Importance of Candlestick Patterns

1candle020913You can use candlestick patterns to bolster your ability to trade the spread betting market more successfully. For instance, envisage that you have demo tested your spread betting strategy for a number of weeks. You will now be able to produce a table showing the key details for all spread bets that you opened during this time period. The next table shows a sample of four live test results recorded for this candlestick strategy.

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Many successful traders find it useful to now correlate each result to its associated candlestick chart which displays the trading performance of the associated spread bet. By performing a similar exercise, you will gain a lot of knowledge about how your candlestick strategy functioned during the prevalent trading conditions. Consequently, you could acquire valuable insights into how to improve and modify it.

 

First Spread Bet

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The above chart shows a bullish engulfing candlestick pattern towards the bottom left indicating that the start of a new bullish trend. EMA9 is also above EMA50 providing additional confirmation. Our spread betting broker offered an initial spread of 1.0908:1.0910 at that point. As a result, a new long spread bet was opened at 1.0910, as shown in the above diagram, by wagering £10 per pip. A stop-loss order was positioned 50 pips below the lowest point of the bullish engulfing pattern. The position was closed at 1.1590 producing a profit of £6,800 after a bearish EMA crossover occurred, as shown on the above chart.

 

Second Spread Bet

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The above chart shows a Bearish Engulfing pattern and a morning star towards the top left indicating the start of a new bearish trend. EMA9 also subsequently fell below EMA50 providing additional confirmation. Our spread betting broker offered an initial spread of 1.1590:1.1592 at that point. As a result, a new short spread bet was opened at 1.1590, as shown in the diagram, by wagering £10 per pip. A stop-loss order was positioned 50 pips above the highest point of the bearish engulfing pattern. The position was closed at 1.0770 producing a profit of £8,200 after a bullish EMA crossover occurred, as shown on the above chart.

 

Third Spread Bet

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The above chart shows a bullish engulfing candlestick pattern towards the bottom left indicating that the start of a new bullish trend. EMA9 also rises above EMA50 providing additional confirmation. Our spread betting broker offered an initial spread of 1.0248: 1.0250 at that point. As a result, a new long spread bet was opened at 1.0250, as shown in the diagram, by wagering £10 per pip. A stop-loss order was positioned 50 pips below the lowest point of the bullish engulfing pattern. The position was closed at 1.0750 producing a profit of £5,000 after a bearish engulfing pattern was identified as shown on the above chart.

 

Fourth Spread Bet

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 The above chart shows a bearish engulfing pattern towards the top left indicating the start of a new bearish trend. EMA9 also subsequently fell below EMA50 providing additional confirmation. Our spread betting broker offered an initial spread of 0.9830: 0.9832 at that point. As a result, a new short spread bet was opened at 0.9830, as shown in the diagram, by wagering £10 per pip. A stop-loss order was positioned 50 pips above the highest point of the bearish engulfing pattern. The position was closed at 0.9680 producing a profit of £1,500 after a bullish EMA crossover occurred, as shown in the above diagram.

From analyzing the above results and their associated charts, you can confirm that they demonstrate the effectiveness of this candlestick strategy. These examples also illustrate candlestick patterns can help you improve your effectiveness at trading the spread betting markets successfully.

 

Steve Bigalow of Candlestick Forum on Candlestick Breakout Patterns:

httpv://www.youtube.com/watch?v=x0l9AJQkT54

 

The Benefits of using Forex Candlestick Patterns

You can also utilize candlestick patterns to help you trade the spread betting market more proficiently in the following way. You could try to identify new trading opportunities by locating major candlestick formations if you have been unable to do so using your own spread betting strategy.

Many experts will advise that those candlestick patterns exhibiting either a long upper or lower shadow with little body are the most useful at performing this task, i.e. hammer, morning star, hanging man and inverted hammer. You should also use the trading charts of your selected underlying assets that are based on the hourly time frame and higher to identify these patterns. For example, if you were to detect a hammer candlestick pattern on a four-hour candlestick chart then you should research into reasons behind its creation by using technical and fundamental analysis, etc. When doing so you must try to discover if price is about to undergo a full-blown reversal or just a retracement.

Sometimes, other indicators may encourage you to open new spread bets. Even so, you are still advised to study candlestick patterns as a means of providing a source of secondary confirmation. For instance, imagine that you would like to implement a new long spread bet within a bullish trend after analyzing the one-hour trading charts of a particular underlying asset of interest. However, if you observe that a morning star has just been created, then you should seriously consider stalling your decision and wait for further supporting evidence before entering your spread bet. This is because the morning star is a bearish indicator.

You will find that investing your time in learning how to utilize candlesticks effectively is a wise move because they can assist you in identifying new trading opportunities; verify the viability of your potential new positions and reduce the chances of you selecting losing bets. However, you must understand that candlestick patterns have limited use when major economic data is scheduled for release.

You could also evaluate the benefits of incorporating candlestick verification into your spread betting strategy by utilizing the following procedure. You must first determine the expectancy value of your strategy, just on its own. You should then repeat this procedure but include an additional step by using candlestick patterns as a means of verification. If you obtain an improved expectancy value as a result for your strategy, you will then appreciate the power of this concept.

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