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Candlesticks Made Easy & Most Powerful Candlestick Patterns Revealed 🔑📊🚀
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Dec 11, 2024
💹🔥Unlock the secrets of the ancient art of trading candlestick patterns! 🔥💹 Join me as I break down the complexities of candlestick charting and trading, and demystify the best patterns using data. You'll learn the most essential patterns and how to use them effectively in your trading strategy. ✉️ Learn the secrets of legendary traders and investors: https://bit.ly/4aCna7i 🔗 Follow along: https://analyzingalpha.com/candlestick-patterns ⏱️ Video Chapters 0:00 Introduction 1:30 What are Candlestick Charts? 4:00 What are Candlestick Patterns? 8:00 The Six Different Candlestick Pattern Trade Setups 13:50 Finding the MOST Profitable Pattern for Your Market 14:20 Use Tradingview to Find Candlestick Patterns
View Video Transcript
0:00
I back tested over 700 million trades
0:02
across 81 different Candlestick patterns
0:05
in the stock futures and Forex markets
0:07
so I could identify the very best
0:09
Candlestick patterns for me and my
0:11
algorithms to trade you might say Leo
0:13
how does this help me well guess what
0:15
I'm going to share with you the result
0:17
and I've also built an interactive tool
0:19
that you can use to identify the very
0:21
best Candlestick patterns for your
0:23
market and your trading style but if we
0:25
haven't met yet my name's Leo Smiggle
0:27
I'm an algorithmic Trader who loves to
0:28
study the market and trade Based on data
0:31
and that's what we're going to do here
0:32
today here's how we're going to roll
0:33
this out first we're going to cover what
0:35
are Candlestick charts then we're going
0:37
to cover water Candlestick patterns then
0:39
we're going to see a few examples so
0:40
that you get comfortable with
0:41
identifying the patterns and at that
0:43
point we're going to learn the six
0:44
different setup types that you can do on
0:46
these Candlestick patterns we're going
0:48
to cover the interactive tool that I
0:49
built so that you can identify the very
0:51
best Candlestick patterns for your
0:53
Market whether it's in an uptrend
0:55
downtrend or your scalp or swing Trader
0:57
Etc and then finally we'll wrap up by
0:59
how do you act actually find these
1:00
things using your charting software so
1:02
if this sounds interesting to you hit
1:04
the like because quite frankly these
1:06
data back videos do take a lot of time
1:07
and if this is something that you're
1:09
interested in I want to hear about it
1:10
let's get to it Candlestick charts are
1:13
just a Tool Traders use to understand
1:14
past Market moves and to profit from
1:17
future price action Candlestick charts
1:20
are named as such because when you group
1:21
prices into periods they form a
1:24
candle-like shape what you're seeing in
1:26
front of you is a chart of the S P 500
1:28
Index on the minute time frame each bar
1:31
is one minute we could easily change
1:33
this to make each bar five minutes one
1:35
hour 15 minutes day week month it
1:38
doesn't really matter all we're doing is
1:40
taking our open high low and close
1:42
prices and grouping into periods making
1:44
them look like candles so we can
1:46
visualize them so let's keep this on the
1:48
one minute chart so we can see some live
1:50
price action and try to understand
1:52
exactly what I mean by open high low
1:55
close a green candle means the price
1:57
during that period moved higher we see
2:00
these minute periods or bars the first
2:01
price which is the opening is right here
2:04
and the last price is the close which is
2:06
right here again open here close here
2:09
open here close here those are green
2:10
candles also know known as bullish
2:12
candles bearish candles means that
2:14
prices moved lower During the period it
2:17
opened here closed here open here closed
2:19
here open here closed here open here
2:21
close here now the only other thing that
2:23
we need to understand are Wicks Wicks
2:24
show you the high and low During the
2:26
period so if we come to this candle
2:28
right here this was the high of that
2:30
candle and here's the low of this candle
2:32
and we can see looking at this live
2:34
candle right now we don't know if it's
2:36
going to close bullish or bearish it
2:37
looks like it's going to be green so
2:39
it'll be bullish but price opened here
2:42
but trying to push higher but it
2:43
actually pushed all the way down here
2:45
and now we see here's the high it's
2:47
moving back down so here's the high
2:49
during that period And it closed right
2:51
here so now there's the next minute
2:52
period it opens here push down a tiny
2:55
bit you know the bulls and bears are
2:56
fighting a little bit and now we'll see
2:58
if price pushes up it pushes past the
3:01
previous candles High it keeps moving up
3:03
likely going to close bullish but
3:05
essentially that's the idea you only
3:07
need to know the Open high low and close
3:09
and if it closes bullishly it means that
3:12
the open was lower than the close or
3:14
Price moved up during that period And if
3:16
it's bearish means that the price moved
3:19
down during the period it opened higher
3:20
than the close but always remember what
3:23
you're looking at you're not just
3:24
looking at red and green bars what
3:27
you're really looking at is Market
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psychology which is just human
3:30
psychology and the forces of supply and
3:32
demand mapped visually so that you can
3:35
make sense of it and the sooner that you
3:37
understand that you're looking at the
3:39
psychology of people and supply and
3:40
demand the sooner this stuff can make
3:43
sense and you can shift the
3:45
probabilities in your favor with an
3:47
understanding of what Candlestick charts
3:49
are now let's turn our Focus to
3:50
Candlestick patterns Candlestick
3:52
patterns are a technical trading tool
3:54
that simply means it's based on price
3:56
and not fundamentals used for centuries
3:58
to help predict price movements each
4:01
Candlestick pattern has a distinct name
4:03
