The ULTIMATE Guide to CANDLESTICK Pattern Trading

A complete guide to candlestick pattern trading. Understanding candlestick patterns goes far beyond just memorizing certain formations. It is a method to read a price chart.

Right now, we're looking at raw data, pure and naked price action. If we strip everything off the chart, and this is the most important information for a trader, that tells you everything you need to know about the intentions of all other market participants, what the buyers and sellers are thinking, who is in control, and what is the future direction of the market. By understanding what the candlesticks are telling you, you can get a better understanding of price movement. We can identify where on the chart is an increase in buying pressure or selling pressure, if there is indecision in the market, or how strong the momentum is, or if there's exhaustion of certain price movement. Every small price change matters. Nothing is random in a price session, and therefore knowing what to look for on each candle is paramount to achieve consistent profitability.

Candlesticks are a representation of price movement. They basically depict the tug of war between two sides, buyers and sellers. Who is in control of the market? Who has the momentum on their side? And the future potential direction of the market. Candlesticks visually present four important data points all traders need to pay attention to: open, high, low, and close. A bullish candle is indicating prices going up. A bearish candle is indicating prices going down. A bullish candle has an opening price lower than the closing price, indicating a rise in buying pressure, and a bearish candle has an opening price higher than the closing price, indicating bearish pressure. The wicks at the bottom are indicating the lowest price prices reached while the bar was forming, and upper wicks are indicating the highest price prices reached while the bars were forming. So the bullish candle presented opened at this particular level, traded down, ended up trading higher all the way to the highest price point, but towards the close managed to trade a little bit lower and close at this particular level. Therefore, the body has wicks on each side, and it is important to pay attention to all parts of the candlesticks, bodies and wicks. And it's important for you as a trader to also pay attention to how the bar is forming because it can tell you a lot about the momentum. It can tell you a lot about how the candlestick is reacting to important key levels. And because candlesticks can change in a split second, the start of a candle at the bottom here looks like a very strong bearish bar. But towards the end, there was an increase in buying pressure, and the bar closed like this. So you can never take your eyes off the candle while it is forming. It is important for you to witness the candle start and end. It is important for you to see the final picture of the candle so you know what you're working with, if it is okay to buy or sell.

To move forward, it is essential to understand basic concepts of candlestick patterns such as bodies and wicks, because the body of a candle can tell us a lot about the strength and weaknesses of buyers and sellers. The candle to the left, we can see it opened and it started with minimal selling pressure, but towards the close, buyers stepped in, immense buying pressure happened, and the bar managed to close way above the open, indicating a very strong bullish body that is much bigger than the initial bearish tail. This right here is indicating a very strong bullish bar, and this is strong buying pressure, good for bulls. The next bar opened, started with minimal buying pressure, but instantly sellers stepped in, took over the market. Immense selling pressure happened, and the body is extremely bearish, way bigger than the initial tail. This is indicating strong selling pressure, and this is a very good bar for the sellers. On the other hand, we can see when the body is small relative to the candle, it can tell us that the pressure is not that strong. For example, this bar right here opened and it looked promising for the bulls. We traded up higher. Buyers raised the price to a new high, but sellers at this particular level stepped in, took the price down. Yes, the buyers managed to close the price above the open, but it is so insignificant. This is not a good sign for the bulls, and this would be a very weak bullish bar. So it is important to pay attention to what the candle did while it was forming and how it closed. So you can see the candle lift and deplete. Similarly, the next candle, it started promising for the sellers, strong selling pressure. At one point, this entire bar looked very bearish, but towards the close, buyers stepped in, raised the price up, and the selling pressure was so minimal that this would be not a good bar for sellers to consider selling. So it is important to understand the size of a body relative to the wick. But just because the tail is much bigger than the wick, it doesn't mean that the pressure is weak. Actually, if there's a large tail below a bull body, it indicates strong buying pressure and it is a good sign for bulls. This is what we call a bullish tail. A large tail above a bare body indicates strong bearish pressure, and this is what we call a bearish tail. A lot of times, candlesticks like these are a good indication of momentum. If you have a solid key level, upon reaching the key level, you can see massive momentum to the upside and massive momentum to the downside. The wick at the bottom adds pressure to the buyers, and the wick at the top adds pressure to the sellers.

