Imagine you are standing in a dark forest and someone hands you a single photograph of a man running. In the photo, his face is sweaty and he is looking over his shoulders. You look at this photo and decide that because he is running, he must be trying to catch a bus that is just out of the frame. You are so confident that you bet your entire week’s salary on the existence of that bus. However, the photo doesn’t show you that there is actually a very hungry bear chasing him from the other direction. So, your bet on the bus is a total disaster and you lose your money because you only had a snapshot of a much bigger and much scarier story. This is exactly what happens when people look at candlestick patterns on a trading chart. They look at a frozen stick and try to guess the future, but they are missing the scary bear, the bus, and the fact that the man might just be out for a morning jog.

A candlestick is just a little box with two thin lines sticking out of the top and bottom, which we call wicks. It looks like a firecracker and tells us four things: where the price started, how low it went, how high it went, and where it closed. Think of it like a sports commentator who only tells us the score at the beginning and at the end of the game. If a game starts at a 0 0 score and ends at a 1 1 score, that sounds like a very boring slow game. But if you had actually watched the game, you would have seen that there were 50 penalties, 10 red cards, a dog that ran onto the field, and other important things that happened in between. Because the candlestick only cares about the open, low, high, and close, it hides the effort of the market, the anger, the sudden movements, and other important details. So, you might see a strong green candle and think everyone is happy and buying, but you didn’t see that the price almost crashed 10 times that hour when the candle was forming and was only saved by one giant hedge fund near the close of the candle.

This leads us to the big problem with how these candlesticks are made. Imagine you have a bucket of Lego bricks. You want to build a tower, so you start stacking them up one by one. If I only show you a picture of the tower after it is finished, you have no idea if it took one minute or 10 hours to build it. You also don’t know if the tower is super shaky and about to fall over or if it is as solid as a rock. In the world of trading, the Lego bricks are actual trades people are making, but a candlestick doesn’t show you the bricks; it only shows you the final shadow of the tower. This is dangerous because important things exist between the open and close of the candle. There is a living, breathing tug of war between millions of people. By squishing all that into a hammer, a doji, or a bullish engulfing pattern, we are throwing away 99 percent of the information we actually need to make a good decision. One way to solve this problem is to look at the candlestick in the live market when it is forming. The price will move up and down, and you will see how the market actually behaved between the open and close of the candle. The other way is to go to a lower timeframe to see more detail.

But imagine a restaurant. If you walk in and see a plate of food, you can see what the chef has made, but you don’t know if they used fresh ingredients or if they found them in the trash. A candlestick pattern is like that plate of food. It shows you the result, which is the price, but it doesn’t tell you the quality of that move. Sometimes the price goes up because there is actually a strong reason for it. Many people buy that stock or forex pair with high volume. But sometimes the price goes up just because there was nobody left to sell. There was very low volume, and a random person with a big position managed to move the price up. To our eyes, a bullish candle looks exactly the same in both high and low quality cases. So, you buy at the strong green candle, thinking it is high quality food, but then the price falls since the move was low quality. It was like the food was picked up from the trash, and now the price falls as if you got diarrhea.

But imagine you were standing at a train station watching a train pull away. It’s already moving. Now it’s gone. But you are still standing there trying to decide if you should have bought a ticket. That’s a candlestick pattern. By the time the pattern fully forms on your screen and you recognize it, the price movement has already happened. The engulfing pattern is already complete, and the market has already made its move. We are always looking at something that is finished and trying to make decisions about what is coming next. But the action we needed to take, buying in this strong upward pressure, had already left the station five minutes ago while we were still figuring out if the pattern was real or not.

The confusion gets even deeper because we have decided to cut time into little slices. Imagine you are watching a movie, but I only let you see one frame every 10 minutes. In one frame, a character is smiling. In the next frame, 10 minutes later, he is crying. You might think he must have heard some bad news, but you miss the part where he watched a funny movie, ate a delicious pizza, tripped over, and then smashed his toe against the corner of the table. Because we choose to look at minutes candles or hour candles, we are creating starts and ends that don’t actually exist in real life. The market doesn’t care about the open and close data of the timeframe you have selected. When you look at a timeframe such as 5 minutes, it is like looking at a cup of water that you took from an ocean. The cup of water is real, but it doesn’t tell us how fast or how strongly the ocean wave is moving.

