Five Power Candlestick Patterns in Stock Trading Strategies by Adam KhooMay 30, 2021
So welcome to this video on
patterns. I am Adam Koo and in this video I will show you the most
patternsthat I use to find high probability entries or to complement my
trading, so before you pause the video, please read the disclaimer. and once that's done, let's move on. Okay, so when we look at a
stock, as you know, we look at the chart to determine the probability of where the price will go. Is it in an uptrend? Is it in a downtrend? consolidation, but in addition to observing the trends, we can also observe the candles that make up the price action because the candle pattern tells us day by day if the market sentiment is more bullish, more bearish and helps. to fine-tune our entries more precisely so that we enter when all the stars are aligned in bullish momentum and short in bearish momentum, so let's look at the price chart.
I like to use
candlestickcharts, so the chart is made up of all these candlestick patterns. and you can choose any duration. I prefer to use daily candles, which means that each candle you see represents one day of
trading. So how do you read these candles? A quick review if you're new to this. When you look at a candle, it can be a bullish candle that is white or green on some charts or a bearish candle that is red or black. Well, first let's look at a bullish candle. A bullish candle occurs when you have a bullish day, which means that on this day the market closed higher than it is open, in other words, the market opened here at let's say $10 and at the end of the trading day it closed higher than the opening at let's say $12 so once you have that you have a bullish candle that is either white or green and this is what we call the body of the candle so the body of that candle tells us the opening versus the day clause like this that for a bullish candle we open at the bottom of the body we close at the top of the body now during the day the price could reach a certain high point, we call it the high of the day, which could be, for example, 50 dollars, it is well, and it can reach a slow point of $9.00, we call it the day's low, so the day's high at the day's low are indicated with these shadows, so the the upper shadow and the lower shadow are okay, so you have the shadows and a body now, if you take the top of the upper shadow to the bottom of the lower shadow, the whole length is called the range of the candle, the range of the candle is okay, so that's how you read a bullish candle now you get a bearish candle when it's a bearish name a bearish day is when the price closes below the opening price of the day, so in that case the price opens here at let's say $10 in the morning and closes at $8, so when that happens, you have a canned Rick bearish candle or black handle, okay, so once again the body of the candle shows us the opening price versus the closing price, that's the Candle body and upper shadow tell us where the day is. high, so it's an 11 and the bottom shadow tells us the low for the day, let's say at $7, so once you can go to the body, the top shadow, the bottom shadow and the length from the top of the shadow top to bottom is called the candle's range. so please remember all these terms and once again bullish candle opens here closes there that is the high that is the law the bearish candle opens and then closes there that is the top and that is the bottom well now when you look to Charles, the candles don't all look like that it's like they don't all have the same shape, okay, some are setters, I'm thinner, some are taller, much shorter, so depending on how the candle looks, The shape of the body and the shadows tells us about the bearish or bullish character. of that base feeling that helps us make better decisions, so let's take a closer look and what I'm talking about now are specific candle forms that I find
powerful and reliable.
More Interesting Facts About,
five power candlestick patterns in stock trading strategies by adam khoo...
The first one, now what I call bullish pin bar, okay, so this one. this this this all four are bullish pins why do they look like pins okay, what drink do they all have in common number one they all have small bodies right so this is a body and in this case you can see that there is no body Why? Because the opening and closing price is the same price, so it's like the body is like a line, just like this. Well, next notice that all four candles have long lower shadows, long lower shadows, and the lower shadow is mixed with two-thirds of the entire range. of the candle, then if you have these conditions, it is known as a bullish bar.
Now bullish bars are bullish reversal patterns. What does it mean? Well, when you see a series of candles going down and you see one of these bullish bars, there is a high probability that the price will reverse upwards and we hope to go long after the bullish bar. Now what is important to understand is that candlestick patterns alone are not reliable unless in the right context and they appear easily in the right place, so a bullish pin alone is bullish and reliable when there is a certain type of support level when it is at a support level and ideally the lower shadow should cut below this support line, which very often is a moving average, that's okay and it should be in an uptrend, ideally it's okay, so I repeat once again, a bullish pin bar has the highest probability that you know the price goes up when it is at a support line in an uptrend.