Basic concepts of candlestick patterns. What is important to remember is that candlestick patterns work and they remain the same across all time frames. The characteristics you will learn about candlesticks and candlestick patterns, they're applicable in every single market and on all time frames. The only difference is the duration of the candlestick itself. So for example, on a 2,000-tick chart, one candlestick on a chart, it opens and after 2,000 transactions it will close, and a brand new candlestick will print after that. On a five-minute chart, it takes five minutes of price movement. Price is oscillating up and up and down or going up or straight down. It takes five minutes from the open to the close, and then a next bar can print. And on a daily chart, it takes an entire day for one candlestick to print, and the next day a brand new candlestick will form. No matter the time frame, no matter the market, the candlestick analysis remains the same. While doing the candlestick analysis is very important, what we have to remember is that candlestick formations and patterns, they're just one component of a successful trade because a high probability trade setup consists of market context, key entry point, price action pattern, and the candlestick pattern is the last piece of confirmation. You don't have to learn and memorize all of these retail candlestick formations because these candlestick formations without a good context and without a good reason to take a setup are not that helpful and they will not improve your win rate. These candlestick formations alone, without a good pattern to support it, are not helpful. You want to make trading simple and more importantly, you want to understand how candlesticks work in its purest form. You want to understand what the candlesticks are telling you: What is the momentum? What is the pressure? Which side is in control in the market, etc. So, it's better to focus on the candlestick analysis in depth so you understand exactly what the market in front of you is telling you.

We already discussed this, but we're going to go through this now as a summary. Three key factors in analyzing a single bar: the size of the single bar matters. A single bar that is big is indicating good pressure, good momentum. But if the single bar is excessively big, if the candle is excessively big and you want to enter a position, your risk naturally increases and your stop loss is much bigger. So also that is a factor you need to take into consideration because if the bar is too big, you simply cannot enter because it violates your money management rules. And the signal bar is very small and neutral. There is a lack of pressure and it's not confirming your trade setup. We're paying attention to the body because the body reflects the difference between the open and the close. If there's a candle that is closing on its high or its low, that's indicating good momentum, and you're paying attention to tails or wicks because they're showing possible rejection or reversal on the candlestick. Trend bars are very strong bars that are confirming the current trend and current momentum. The bullish bar is indicating strong buying pressure, closing on its very high without a tail. This is a very strong bullish bar, and a bearish trend bar is opening at the top. Strong selling pressure. This is a very strong bearish bar. Reversal bars have a significant tail either at the bottom or at the top. So, we're talking about a bullish reversal bar. Initially, there was selling pressure. The bar looked bearish, but buyers stepped in around this price level, reversed the market higher, and the entire concept of this candle changes and now the tug of war is clear. Buyers completely took over. Sellers are insignificant. This is indicating a great reversal, strong reversal pressure. Same thing for the bearish bar: initial buying pressure. Eventually, sellers stepped in, the market reversed all the way back down, closed right here. But then we also have doji bars. Doji bars, they have tails, significant tails at both sides. It's some variation, and they have very tiny bodies. They may have one or two ticks, a bearish body or bullish body, or they may have no body, a neutral body like this. These candlesticks mainly indicate indecision. Both buyers and sellers are equally strong. These are neutral bars. These are not good signal bars you want to see if you want to enter a position in the market. Many times, once we see a lot of doji bars strung right next to each other, this is indicating a congestion area in the market, which means this is pretty much a no-trade zone. It is very easy to have a losing trade once you have many doji bars strung right next to each other. So this is something to keep in the back of your mind.

How to recognize which candlestick is the best candlestick for a signal bar. Meaning if we want to enter a position in the market, we want to have a good candlestick pattern that confirms our analysis and that can confirm the direction in which we want to enter the position. The candlestick tier list is something I think about every single time I'm anticipating a potential setup. I do this automatically. I don't think about this in my head. I basically do this automatically at this point. This is very easy to do. You will learn to do it fairly quickly. It's not really as complicated as it may seem. When we're trading a bad candlestick, if we can avoid it, it can help us avoid losing trades. And if we can see a good candlestick, a good signal bar, it can help us confirm that we're reading the structure correctly and the trade may be a good trading opportunity. So, we have multiple tiers of these candlesticks. We're talking about bullish candlesticks. Tier one represents the strongest signal bars for long setups. Candlesticks in tier one are ideal. They exhibit great strong momentum and minimal weakness, minimum bearish pressure. You can see the bars. These ones are ideal, strong bullish bodies, tails at the bottom, bullish tails at the bottom and almost no bearish pressure at the top. Very tiny tails at the top. We want bars to be closing on its very high if you want to go long. So these are ideal signal bars. We want to enter a position in the market. Tier 2 is still a solid tier. The candlesticks remain strong for long entries. However, as you can see, they start to show minor weakness compared to tier 1. Both of these tiers are still suitable for entry. We don't really have to overcomplicate things too much. It is tier three and four when we really have to be selective and it really matters what is the market context because you can see tier three now you're starting to have weak bullish bodies, weak bullish tails, and you're starting to have decent bearish wicks and even some slight bearish bodies. These candlesticks show a lack of momentum, no buying pressure or very minimal buying pressure. This is not what we want to see if you want to go long. Sometimes when you see a signal bar when it's between tier two and three, you can still consider it for entry, but you have to make sure the context is good. Okay, market context is the most important thing when it comes to trading. So sometimes we can take a weaker tier of the signal bar to enter a position if the context is really good, the key entry point is strong and confirms. Ideally, you want these signal bars tier one and two, but still you can work with tier three if the context is really, really clear and you understand what the market is telling you. And tier four, it's basically neutral doji patterns. You can see a lack of momentum, indecision. These are not great signal bars to enter a position. Once you can see a single bar like this, you pretty much have to avoid because you may end up having a losing trade because these single bars are showing no momentum whatsoever. The same thing, the same logic you will apply when it comes to the bearish candlestick tier list. You want to see nice bearish bodies closing on its low, tails at the top indicating great reversal. Once you can see small bullish bodies, tails at the bottom, this is when you can see and analyze an increase in buying pressure; the candlestick is getting weaker and weaker, and you have to make sure you're reading the context correctly, and tier four, once again, doji, neutral bias, increase in buying pressure, you want to skip. So every single time I'm watching a chart, I'm doing my analysis, I'm drawing key entry points, and I can see a pattern on the chart forming; I want to see a good tier when it comes to a signal bar because I want to confirm that there are enough buyers or sellers in the market that I can ride the wave with them and I can have a winning trade.