This random slicing of time creates what we call patterns. Let’s say a giant whale, a person with billions of dollars, decided to buy a whole bunch of bitcoin. He starts from 2 o clock and finishes buying over the next 20 to 30 minutes. If you are looking at a 5 minute chart, this massive buy will look like normal green candles to you. They might be a little bigger than normal, since that billionaire had to slowly enter the market to avoid creating a big move during that extremely small time period. Because of that, the smaller timeframe will simply show a normal sized upward move. They won’t show any strong candlestick pattern. The candles will look unimportant, but on the higher 30 minute timeframe, the same move will look like a giant monster compared to other 30 minute candles. But then, on the 4 hour chart, the same billion dollar purchase will look like a small candle. It will not even look that strong. It will be pretty much the same size as the other candles. So, these patterns you see on your screen are also an illusion created by the timeframes you have selected. The market doesn’t care about them. Many times, they don’t mean anything. They are just illusions of the timeframe, even though the billion dollar purchase is real.

Candlestick patterns show the same thing very differently on different timeframes. It is like looking at a cloud and seeing a bunny rabbit, while your friend looks at the same cloud from a different angle and sees a scary dragon. Neither of you are right, because it is just a bunch of floating steam, but you are both willing to bet your money on the bunny or the dragon. The funniest part is that we give these shapes names like evening star, the hanging man, or the pregnant candle. I mean, how did the candle get pregnant?

Imagine you are trying to figure out if it is going to rain this entire year, but you are only allowed to look at three days. You check on Monday, it rained. You check on Tuesday, it rained. You check on Wednesday, it rained. Based on these three days, would you confidently predict the weather for the whole year? Of course not. Three days, or even a few more days, are not enough information to draw a real conclusion for 365 days. But this is exactly what traders do with candlesticks. A perfect evening star, or three white soldiers pattern, might only appear a few times. But the rest of the year’s price movement has nothing to do with some random pattern that appeared on a random Tuesday. Even if the pattern worked last time, that’s not enough occurrences to say this pattern definitely works. You need to look at hundreds of examples to make a statistical claim. But most traders see a pattern that worked a few times and quickly start risking their hard earned money on it. Things working a few times is not a working pattern. It’s just a coincidence.

But backtesting can create some illusions as well. Let’s say you have a huge bucket with a thousand different colored marbles. There are red, blue, green, yellow, purple, orange, and many other colors. You start pulling them out randomly one by one, and eventually, just by pure dumb luck, you pull out three red ones in a row. Does it mean the bucket is sending you a secret signal? If the next color marble is green, does it mean that whenever three reds appear, the next color of the marble will also be green? Of course not. It is just randomness doing what randomness does. But if you are desperately looking for a pattern, you will shout, three reds in a row, that’s a working strategy. You found something that looks like a pattern, but is really just chance. When you have hundreds of possible patterns like the doji, hammer, shooting stars, and so on, some of them will appear to work just by pure random chance. It’s just probability playing tricks on us.

To show you what I mean, imagine you are at the airport and you step on one of the walkways that carries you forward. If you start walking, you will reach the end really fast. You might think, I am very good at walking, I walk so effortlessly. But in reality, the floor was doing most of the work for you. This is exactly what happens when you test bullish patterns in the stock market. Major stock indices like the S and P 500 go up most of the time on the higher timeframes. Here, almost any buy signal will look like it has a higher win rate. In fact, I made a video a while back where I tested 10,000 trades and found that bullish engulfing patterns on the stock market indices had a really high win rate. It worked around 60 percent or more. That sounds like a holy grail, right? But the same patterns, when the market was not trending strongly in one direction, didn’t have a high win rate. Their win rate dropped to around the break even 50 percent point. The pattern didn’t change. The market itself changed. In reality, patterns are not working. We are just accidentally betting on the fact that the stock market generally goes up in the long run. Any random bullish pattern you create in an uptrending stock market will probably work like any old candlestick pattern.

If the patterns actually worked, what would happen if I tested them again, but this time, I used a bullish pattern as a bearish signal and a bearish pattern as a bullish signal? If the patterns had any significance, then taking long trades on a bearish pattern should have a lower win rate, right? But look at the data. The bearish pattern is actually showing a profitable win rate of around 55 percent in the stock market on the higher timeframes. The win rate jumped from 45 percent to 55 percent because the upward moving stock market price is actually what is making the candlestick pattern work. The candlestick pattern itself didn’t have any power. It was like a passenger on a plane claiming they are the one flying it just because they are also sitting in a seat.