and a traditional training strategy but
4:05
what you'll find out is that these
4:07
traditional trading strategies that are
4:08
passed from generation to generation and
4:10
that most Traders use today are
4:13
typically wrong and at best you'll
4:14
likely break even and at worst you'll
4:16
lose money because they all depend on
4:18
which Market you're trading but a
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picture is worth a thousand words so
4:21
let's take a look at our very first
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Candlestick pattern the bullish closing
4:24
maribozu it is a single bar pattern with
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a long bullish or white body with a
4:30
closed price that's very close to the
4:32
high and Traders traditionally expect
4:34
this pattern to continue the bullish
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Trend and in fact in the stock market
4:39
they're correct minus frictions which
4:41
are fees slippage Etc and this goes for
4:44
all of the back tested results Traders
4:46
on average will make 28 cents per dollar
4:48
wrist but there's a better way to trade
4:50
this in fact it's better to go in the
4:53
opposite direction and expect a quick
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bearish move these data driven Traders
4:57
earn 68 cents for every dollar wrist now
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granted the magnitude isn't as high
5:02
because it's a shorter bounce but that's
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the idea and if you think about this
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logically after a big move Savvy Traders
5:08
are going to want to book some of that
5:09
profit and that's what I mean about
5:10
thinking about the psychology it's not
5:13
just a pattern right this is supply and
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demand in people's emotions and these
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patterns simply represent how people act
5:19
and think in the markets now let's look
5:22
at our second Candlestick pattern the
5:24
three white soldiers it's a three bar
5:26
pattern and it's said that the three
5:27
white soldiers are three white knights
5:30
fighting against the darkness you'll
5:32
notice in this pattern there's two tick
5:34
marks sloping down that means that this
5:36
pattern is only valid in a downtrend
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that's why the analogy says that they're
5:41
fighting and the darkness which is
5:43
really just the downtrend the three
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white soldiers requires three bullish
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medium to large candlesticks with
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consecutively higher closes of
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relatively similar size each candle must
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open within or near the previous
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candle's real body and clothes at or
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near the high of the day and as
5:59
mentioned previously it occurs in the
6:00
downtrend it's essential to be able to
6:02
take these picture-perfect Candlestick
6:03
identification images and translate that
6:06
into your charts we see here the
6:08
agilisis July 8 2013 daily chart and on
6:12
this chart we notice that price is in a
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downtrend and there's lots of different
6:15
ways to determine a downtrend but for
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our intents and purposes if the last
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price of the Candlestick pattern is
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below the 50-day average I consider that
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a downtrend if it's above the 50-day
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average I consider the pattern to be in
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an uptrend so with the first requirement
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identified the prices in a downtrend we
6:32
now need to see the three bullish medium
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to large candles that are consecutively
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closing higher with each candle opening
6:39
within or near the pry your candle's
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real body and the real body is just the
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portion of the candle between the open
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and close excluding the Wicks so with
6:48
these requirements filled this is indeed
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a three white soldiers Candlestick
6:51
pattern and we do see that price does
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move up a little bit and then chops
6:55
around but that's not the best way to
6:57
analyze these things I've done all the
6:59
back testing for you and I even created
7:01
a tool that you can use freely to
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determine the best possible Candlestick
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setups for your trading strategy so in
7:07
this instance we're looking at the white
7:08
soldiers Candlestick pattern we can see
7:10
that for most markets it looks like the
7:13
best strategy is a bullish mean
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reversion if you're a stock Trader you
7:17
can go up here select stock and that
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will filter to only show you the back
7:20
test results for the stock market setups
7:22
and you can see that indeed a bullish
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reversal which is the traditional
7:26
strategy using a risk reward ratio of
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five to one means for every dollar of