It's important to analyze the candlestick when it comes to taking a setup because they're telling you everything about the market participants, who is in control. And of course, you want to take a setup when your side is in control and the pressure is strong.

What candlesticks reveal about markets? Candlesticks provide traders with valuable insights into the intentions of all market participants. They help us analyze market structure and overall price action when we're using the market geometry and overall the market structure, but also candlestick patterns help us to identify high trade opportunities when it comes to taking the setup itself. So let's take a look to the left. We can see that on the left we have a series of consecutive bearish bars. There is no bullish bar between—almost, you never get a perfect trend. You always get a mix of a few bars, but for the most part, there is a series of consecutive bearish bars. This is indicating a downtrend structure, which means we expect bearish continuation. This is a down, working lower. We can see strong bearish bodies closing on their low, tails at the top and very minimal tails at the bottom and minimal buying pressure. The main focus is on short opportunities only. The market is correcting, and now we can see that the 21-bar moving average, which is one of the key entry points, we can see some rejection, and this is when we are starting to pay attention to candlestick patterns as well. We're using candlesticks to identify the structure, how the structure looks, if the trend is strong, and now we're going to observe the rejection because you can see this candle right here has a massive tail at the top. Initially, we traded right into the EMA, but exactly at the exponential moving average, sellers stepped in at the key entry point, reversed the market all the way down, indicating a nice bearish reversal bar, telling me that this is a good signal bar and a lot of sellers are selling at this important kill at the 21-bar EMA, expecting the downtrend continuation. Look at this signal bar as well; it looked very bullish at first, we traded up, but towards the close a lot of sellers sold at this 21-bar exponential moving average. This is indicating strong selling pressure even though the body is neutral. Look at the massive tail at the top indicating strong bearish reversal. A lot of sellers are in the market. They're selling upon touching this key entry point. And this is how you know you can sell with them because the candlestick is strong. The market continues working lower. Another strong rejection and the market goes down. Same thing to the upside. Consecutive bullish bars, trend bars closing on their high, tails off the lows. This is what we want to see. We expect market continuation. Eventually, we can see an increase of bearish bars, which means the correction is kicking in. The market can never go up indefinitely. There needs to be a correction phase and a push phase. So the market is correcting at that exponential moving average. We expect uptrend continuation. If the key entry point is going to hold and the candlestick is going to reject prices. We can see that now we have some rejection, but this is minimal rejection. Bearish bar here. Doji, indecision. This is not a signal for me to go long just yet. This is not a signal that the buyers are back in the market. The correction can still continue because you can see the bars are still neutral or bearish. Only here I can see tails off these lows. Bullish bodies closing above the exponential moving average indicating buying reversal, and the market continues working higher. And on the right, we have no consecutive candles. We have an equal amount of bearish and bullish candles. This is indicating consolidation. Small trading range. We can consider selling at the top, going to triangle rules. You can see the price action is going sideways, just up and up and down, a lot of stems on both sides. We have candlesticks, consolidation. So you can see the candles are telling you everything about the intentions of all market participants, who is in control. You're using the candles to identify the structure and your actual entry point if there is good reaction.

