Do you want to become a more successful trader? Start by understanding continuation candlestick patterns. These are important signals that help you predict market trends and make informed trading decisions. Let’s explore the most common candlestick patterns.
What Is a Continuation Candlestick Pattern?
Continuation Candlestick Pattern are an indispensable tool for any Forex trader. They show the changes in price action, helping investors better understand market sentiment and potential trading opportunities.
Each candle on the chart contains valuable information about the opening price, closing price, highest and lowest price over a certain period of time. Thanks to that, you can effectively analyze the technique and make informed trading decisions.
Why are candlestick charts important for traders?
The answer is simple: they help you see the big picture of the market, recognize trading opportunities and minimize risks.
Did you know that Continuation Candlestick Pattern have been used by Japanese traders for hundreds of years? To this day, they are still one of the most popular technical analysis tools in the world.
Tips to Read Candlestick Charts
Each candle on the chart tells a small story about the price movement of an asset. To understand this story, we need to carefully observe the shape, size and position of each candle. Candlestick charts are a tool that helps us visualize market developments. Each candle is a small piece that creates a complete picture of supply and demand. Compared to other technical indicators, candlestick charts provide us with a more detailed and comprehensive view of price movements. You not only know the opening and closing prices, but also understand the highest and lowest prices in a certain period of time.
Most candlesticks are rectangular. Their color will tell you whether the trend is up (green) or down (red) during that trading period. The wicks and shadows of the candle represent the highest and lowest prices during the trading period. Through that, you can evaluate the strength of the trend and the resistance of the price.
How to Use and Rules Continuation Patterns
Continuation candlestick patterns are ‘lighthouses’ that guide traders, helping them quickly grasp the ongoing market trend.
Like a treasure map, they help you eliminate unnecessary information on the chart, helping you focus on important signals to make the right trading decisions.
To use the pattern effectively, you should:
- Clearly identify whether the market trend is going up or down.
- Look for potential entry and exit points.
- Protect capital by placing reasonable stop-loss orders based on the signals from the chart.
To be successful in trading, traders need to master the following basic principles:
- Clearly identify whether the market trend is up, down or sideways. Because candlestick patterns are only meaningful when they appear in the right trend
- Do not rush to enter an order as soon as you see a candlestick pattern. Be patient and wait for one or two more candles to confirm the signal. This helps to minimize the risk of wrong trading.
- See if the candlestick patterns appear at support or resistance zones. If so, the trading signal will be more reliable.
- Combine candlestick patterns with other technical indicators such as moving averages, RSI, etc. to increase the accuracy of your trading decisions.
Top 7 Continuation Patterns
Here are 7 powerful continuation candlestick patterns that are worth mentioning:
Doji
The Doji candlestick has a very small body, almost just a short line. This shows that the opening and closing prices of a trading session are very close together, as a sign that buyers and sellers are in balance, with neither side dominating.
When appearing in a trend, the Doji candlestick often signals a short pause. If the trend then continues as before, it means that the momentum of the trend is still strong.
Spinning Top
The Spinning Top candlestick has a small body and long upper and lower shadows, resembling a top. This shape shows that buyers and sellers are “tug of war” with each other. If after the Spinning Top candle, the trend continues as before, it means that the trend is still in place.
The Three Ways Up and Down
These two patterns help us recognize a consolidation phase in the trend.
The Three Ways Up pattern consists of three small bullish candles (possibly Dojis) in an uptrend, followed by a large bullish candle. It shows that the uptrend is pausing to gain strength before continuing.
The Three Ways Down pattern appears in a downtrend with three small bearish candles, followed by a large bearish candle. It shows that the downtrend is pausing to gain strength before continuing..
Tasuki Gap
A Tasuki Gap is a special Continuation Candlestick Pattern that occurs when two consecutive candles in the same trend create a gap between them.
- In a bullish Tasuki Gap, we see a large bullish candle followed by a bearish candle creating a gap. If the third candle rises and fills the gap, this shows that the uptrend is still very strong.
- On the other hand, in a bearish Tasuki Gap, we see a large bearish candle followed by a bullish candle creating a gap. If the third candle falls and fills the gap, this shows that the downtrend is still strong.
Mat-Hold
The Mat-Hold pattern starts with a strong long bullish candle. Then, a small candle (possibly a Doji) appears, indicating a brief pause. Finally, another long bullish candle appears, confirming that the uptrend is still in place. This pattern shows that investors are accumulating more strength to continue pushing the price higher.
Rising and Falling Windows
- A rising window occurs when the closing price of a session is higher than the previous session’s high, and the low is also higher than the previous session’s low. This indicates a strong upward momentum indicators.
- A falling window is the opposite pattern to a rising window. When the closing price of a session is lower than the previous session’s low, and the high is also lower than the previous session’s high, this indicates a strong downward momentum.
Both rising and falling windows usually indicate that the ongoing trend is likely to continue strongly.
High waves
A High Wave candle has a very short body and long upper and lower shadows, resembling a wave. This indicates strong price movements during that trading session.
- In an uptrend, a High Wave candle can be a sign that buyers are pausing to regain strength, or it can even signal a reversal.
- In a downtrend, a High Wave candle shows hesitation from both buyers and sellers. This can be a sign of a potential reversal or just a temporary correction.
Conclusion
In conclusion, through this article, we have clearly understood how the continuation candlestick pattern works and the common types of candlestick patterns. To fully utilize their role, do not forget to combine them with other technical indicators to be able to make the right trading decisions for successful future investors!
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