Well, let's take a look at some examples here. Well, look at this graph. Could you tell me something? or can you find where the bullish bars are? Take a look and I'll show you the answers in a moment. Do you see one here that is a bullish pin? Okay, so the question, does it appear in an uptrend? Yes because? The 50 moving average is above the 150 moving average, it is an uptrend and it is somewhere in an uptrend because it is supported by this moving average, so this is a powerful pattern after a series of falling candles , you have this bullish pin. the high probability of the bar is going to go up, which was good, find another one here which is another bullish pin again, does it appear in the uptrend?
Yes, check, then you want it to be in the uptrend and it should be on a certain curve. support level in this case it is testing the 20 moving average support and the 50 moving average support so you can make a buy once you see this bullish candle boom it goes up can you see now what is the psychology behind por What doesn't work at all? time, but often there is a psychology here, now let's look once again at a bullish bar, you have a small body and a long lower shadow, okay, now it doesn't matter what color of the candle, it could be green, it could be red, black, blue, violet.
It doesn't matter the shape is what matters well now here is a psychology behind this what happens what this candle is telling you is that on this day the price opened here or here it doesn't matter well and during the day the bears push the price down down down down down down well then everyone thinks the price is going to go down well but the Bulls start to push the price back up momentum push it up push it up push it up push it up push it up push up and at the end of the day, closes well above its lows.
What does that tell you that the Bulls were able to gain control of the star and close the price higher, so the momentum to control this
stockis momentum? high probability that the price will rise again the next day, ideally it should appear in an uptrend at a lower level to be more reliable, okay, great, now here is the opposite of a bullish pin bar, the bullish pin bar bearish pin, so the bearish pin is the opposite of the bullish pin, so in this case the same thing happens with a small body: it will have a small body or no body at all, where the open and close have the same price , but they all have very long top shadows, okay?
Look at this long upper shadow which and what is considered long, the upper shadow must represent two thirds of the range of the entire candle, then it is a bearish pinbar, so again you must appear in the right place, ideally you want to see a series of candles going up and then you see the bearish pinbar, one of the four, and then you anticipate that it will go back down when it is the most reliable, it is the most reliable when it appears in a downtrend, okay, then the trend should be realized and it should appear. at the top of the downtrend when it is hitting some kind of resistance like a resistance line or a moving average where the upper shadow curve cuts the resistance, that is a high probability of being short, so let's look at some charts and again before that, let me. talk about the psychology behind it, why does it work?
Okay, think this way on a particular day, the price opens here or here doesn't matter, so again like the bullish pin, the color doesn't matter, it can be green, white, red or black, okay, now during the day the bulls push the prices up it's going up it's going up right, dummy, dummy, bullies, right it's going up, but in the middle of the day the best ones take control and push the prices down and at the end of the day it's closed a lot lower than the high, indicating that the bears have taken control of this stock and I am going to push it down the next day, therefore it tends to pull back down, okay, but again it has to be the right place . a way to look at a child appears, so this is a chart, can you identify the bearish pinbar?
Take a look and see, you can identify it and you see it there, let me draw it again, so it's a bearish pinbar. Okay, so you can see that. has seemed to be okay in a downtrend, so this is a downtrend, as you can see on the right, because the 50 moving average below 115 is okay, it is a downtrend and it is appearing at a resistance level which is the 50 moving average right after that, you can take a bet is going down, so now you understand bullish pin bar and bearish pin bar, which is my first favorite candle pattern.