Okay, we talked about fundamentals when it comes to candlestick patterns and how to actually trade candlestick patterns. When it comes to trading candlestick patterns, you have to understand that you use candlestick patterns. You're identifying signal bars only once you understand what is the market structure. This is the first question you need to ask yourself: What is the market structure? Where is the market heading? You must understand what the structure is and where the market is heading. How are you supposed to take a setup? How are you supposed to enter a position if you don't know where the market is heading? When you're gambling and you're guessing, if you're guessing, you're not going to make it long in this business. You need to make sure you're going to follow the rules of the strategy and you understand what the market is doing. And if you don't understand, that means the market is unclear. You sit on your hands and you don't enter a position. That's how you're going to protect your capital. Traders cannot look for trade entries without first understanding the market structure. A hyper setup will typically form at the key entry point such as EMA, key level or trend line combined with the price action pattern to like a pullback, confirmation setup, traps, fill breakouts, etc. You must think about the price action rules. The trend line rule says after a break of a trend line, you expect a retest of an extreme. According to trending range rules, you want to buy low, sell high, fade the breakout. That's how price action works. Once traders identify a confluence of key entry points, you should pay close attention to the candlestick pattern and the signal bar tier to refine your trading decision. So what is the pattern right now? What is the market structure? So we can see we have a key level of resistance because prices get rejected twice, and we have a key level of support because prices bounce twice, many times, off of this important key. So we understand where the structure is—this is a trending range consolidation, even the supportive indicator when the bar EMA is flat. So we know that we're focusing on buying low, selling high. We have two momentum candles, and now we can see bearish depletion. We spike down, and suddenly this was a massive bearish bar, and we don't have continuation. We have a lot of stems, a lot of tails. We have an increase in buying pressure. We have a lot of bullish bars. You can see how the bearish momentum completely dissipated and now we have bearish depletion. A new high comes, reset. I have to redraw the downtrend. First entry long pullback, and we have a potential second entry long. So according to range rules, I know that I want to fade the breakout. It means trade against the breakout. Most breakouts are trading ranges will fail. You want to buy low and sell high. This is why we're using these key levels. So now we have sellers taking profits. And look what happened here. The signal bar here looked very bearish. It looked like we're going to continue working lower. But towards the close, buyers stepped in. They bought—all the smart bulls—and the market reversed all the way back up, and the bar is closing on its very high. This is exactly what we like to see. A strong reversal candle closing on its high confirming everything about the market structure. So, we're using the market structure. We're using the candlestick pattern to help us identify if the buyer stepped in. If I see such a strong signal bar after two legs down at the bottom of the trend range and I can see a bullish reversal like this, this is telling me that the bulls are back in the market and I can expect prices going back up. I'm going to do the same thing to the upside. I'm going to draw the trend line, momentum, consecutive bullish bars, and now I can see bullish depletion. Okay, you can see how no longer prices are going higher because we're at the top of the trend range at an important price level. However, I still cannot sell because the signal bars are terrible. Okay, buyers are attempting to break the key level. They're failing. Sellers are stronger in the market. Sellers are entering their positions. Bulls are taking profits here, and smart sellers are taking profits at the bottom. So these signal bars are terrible. A lot of stems, a lot of tails, bullish bodies, no break below this bar. So I cannot really enter. And I finally have a very strong bearish bar indicating, okay, sellers are stepping in. Strong momentum at the top of the trend range, tier one single bar, and we can enter.

If I want to navigate a trending range accurately, I need to follow the trend line rule. We can see every single time we have a short-term channel on the chart, there's a second leg attempting to test the new extreme. So you have one leg down, break, second leg down. Here we have the price is breaking the bottom support. A lot of sellers are going to get trapped. It is a big bearish bar. But based on the context, we don't have to be worried about this because this is the second lag for the first lag, new extreme, and all the smart sellers are using this bar to take profits. We have a bar down, bar up, massive bullish momentum. Very strong bullish bar closing on its high at the bottom of the consolidation after the downtrend played out. This is the exact area where you want to go long. Fell breakout, strong bullish bar. Price is working higher, breaking new highs. And now we're anticipating prices to sell. The market is telling us everything. We're combining the candlesticks with the overall context. I want to go short, but I don't have the opportunity. We have very bad bars, bullish bars, a lot of tails, weak bars, signal bars, inside bars. I can't take anything here. You can see by respecting the candlestick pattern, we avoid having a losing trade. A bullish bar to the top of the range is going to trap buyers. Massive reversal down, strong tier one signal bar. We expect prices to go back into the trading range. So, I'm only anticipating a good candlestick pattern once the context and pattern align. Identifying a high probability setup, it's about combining the market structure with the candlestick pattern with the signal bar. So when I'm analyzing the market, when I'm analyzing the candlesticks on a chart, I can see that every single high is lower and lower and every single low is lower and lower, indicating to me that the market structure is bearish and I'm going to make the most money if I'm thinking about short opportunities only. I can also identify the trend line because there's always a trend line present on the chart; it fits the price action well, and the trend is down. So now that I understand the context, I understand the key entry point. Now I'm paying attention if there's going to be a price action pattern to like a pullback at the key entry point, and I can see that the market corrected to the trend line, and now I'm paying attention how strong the signal bar is going to be. I can see the price action is reacting well to key entry points now, the EMA, and