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risk you take five reward seems to have
7:33
the best payout you might wonder why the
7:35
optimal strategy seems to be duplicated
7:37
but if you dig in which you can actually
7:39
click on this stuff you can see the
7:40
setup where the entry criteria is a
7:43
little bit different but in order to
7:44
understand all these setups and entry
7:46
criteria and to be able to utilize this
7:48
tool so you are a data driven Trader you
7:50
need to understand all of the various
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trading setups so let's dig into that
7:53
now prices can either go up down or move
7:55
sideways that's it and when in context
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of the trend the price movements can
8:00
either continue the trend or reverse it
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this leads us to the following potential
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trade setups first we'll cover up
8:06
continuations which simply continue the
8:07
trend we've got a bullish continuation
8:09
which is a bull move and an uptrend we
8:12
have a bearish continuation which is a
8:13
bear move in the downtrend and then we
8:15
can reverse the trend a bullish reversal
8:17
is a bull move and a downtrend again
8:19
we're reversing the trend in a bearish
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reversal is a bearish move in an uptrend
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there's two more we'll cover but we'll
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cover those later because I don't want
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to confuse you so let's go ahead and
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look at specific examples let's start
8:32
with the upside Suzuki Gap it is a
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bullish continuation that means the
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pattern only occurs in an uptrend and
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the pattern expects the uptrend to
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continue it requires a first Candlestick
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it can be bearish or bullish that's why
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you see both black and white here the
8:49
second candle gaps up meaning the open
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is above the close and it creates this
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Gap or window the second candle is
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bullish and then the third candle opens
9:00
within the real body of the second
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candle and closes within the gap which
9:04
means it's obviously bearish and as
9:06
mentioned previously the bull momentum
9:09
is expected to continue the downside
9:11
Suzuki Gap is the mirror opposite of its
9:13
bullish brother that we just looked at
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in this case it's a bearish continuation
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so the pattern occurs in a downtrend and
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price is expected to continue lower now
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let's look at when price reverses only
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this time we're going to use charting
9:27
software to get us more comfortable
9:28
looking at Candlestick charts we see
9:30
here that there is a three-way soldiers
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Candlestick pattern that occurred on the
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Autodesk daily chart on October 6 2011
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prices in a downtrend as it's underneath
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the 50-day moving average that's what
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we're using as a proxy for the downtrend
9:45
and price does indeed reverse and move
9:48
to the upside and that is a bullish
9:50
reversal now let's take a look at a
9:52
Candlestick pattern that expects a move
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in the opposite direction in this case
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it is a bearish reversal again price is
9:58
in an uptrend and price is expected to
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fall to the downside the specific
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pattern right here is a three black
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crows pattern occurring on the NetApp
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daily chart on Friday December 26 2014
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the three black crows signifies Darkness
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or a bearish move oddly enough is
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actually a four bar pattern the first
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candle is bullish the second through
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fourth candles are consecutively
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declining bearish candles with little to
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noer Wicks the second candle must close
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under the prior white candles High and
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the third and fourth candles must open
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within the prior candles real body and
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again it must occur in an uptrend at
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this point you're probably oh my
10:34
goodness how am I gonna remember this if
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don't worry your scanning software can
10:38
help you identify it and I'll show you
10:40
