns?

It depends on the candlestick pattern you are using. Usually, for Bullish patterns, you set the Stop Loss(SL) below the lowest point of the pattern. If the pattern is a bullish reversal, you can place it below the support zone the pattern is formed on. Vice versa for bearish candlestick patterns.

How to set Take Profit(TP) for candlestick patterns?

To find a proper Take Profit(TP) price for a candlestick pattern, you can use different technical tools and techniques. You can use indicators(like Relative Strength Index(RSI)), classic and harmonic patterns, technical tools(like Fibonacci levels), or other candlestick patterns that suggest a proper exit point.

Conclusion

The candlestick patterns are a powerful tool for traders who are looking to identify potential market price movements. Candlestick patterns like the hammer, shooting star, engulfing, harami, and others can provide valuable information about market movements and help traders make better trading decisions.

It’s important to know that candlestick patterns are mostly not enough by themselves and should be used with other technical analysis tools and risk management strategies. You learned many useful techniques in this article, and if you truly want to become a master trader, you must practice what you learn.

Overall, learning to find and understand candlestick patterns can be a valuable lesson for traders who want to improve their trading skills and increase their chances of success in the markets.

By staying informed and remaining disciplined, traders can use candlestick patterns to their advantage and achieve their trading goals over time. Thank you for staying with me till the end one more time, and I hope to see you on the next journey.