The trend line because you can see I have strong bearish bars right once we touch the key entry point area of confluence. And this is the precise area where I want to see a good strong signal bar. Sellers are showing dominance over the buyers up to break new high. And I can see both bars here are tier one single bars; strong body, nice and versatile. We attempted to break higher, reverse down, and close on its very low without a tick at the bottom indicating very strong selling pressure. Everybody was selling. You can see it was very hard to even catch this trade because market close open here and you have another strong momentum candle completely trading all the way down here.

Once I'm at the bottom of this channel, I'm no longer looking for how good the signal bar is going to be. It's irrelevant. It's about the context. I want to sell at the right place. The market is correcting. I have a new high of the correction. I'm not selling as long as this correction is in play. I want to sell only if we break below EMA because I expect the new low for this downtrend going to channel rule. I have a first entry long, second entry long failure. However, the single bar is terrible. We broke below this bullish bar. This is a tier four single bar. I cannot go short below this bullish bar. Even though the setup ended up working, it may not happen this way every single time in the future. Okay, I want to follow the rules. I don't want to cherrypick. So, also it was a bit congested. So, I counted any here. The signal bar was weak. We corrected a little bit and now I have a trade opportunity. I can sell at this EMA.

But let's analyze the candlestick. We can see this is a tier two, tier three signal bar, something between. It is not a terrible bar, but also it is not the strongest bar. The signal bar itself, it's quite a dogey indicating indecision. There's quite decent tell at the top, but also tell at the bottom. No strong body. So the signal bar alone here is quite weak. It's quite neutral. That doesn't help because the context here is also bad. You can see we are in a congestion. We have candles up and up and down right next to each other. This is a no trade zone and I can't enter a trade in a congestion when the signal bar is weak as well. So there's a no go and shortly after we broke higher. Most breakouts will fail with the direction of the downtrend. That's the main bias. That's the main pattern. And we have a strong bar. We take higher, reverse down. All the bars got trapped. We reverse down. Tier one single bar. Strong momentum and prices continue to trade to new extreme. So we have to combine the structure, the key entry point with the candlestick pattern to optimize the high probability setup.

How not to trade candlestick patterns? A lot of traders, especially novice traders, beginner traders, they get too excited about learning price action, learning candlestick patterns, and they're frantically taking the setups all over the place. Every single time the candle looks good. But you cannot approach the market like this. You cannot enter a trade based solely on a candlestick in a no man's land. Okay? You cannot trade candlestick patterns in a vacuum. You always have to have a good context that supports it. You will not build your account if you keep frantically taking setups only based on how good the candlestick is. This is why these candlestick patterns, these general patterns such as tweezers, gravestone dogey, etc., these combinations are dangerous to novice traders because you will not recognize the context correctly. You will see some combination of candlesticks alone and you will end up with having a losing trade because you can see we have nice momentum here, bullish bar, we have bullish depletion and we have influx of sellers. So this looks like a great short setup and here we have strong bearish candlestick as well. But I'm going to analyze the context. It happened here and it happened right here. Okay, so as you can see the context doesn't support this candlestick pattern at all. It doesn't matter how strong the single bar is. I simply can't take a setup if it doesn't align with the context because analyzing the market structure, I can see that I have series of higher highs and high lows. There has to be a trend line and we're going to make the most money if we're going to be thinking only about long opportunities. You can maybe squeeze the small scalp here, but you can see if you're focused on long opportunities, your job is much easier.

Also, how you don't want to use candlestick patterns is you want to avoid countrending. So, make sure to avoid countrending regardless how good the signal bar is. Also, what you want to pay attention because sometimes you will miss a good long opportunity at the bottom where there's a key entry point area of confluence, area of value and you may want to chase the market, chase the entry too late. For example, here, look at the nice signal bar here. Look at the gorgeous momentum bar and look at the strong bullish trend bar here. But you cannot give in to fear of missing out. You have to remember that you need to enter low when you're buying. You need to enter at the key entry point. You cannot enter far from the key entry point. Even though the single bar, the candlestick alone is good, you need to wait for prices to correct to the key entry point, whatever the structure is and then look to buy at the bottom following the price action rules and identifying the signal bar at the bottom of the correction phase because you expect a brand new push phase to start. So you can see the sellers are weak. They can't break the trend line. They can barely break the EMA. This is indicating bearish depletion and you're just thinking about going long at the bottom. You don't want to chase it at the top because you never know when the market's going to correct and stop you out.