If I want the most powerful ones, I use them most of the time in the second we're going to see. call tweezer bottoms and tweezer tops, now don't worry about the names, the names are not important, the important thing is that when you look at them you have to understand what they represent, are they bullish or bearish reversal patterns, now the Tweezer bottoms, as the name suggests, tend to appear at the bottom of a trend, so what you see is you see candles going down and then you see these two and then we anticipate a reversal up.
Well, now, how do you identify them? Well, clamp bottoms are basically, you see a bearish candle. okay, with a fairly large body and little shadows above and below, okay, and after this you see an identical looking candle that is the opposite color, so the bearish candle is followed by a bullish candle to the right and this is a reversal pattern now, why does this work now? the reason is because a bearish candle plus a bullish candle of the same size equals a bullish pin bar, that is correct, in fact, I call this a Finbarr synthetic syntax, okay, now let me explain to you how this works, let me repeat, look , you have a bearish candle, okay. so this is a bearish candle, okay, I thought, let me draw it again, so you have a bearish candle there like this and then you have a bullish candle, okay, if you combined these two, what you would get, let me explain.
Okay, so what happens is that when you look at a bearish candle, it opens here and closes here. It's right. Okay, so it opens here. It opens here. So that's my opening price. Well, that's my opening price. Now close here. Now where is the bullish candle? the candle opens, it opens here and it closes here, so if I combine these two candles together, that means it opens here on the right and it closes here, so this plus this equals this where the open and The close has the same price and the maximum is here. and the law is here, so when you see these two, what you're really looking at is you're looking at this correctly, so it's the same thing, so it tends to go back, but again it should appear in the right place .
Ideally it will appear in an uptrend and at a support level in the uptrend. Now when you look at these things called tweezer tops it's the opposite of right so it's usually at the top of a trend so again you see the candles going up and you see these two at a resistance level okay at the resistance and the overall trend is bearish so the small trend is bullish but the big trend is bearish that's what I mean okay and then you can anticipate that it's going to go down, why, because what represent these two? again it represents that this is the right open, it is open here, so it opens here, then it closes here, then it opens here and it closes here, so we combine these two, it means it opens here and it closes here, which It means that the open and close are the same price, so that is a lineshort and medium term, but what you have is a time series of candles going down in a temporary decline and then you have this Morningstar right here, so you have this bearish candle, I usually prefer the bearish candle, you know, it has a bigger body, but that's fine too, no problem and then we have this little candle that I mentioned after a little gap down here, so the market wants to go down, but now it's indecisive and the next day it says okay , I have decided to go back up, so you have a white bullish candle here that closes more than 50 percent above the range of this candle there and closes above the 50. moving average, which is a bullish signal and once You have it, you can put your purchase here, stop-loss there and the next day the baguettes at the top are activated and you are in the operation, this is how it goes and where lands that nobody knows, okay, ah, can we find one here now?
This is a slightly different case. Well, now first of all, see if you can spot the morning star pattern in the morning star pattern motifs, that means bullish is going up, okay, okay if. you look closely, you see it here, that's your morning star, these three candles over here, okay, first you have your candle, one that's the big bad bearish candle, okay, you have your indecision candle, like If I don't know what I'm getting at. a slight gap down and you have a bullish candle that now closes 50% of this rate range there, okay, so a series of candles go down and then we have this combination of tree candles, you can put a buy order there
fivecents above the cap. -loss
fivecents below the next triggers an up trade okay, now you may be telling me Adam, didn't you say it should be ID in an uptrend?
TRUE? You said the highest odds should be on an actor, right? bearish trend just below the 50 moving average blah blah blah yes this is called a countertrend trade so you can also use bullish candles in a countertrend trade that means you take a long bullish entry despite of the downtrend, but is oversold. in a downtrend or the soul and what do you mean by Oversoul now? This is taught more during the W, a professional course, but you share a little bit here about salt, it basically means it's in a downtrend, but it's at the bottom of the downtrend and we.