how to do that later but the real key
10:42
point is to understand the difference
10:43
between a bullish and bearish reversals
10:46
and continuations so that way you can
10:48
use the tool that I built to identify
10:50
the very best Candlestick patterns for
10:52
your market and your trading style
10:54
according to history let's take a look
10:55
at the tool that I built once again what
10:57
do you see here we just saw the three
10:59
black crows Candlestick pattern we
11:01
understand that traditionally Traders
11:03
expect bearish reversal and it does seem
11:06
like that is the case you'll make two
11:08
cents for every dollar risk but when you
11:10
look up here we see that really what a
11:13
three black crows indicates is that a
11:15
lot of volatility is incoming but if
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you're going to want to take advantage
11:18
of these volatility trades which I'm
11:20
coining them bearish mean reversion or
11:22
bullish mean reversion trades you have
11:24
to understand what that looks like
11:26
trading a bearish mean reversion
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strategy is very easy all we need to do
11:31
is identify the pattern which here is
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the three black crows we've seen that a
11:34
few times
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we identify the high of the pattern
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which occurs on the first day and we
11:39
enter short when price moves up above
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and then back below the high and in this
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case we would have made some profit here
11:47
depending upon your risk levels or you
11:50
would have been in a longer trade and we
11:51
see a pretty violent move to the
11:53
downside again you can use the
11:55
calculator to determine how you want to
11:57
trade and what fits your personality
11:58
let's take a look at the Buller side of
12:01
things in the bullish meaner version
12:03
strategy what we want to do is we want
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to identify the low of the pattern in
12:07
this case it's the three white soldiers
12:09
we identified the low which occurred on
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the first day and then we went to enter
12:14
long when price goes below the low and
12:18
then back above it so in this case it
12:20
occurs on this bar here price moves down
12:22
below the low and then moves up so we'd
12:24
be in a long entry and price then moves
12:27
up and to the right leading to a
12:29
profitable trade now that you understand
12:30
bullish and bearish continuations
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reversals and mean reversion setups now
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it's time time for you to start acting
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like a casino and what do I mean by that
12:39
a casino will never go in on a bet where
12:41
it doesn't have an edge and what that
12:43
means is anytime a casino risks a dollar
12:45
it expects to make money it doesn't
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matter how good your risk management
12:49
skills are if you have a Negative Edge
12:51
you'll eventually lose all your money
12:53
and the reason why I'm talking about
12:54
Edge and I've talked about Edge
12:56
previously is that you have to have one
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the good news is is that if you believe
13:00
that history repeats itself or even
13:02
Rhymes you can use this tool that I've
13:05
created to identify the best Candlestick
13:07
patterns for your Market take a look at
13:09
this we see the Dow Jones Industrial
13:11
index versus the Invesco DB commodity
13:14
index what's happening here there's an
13:16
upward bias to the stock market and not
13:20
so much with the commodity market so
13:22
obviously Candlestick patterns or
13:24
whatever patterns you're trading are
13:26
going to be different and work
13:27
differently in different markets be very
13:29
careful of anyone that ever says oh yeah
13:31
this will work in all markets because
13:33
they might be misinformed you should say
13:34
show me the data well here I'm going to
13:37
show you the data you can either use
13:38
this tool here or scroll down and I've
13:40
identified the very best Candlestick
13:42
patterns for each market you can then
13:44
click on them to understand how each one
13:47
works whereas your entry criteria and
13:49
marry that to your trading strategy
13:51
obviously if you're a swing Trader
13:53
you're going to want to trade different
13:55
patterns than a scalper but the point is
13:57
all of this data is here for you to
13:59
examine and if you have any questions on
14:00
any of it feel free to leave them in the
14:02
comments below and now that you're
14:04
empowered to identify the very best
14:06
patterns for your Market the final
14:08
question is how do you identify these
14:10
things quickly and painlessly this might
14:12
be the easiest part of the entire video
14:14
Let's head back to trading view we'll go
14:16
up to indicators and remember we've been
14:18
looking at these three black crows we'll
14:20
go to technicals and then patterns we'll
14:23
scroll down to Candlestick patterns and
14:26
now we're looking for three black crows
14:30
which is bearish and now you'll see when
14:32
we close this it does indeed highlight
14:34
the three black crows Candlestick
14:36
pattern and you can do this for any of
14:38
the Candlestick patterns as you can see
14:40
there's a lot of them and the good news
14:42
is is that I have back test results for
14:44
pretty much all of the ones that you'll
14:45
be interested in trading isn't data
14:47
awesome if you want to up your trading
14:49
game even more check out this playlist
14:50
here and if you like this video and you
14:53
want more data back content please hit
14:55
the like and the Subscribe and I'll see
14:57
you in the next one thanks bye
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