Signal bar is a candlestick pattern that is used to confirm a trade entry. It's the last confirmation to get a high probability setup. But there are instances where we don't have to have perfect signal bar every single time and we can still consider a potential opportunity a great trading opportunity. So when does signal bar matter less? Number one, when the context is clear. How do you know the context is clear? Well, mainly there are no conflicting variables and you know what to expect beforehand. Okay, you know that the context is clear where nothing can surprise you and you already anticipate potential patterns set up to form before it even forms or when you have confluence of multiple key entry points. We're going to talk about that. Take a look at the structure. We have very strong downtrend. This is a strong downtrend, minimal bullish pullbacks, strong consecutive bearish candles. This is as strong as it gets. We're breaking the trend line and we know upon breaking the trend line, we automatically expect new to be tested according to trend line rule. We broke the trend line in a form of like a pullback and we are at the EMA at the key entry point. Look at the second entry short signal bar. If we're going to break below this bar, there's going to be new low, first entry short, pullback, second entry short, high pattern. So, we're combining everything. The candlestick alone is neutral. This is not a good candlestick that we are excited about. It has decent tail at the top, but it has also tail at the bottom. The body is neutral. So, this is a weak candlestick, not a strong one. But the context couldn't be easier to read. No conflicting variables. There is no trend range, no bottom support, no bullish reason to go long whatsoever. The downtrend is clear as it gets. So, we're only thinking about selling. Everything played out. So I can still consider selling even though the signal bar is weak because the context is so strong.

We have price is working higher the confirm uptrend and we have multiple key entry points. Number one the trend line number two the EMA and here number three small potential support and we have potential two trades. The more key entry points in price action I have the better the more I can trust and I gain confidence in my analysis. So these signal bars once again weak bodies. Nobody here even one tick bearish body. So these signal bars are weak but we have nice tails off of these lows because towards the close buyer stepped in near the key entry point and reverse price is working higher indicating the buyers stepped in. There was no selling pressure. So even though these signal bars are weak, you can play around with the idea of potentially going long here because the context is clear and you have multiple key entry points. Personally, I would probably skip this setup right here given the fact that we also have some small consolidation potential resistance. But if there's no resistance, we can consider. But this setup is better. The push higher, breakout, pullback, EMA keeps holding, almost trend line is holding. So once again, a signal bar doesn't have to be perfect if you have a lot of key entry points and the context is very clear and you know what to expect beforehand.

On the other hand, signal bar matters a lot. The candlestick pattern is important when you're just thinking that you know what's happening. The context is weak. It's not fully confirmed. You're not sure that your key entry point is the valid one. So you definitely need a very strong signal bar to confirm, okay, the buyers are in the market, the sellers are stepping in, etc., etc. You need a good signal bar to confirm the weak market context to confirm potential key entry point you're not so sure about. You need a strong signal bar. Or for example, when I'm taking more aggressive trades, I also prefer to have strong signal bar. For example, buying low, selling high, fading breakouts, attempting some early reversal, or when we are super far from the EMA, I want to ride it back. I really need very good single bar. When I'm taking a little bit more aggressive setup, not textbook second entry short like this two bar candlestick patterns.

Now you understand how to read candlestick patterns, what the candles are telling you about the markets, and you understand that you need to judge candles based on their T list to understand if there's enough momentum and pressure in the market. Now, we're going to dive deeper and we're going to talk about more advanced candlestick patterns, two bar candlestick patterns. The first pattern is going to be the inside bar pattern. The inside bar pattern is a two candlestick formation where the high of the second candle is lower than the high of the previous bar and the low is higher than the low of the previous bar. It basically means that your signal bar is completely engulfed by the previous bar. We're going to talk about bearish inside bar in front of us. We have this signal bar right here. Market is correcting to the exponential moving average. And there's a nice bearish bar where you may want to consider selling below the signal bar. But we're going to analyze this formation closely. We can see this is no ordinary signal bar. This is no ordinary candlestick. This entire candle is inside of the previous candle. You can see the high of this bearish bar and the low of this bearish bar is still within the range of the previous bar. The high is lower than the previous bar and the low is higher than the previous bar. You can see the bearish bar is completely engulfed and is inside of the previous bullish bar that we can call outside bar and the next bar is inside bar. We're going to take a look at bullish example. We have new high, first entry long, second entry long. So market moves in pairs of twos and you're thinking about going long and you can see this bullish bar right here. The high of this bullish candle and the low of this bullish candle is completely inside of the previous bar. Okay, you can see the previous bar, the high and the low is engulfing the following bar. This is the inside bar and the bearish bar is the outside bar.