We are expecting a reversion to the mean now, of course, when it goes up it may not last, the downtrend could still continue because it is part of a larger downtrend or we are taking the short term bounce to the mean, okay, of course new to average. And how do we know it is safe to take? One of the things I use is Bollinger Bands. Casey, this is called Bollinger Bands. The Bollinger Bands are in my video on technical indicators actually, so when the price goes down very strongly in a downtrend to the right and hits the lower Bollinger Bands and at the same time you can see that the stochastics are oversold, this tells you that the price is over which means it is ready to bounce again and the Bollinger Bands, the lower bands act as a support and the upper ones have Epic resistance, can you see the resistance or that?
So it's the case of support here, so in fact, this Morningstar is finding support here. when it is oversold, then you can buy to make a trade. Now I have to say that this is a little riskier than following a trend. Following a trend means that you buy in the uptrend, you follow the trend, that is, you are buying in the downtrend. but it's because you're marking what we call counting trend reversion to the mean, so it's a little bit riskier, but we do it as professional traders, yes, but if you're not that experienced, you might want to skip this, but in particular example, okay, here is an evening star, can you find an evening star over here? there's an evening star okay so that's candle one which is bullish you get if the indecision candle I go the way I'm going and then you have a third bearish candle I'm going down honey okay good thing goes down so again notice that it is appearing at a resistance which is again denoted by these upper Bollinger Bands again, you can watch the video on technical indicators if you are not too sure about that. so it's meeting resistance there and again I notice that I'm shorting the uptrend so this is a countertrend trade we're shorting you know making some money is going down and getting out before the trend continues so I can only sell in an uptrend, it's at the top, it's overbought and I know it's overbought because the stochastic, which is an oscillator, is right here above the 80 level, which is overbought, so I have a high probability of it going down just so this is again, it is a countertrend operation.
The last pattern we are going to look at is a very common pattern, it is called an engulfing pattern, so first you have the bullish engulfing pattern, which is a bullish pattern, so the candles go down and you see a little bearish trend. candle again how small is small, well, small is relative to the next one, okay which one is big, yeah, so we see a small bearish candle and the next day we see a huge bullish candle that completely coughs up or is bigger than the whole this candle, right? this guy is so let him go up you think you are bearish i am more bullish than you i am going to take control of you so once you have this guy you will be able to see a possible reversal again ideally it occurs at a support level support level at an uptrend or it could be in a downtrend but it has ended so well that it could be that you are using a capitulation strategy or as a parabolic long strategy now the big bullish candle, its body by body, should envelop the body of the candle bearish now yes If you read different textbooks, go to different websites, there is a slight difference in that there are different definitions, like there are some people who say well, the body of this candle has to span the entire range of the candle. , which means the two shadows have to be inside the body too, that's a very strict definition for me and I'm not that strict as long as this body and this GAO body meet as a bullish envelope, okay then the bearish engulfing is the opposite, you have a series of ascending candles. and then you have a small bullish candle, the body is there and the next day you have a huge bearish candle that swallows the entire body of this candle.
If you're stricter, you mean it wraps around the entire range. Okay, and then it's going to go down. You want some kind of resistance there. That's fine, and ideally it's part of a larger downtrend or it could be in an uptrend, but it's overbought at the top. Okay, warming up to Bollinger Bands and Stochastic SAR. overbought that can also work there is a countertrend trade again so here is an example: can you find the bullish envelope? I'll give you a minute to pause the video if you want to take a look. Did you find this one?
It is a bullish engulfing and that is beautiful because why is it in an uptrend 50 above 150 27 to 40, so the uptrend makes a temporary drop in the uptrend and is reaching the moving average of 50, which XS is a beautiful support, put a buy order by order, its stop-loss there, so that's my entry that's my stop-loss the next day the boom goes off I'm in the beautiful trade well um so that it's a bullish envelope you see even though this is not that powerful well it's powerful but there's no clear support there's no simple clear Well as I said it's not just the candle that's important it's the location so I like a support there, but it is in an uptrend.
