Study Guide for Candlestick Patterns

Since a lot of people on this site seem to be interested in Candlestick Reversal Patterns, I'm going to give you guys a great example from my personal binder, with my day-by-day synopsis. This trade is unfortunately one I didn't take because I was still recovering from pneumonia. Bring up the chart for symbol ACTG. Start it in June 2009, final day November 30th. Notice that the Stochastic meter traces a Bullish Divergence, a higher low while price makes a lower low. This Bullish Divergence also occurs on the MACD & Money Flow Index. When combined with Candlesticks, this is a can't miss signal. Volume is more than double the previous day as well. This is my synopsis of how the trade should have been handled. #1 is the next day at 12-02 and so on. I hope this helps illistrate how I trade Candlestick patterns, and will be of help to those who want to learn more. This is just one of the more than 50 that I have noted and done a synopsis of, but this is a good one to illistrate that it was entirely forseeable before the trade was ever put on.

1. 12-01 A gap up after the Bullish Engulfing. Place the stop-loss 1% below a closing of the gap. The gap is never closed, and holds to the penny at $7.55! The stock never looks back as it finished up 2.5% the 1st day!
3. 12-02 A gap up Doji day is very unnerving. Keep the stop-loss at the closing of the gap, or break-even if trying to protect capital.
4. 12-03 Another gap up, with another long-legged Doji, with a lower low and lower high. Don’t move the stop-loss; if stopped out, it the trade will be a wash.
5. 12-04 Finally, a gap up that doesn’t close the gap up. Move the stop up to a closing of the gap.
6. 12-07, 12-08, 12-09 Trail stops at the lows of each of the previous days to lock in profits.
7. 12-11 A gap down hammer forms, exit either at the closing of the gap, or the end of the day. 20% in 9 days!