Now, why is this so important and why this detail matters? This detail matters because it's telling you the inside bar pattern that there is not enough strength and momentum for the sellers. And what do I mean by this? Let's take a look at this example. Picture a scenario where you have bullish bar which means the market is correcting. There's a first leg for the correction, little pullback and market is correcting. The bulls are correcting to the expial moving average. If you can see market opening here and you can see price is going higher which means all these bulls they're going to buy their orders are going to be filled but the market reverses down this will indicate bullish trap. This will indicate there is enough of bearish momentum in the market. There is strong reversal because market traded higher which means there is some momentum for the buyers but all of this momentum completely dissipated once we broke above this bar and suddenly sellers stepped in and market completely reverse down. So this is indicating good reversal pressure for the sellers or picture the scenario number two where this bar closes and the next bearish bar opens. Market's going to trade all the way down here. it's going to break the low of the previous candle, which means there is strong enough momentum straight from the beginning of the formation of this bar. So either way, if you're going to break higher and then reverse down, this is a sign of reversal. Or you're going to open and you're going to continue breaking lower, this is sign of strength and momentum for the sellers. But this right here, this inside bar, the market just opened and the sellers didn't do anything. We didn't break higher and reverse down, nor we continue trending lower. This is just weak signal bar. The market pressure is insignificant. And this is generally not a good signal bar. We want to sell below. We want to see either one of these scenarios either break highs down or break the low of the previous bar because that is a sign that the sellers are in the market and they're strong. So for this reason, I recommend avoiding inside bar entries, especially if you're a novice trader. Sometimes it can work, but for the most part, it is indicating weak price action and you don't want your signal bar to be inside bar. You want to take a position above or below when the signal bar is inside of the previous bar.

Now it's going to make more sense because the second two bar candlestick pattern we're going to talk about engulfing candle. The engulfing pattern. Engulfing pattern, the engulfing candle will indicate strong momentum and reversal pressure in the market. It means that the high of the engulfing candle is higher than the previous bar and the low is lower than the previous bar. engulfing candle is a larger it's larger than the preceding bar and completely engulfves it. So let's take a look at this scenario. We have the previous bar which is bullish. Once again the market is correcting. We're correcting to the EMA. You can see the bullish like working higher part of the bearish trend. Market corrected and we have another attempt by the bulls to break the exponential moving average. But you can see the high of the secondary bar is higher than the previous bar and the low of the secondary bar is lower than the previous bar. And this is important because this means that the market initially continue working higher. The bulls were strong but they were tricked. They were tricked because EMA in a downtrend is a key entry point and eventually market reversed all the way down. And not only it tricked the bulls all of their orders they got filled it reversed down. So these bulls are trapped. It also managed to break the low of the previous bar. So we managed to get two scenarios in this example. We broke higher, we reversed down, and we managed to break the low of the previous bullish candle. So you can see how this bearish bar is completely engulfing the previous bar. And this is a good sign of reversal momentum of strength and of pressure that the sellers are in the market because they manage after market broke higher completely reverse the market lower and completely go of the previous candle. What is not engulfing pattern? You can see this would not be engulfing pattern because even though we initially broke above the bullish bar, we broke higher and market continued to trade lower. The low of the second bar is still higher than the low of the previous bar. So this would not be engulfing pattern. This would be a normal signal bar entry. We broke higher, reverse down. Engulfing pattern means that this bearish bar, the secondary bar needs to go lower and even break the low of the previous bar just like it happened right here.

Let's talk about bullish engulfing pattern. You have a new high, first entry long, second in long. You have a bearish bar working lower. The market is correcting. The market open. Prices continue to trade lower in the bear direction. But market completely reverse all the way up and the high is higher than the previous bar. So this bullish bar is completely engulfing with its extremes the previous bar which is indicating strong bullish momentum and strong reversal for the buyers. Because initially it looked like prices are going to trade lower but the buyers stepped in sellers got tricked and the bullish momentum increase and market completely reverse all the way up. So you can see how the momentum is there and the engulfing pattern is telling you that the buyers are really buying at this particular price level. Once again what is not engulfing pattern. You can see this is not engulfing pattern. Even though we broke and we reversed back to the upside the high of this bullish bar is still lower than the high of the previous bar. Of course, this is not engulfing pattern because you would need this bullish bar completely break and engulf the previous bar.