Okay, so you could take it, but I prefer some kind of support like a 50 moving average. bearable, there is some kind of support there, they will be ideal, can you see a white soldier who is a white soldier? Petha, can you see that? Remember that a white soldier goes to check that, that could be an indication that he is going up to where otherwise you find a white soldier, a white soldier can't find him anymore, but this is a black crow, a black crow goes down a little, but again, although it is a black crow, right?
I wouldn't shoot him there, why, because he's not here either. or I won't trigger it because it's in an uptrend, so I don't want a chance in an uptrend. I'm going against the trend, but I could if yours is at the top of the uptrend, just if it's overbought, but in this case it's not overbought, yeah, I mean, I put in the Bollinger Bands and entered the stochastics that I could, but from experience I can see that it is actually not overbought. Overbought means the price goes up. It's like parabolic up to here and you know it's going to do it.
It crashes right here and you see a crow or an evening star, you know, and Stochastic is overbought above 80 and you have it above or in the upper Bollinger Band. You might as well try that, okay, so to sum up, it's important to know. When to Use Candlesticks Candlestick patterns should always be analyzed in the context of the price trend, so don't play along and see a bullish candlestick pattern. Continue only when bullish candle patterns appear at the support of an uptrend. to see the general trend is up, higher highs, higher lows, 50 moving average above 150, okay and you see the bullish candlestick pattern, maybe somewhere here, somewhere here, wherever it is at a support level, so support could be a trend line, it could be a moving average coupe. they have a high probability or you could also go long on a bullish candlestick pattern if it's at the bottom of a downtrend, so it's a downtrend here, a downtrend here like that and then it goes down and you're at the bottom. bottom of the downtrend and you see this bullish pattern there, you can go long and you are taking a trade against the trend because you are buying against the trend in hopes of buying and then going up a little bit and getting out here before collapse again. so you're taking this quick profit here now, how do you know it's on the bottom? it's going to bounce off well, we look at things like divergence, for example, at this point, if you have a bullish divergence pattern, a bullish reversal pattern, bullish divergence reversal. pattern here, you could take it well or it could be a capitulation strategy right where the Williams Percent is sure it's oversold or it's, you know, the stochastic is over, so it's below 20.
I said Bollinger Bands lower, yes, so this is tense and more. from the level of professional traders, uh, if you don't feel comfortable going against the trend, it's okay at the moment, it's okay, only tag exists, that's what we do as professionals, okay, and eventually we go short when we see a bearish candlestick pattern only if it appears. at the resistance of a downtrend, so again this is following the trend, the overall trend is going down like this, maybe 50 below 150 20 below 40 confirmed bearish trend and you see the bearish candlestick pattern here in the temporary rally and it is hitting some kind of resistance like a moving average or trend line, you can go short and correct the trend down, or you can show a bearish candle pattern at the top of an uptrend, so it's an uptrend like that and at the top you see this bearish pattern and you could try it, but again you are selling against the trend, it's riskier, it's only done if you're very experienced and you only want to do it if it was overbought, okay, overbought, and again, there are ways to tell.
Bollinger Bands to see that there is stochastic resistance above a d etc., okay and you shot it all the way down, now just keep something in mind when you see a trend like this, like that very nice uptrend and you see a pattern bassist here. don't trigger it because again you are shorting against the trend and normally trends that move 45 degrees up tend to continue so even if it continues a little bit they will kill you later what we want to see is I see a 45 degree angle like that and then all of a sudden the trend goes up 90 degrees parabolic, usually when that happens it's not sustainable, it's overbought and that's when it looks like there's a bearish method.
Shawn guides her until she reaches the trend line. experiment again, so again, don't do this unless you feel like you're ready for it. Yes that's fine. If you have any questions, please email me. Let me know how I can help you and with that I conclude this lesson on candlestick patterns.
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