Previously, we have seen how candlestick patterns can form a good strategy to identify trade setups. These are majorly the reversal candlestick patterns such as engulfing patterns, Doji, evening and morning stars and piercing patterns,a hammer and a shooting star.
The small candlestick patterns are known for retracement signals while the large candlesticks signal reversals of the entire trend.
If price reverses near a strong support and resistance level or fibonacci level, you should identify the appearance of the candlestick reversal pattern.
When big candlesticks such as the bullish engulfing pattern, morning star, piercing pattern are spotted on a support level of the Fibonacci retracement, it gives a strong signal for a reversal on a trend. Price is likely to rally for a long time after the close of the bullish candlestick following the the pattern.
The same happens on a resistance level. The appearance of big candlesticks on the Fibonacci levels signal a strong change in the trend direction.
When small candlesticks such as a Doji, is spotted on a support level or resistance levels, it signals a probable retracement. This can be traded by short term traders. Candlesticks combined with Fibonacci retracements give strong set ups that can be relied on to trade.
let’s take a look at the chart below.
Whenever you spot a candlestick pattern form near or at a certain fibonacci retracement level, always expect a reaction. Candlestick patterns especially the reversal candlestick pattern bring a great impact on pyshological levels in the market such as support and resistance level, fib retracement levels and trend lines.
Looking at the above chart, after a pull back, price hit the 61.8 fib level with a long pin bar candlestick (shooting star) and closed below the same level. It was followed by a large bearish candlestick which confirmed an evening star candlestick pattern. An evening star is a bearish reversal pattern and a shooting star is also a bearish reversal pattern. The formation of a shooting star on resistance signifies that there is more selling pressure in the market compared to buying pressure. The long pin bar shows higher prices in the market being rejected. The next bearish candlestick gave a confirmation that actually the new trend is beginning. The fact that fib levels are retracement points, when combined with the reversal candestick patterns, more odds is that the trend will change direction.
Basing on this signal you can shot this pair at the close of the next bearish candlestick as indicated on the chart above.
In the same way when a reversal candlestick pattern appears when price has been consolidation at a certain fibonacci level, this indicates that the consolidation might be over.
In case you are trading in an uptrend, do the same and buy the pair at the confirmation of a bullish reversal candlestick pattern.
How long you should hold an open position, is a personal thing for all traders. The decision is all yours. You know what your goals are as a trader, the kind of strategy you use to trade. All this starts from what you are? and What you want? If I am to answer, this...
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