The engulfing candle offers traders one additional way how to enter a trade that is a little bit different than you would normally enter a trade. Normally, most of the times you want to wait for the signal bar to finish. Okay? If you're novice trader, if you're beginner trader, you every single time want to wait for candlestick to finish because you need to see how the candle ended. So if it is a good tier candlestick or not. But sometimes more advanced traders they can enter a gulfing entry. Which means when for example take a look at this example we have a bearish correction working lower and you are witnessing live that the market looks bearish initially. It broke lower but suddenly market is reversing all the way up in the opposite direction. So more advanced trader because he can see the momentum in the market. You can see how the sellers got trapped and there is suddenly influx of buyers. The market is trending higher. Suddenly more adventurer can actually enter without waiting for this bull bar to finish can enter one tick above the previous bar because when you're watching this live and the context is good. You can see how the momentum is accumulating and there's massive pressure in the market for the buyers. Once again, if you're novice trader, you need to wait for this bar to finish for the secondary bar. But more advanced trader can actually risk entry like this without waiting for this bar to finish. Because the momentum is so strong and you only want to use this for a trap, for a failed second entry because when the traders are trapped on the opposite side and you can see the momentum, it makes sense right now to bet on this entry because you can actually save more ticks and have larger target profit.

The last two bar candlestick pattern we're going to talk about is the double bar entry. A double bar entry is a trading technique used to enter a trade when the initial signal bar does not follow price action rules. Which means the tier of the initial signal bar is bad and we can't enter the position. What's important to understand that we're using the double bar entry only when the context is good. In this example, the context is easy to read because it's clearly a bullish trend. We understand the market is going higher. So, we understand the bias and the key entry point is confirmed. So in this particular example I can see that I have some market geometry series of higher lows. I can use this geometry to draw a trend line. This is a strong uptrend. I can also draw a small consolidation because market is going sideways. This is a small consolidation and I have second entry long. Market moves in pairs of twos. You have a new high resential long pullback second entry long which is also combined with a failed breakout because most breakouts out of consolidations will fail. especially since I'm going to combine this with the main bullish bias. So, I have a lot of key entry points. I have the EMA, I have the trend line, this is a second entry long, and this is also a fail breakout. So, context is super clear. So, what does it mean to enter this position as a double bar entry? Let's talk about this. So, now we're going to take a closer look. We have a new high. This is the highest high of the price working high, which means I have to reset the count when I'm using the counting technique. We have a first entry long because we broke high. the first attempt to go long, but we're not going to go long because we know market moves was in pairs of twos. Prices are turning lower. And now we're about to have a second entry long and there's going to be break above this bearish bar because after first entry long, the next bar is going to get a break above its high. That's the second entry long is the second attempt. But I can see that this bar right here, the technical second entry, this right here is bearish bar. And I cannot go long above bearish bar. This is a horrible signal. But where the market is going to go lower, what is going to trap me? This is not a good signal that the buyers are in the market. Okay, what is the key entry point not going to hold? I need to buy above bullish signal bar. That is very important. So this technical second entry I cannot take it. But I can use the double bar entry formation because the context is so clear. Let me just wait a little bit if the secondary bar is going to be okay to enter. And I can see that indeed the secondary bar is a nice bullish bar. So I can combine these two candlesticks together and I can enter on this secondary bar because the context is so good. So I can afford to skip the initial entry because the signal bar is bad and I can afford to wait a little bit because the context is so clear. So the way I'm going to enter this situation is I need to wait for the break above this bullish bar because I need to see this bullish bar getting the break. I'm using this right here as my signal bar. So there's going to be break above this bullish bar. Then I can consider the entry triggering and I can drop my limit order or you can go long one tick above the single bar. What I prefer to do is I prefer to wait for the break above and drop my limit order few ticks back because double bar entry they tend to be quite big because you're combining both candlesticks. So I want to decrease the risk. So I generally wait for break and I drop my limit order and see if market can come back and fill me in. What is very important to understand that your stop loss has to go one tick not below the bar two the bullish bar but below the bar one the initial signal bar you have to use the lowest point in this swing to protect your position so my stop loss goes below the initial bar even though I'm not entering above this bar I'm not using this I'm using the secondary bar I still need to use the low of this bar because it's a two bar pattern to protect my trade so I'm using the following bar to go long and I'm using the previous bar to place my stop loss. This way, even if the signal bar is bad, I can take advantage of the situation when the context is so clear. So, this right here would be the practical second entry when we actually enter this position on and market continues to go higher. What you prefer is the secondary bar not to be too big. You like the double bar entry pattern, both candles to be fairly close to each other because if this bullish bar is going to close somewhere around here, then most of the sculp is already made. you prefer these candles be very close to each other.

Where it basically merges into one, and it looks like one signal bar. And remember, when the context is not clear and you're not sure, you don't really want to use double bar entry because the initial signal bar is weak, and that is not a good confirmation of the context.

So you use the double bar entry even with the bad initial signal bar when you're confident in your read. When the context is unclear and the market is sketchy, you want really nice confirmation with the signal bar to clear your doubts.

So this was the video about understanding candlesticks. Now you can see and you learn the language of the market. You can see how every single candlestick on the chart is telling you something. You know how to recognize indecision, momentum, and the pressure.

If this video was helpful, drop a like, subscribe to the channel, and I wish you luck with your trading.