But let’s say you are a detective investigating robberies in your city. You notice that every major robbery happened on the same day when ice cream sales were really high. So you create a whole new theory that says ice cream sales cause robberies. You write detailed reports, warn the police, and tell everyone to watch out for ice cream trucks because they predict crime. What you completely missed is that both ice cream sales and robberies just happen to go up in the summer because it’s hot and people are out of their homes more. The innocent ice cream didn’t cause anything. You just found two things that happened together and assumed one caused the other. Back in the old days, someone looked at old charts, found shapes that seemed to line up with the price, and gave them names. Just because a hammer pattern appeared near the price bottom a few times in the 1970s doesn’t mean it will work again in the current market.

In fact, I did a testing video a while back where I analyzed 60 years of candlestick data and found that, back in the old days, candlestick patterns used to get a really high win rate in the stock market’s one day timeframe. But over time, their win rate has been going down and down, and in the current market, they suck compared to the old days. The past doesn’t control the future, especially in markets that change every single day. But a problem happens when people try to teach these old patterns. Imagine you walk into a bookstore looking for a book called, I tried this diet and got even fatter. You search every shelf and can’t find it anywhere. Why? Because no one is exercising or dieting to get fat. If people are looking to get healthy as fast as possible, then that’s what publishers are going to sell. So, you will find every shelf packed with books screaming about how I lost weight really fast with an amazing secret diet. But what they are not telling you is that 99 other people tried the exact same diet and it didn’t work for them at all. Those people don’t get book deals.

The candlestick story is also very similar to that. Since candlestick patterns used to work back in the day when the first books were written, people have been dragging the same old story and the same old guides to this day because that’s what people want. People want the candlestick patterns to work. Books or guides that say they don’t work anymore are criticized. They say the author doesn’t know how to use the candlestick patterns effectively. But data speaks the truth, and it says the win rate of candlestick patterns has been going down over the years. In the modern market, they are basically just random patterns that don’t work on their own. But a book called Secret Candlestick Patterns That Made Me A Millionaire will sell thousands of copies. So, we only hear about the success stories, never the failures that 99 percent of traders will face, and that creates a totally fake picture of reality.

Imagine you go to a museum and you see this painting on the wall. You wonder what it is and what it represents. It just looks like a simple line, but then you see an entire essay written on it saying how this line represents the way of life and the entire universe. However, another person says this represents a lightning bolt. But in reality, last night a person scratched it by mistake and then ran away. Even though the line was just a simple scratch, two different people saw completely different things. Candlestick patterns have a similar problem. In a hammer pattern, the tail of the candle is supposed to be longer than the body, like a hammer. But how long is it supposed to be exactly? If you ask different traders, they will give different answers depending on where they studied candlestick patterns. Some will say the tail has to be two times bigger than the body of the candle. Others will say the tail just has to look bigger than the body. A trading bot will pick the candlestick patterns consistently, but humans will not. Nobody can agree on the same thing, because it is all just opinion and everything is subjective. The rules of candlestick patterns are blurry.

But imagine you watch a two minute clip of a basketball player. In those two minutes, he looks pretty good. So you decide to watch the whole three hour live game, but you see he missed 15 shots, fell on his face, and got blocked two times. Candlestick patterns are very similar to this. Many patterns are reversal patterns. So, in the past market, when your eyes naturally jump to the reversal points, you will find working candlestick patterns like this. But your brain completely filters out the non working patterns that were not near an obvious reversal. In the past market, these candlestick patterns look really nice, because you missed the failed ones. But when you trade them in the live market, you end up taking all those missed patterns, and your win rate drops. The thing is, candlestick patterns simply look better in hindsight.

But you know the saying, a broken clock is right twice a day. Now imagine you are in a room filled with thousands of broken clocks, all stuck at different times. If you walk into the room at exactly two o clock, you will find dozens of clocks that are right. You can point at them and say, these clocks are geniuses. They know exactly what time it is, but in reality, they are not really working. A while back, I made a trading simulator in a video. Even though the price movement was completely random, it had some working candlestick patterns near reversal points, just like the book said. But all these were completely random nonsense. If you show these charts to a trading guru, or whoever wrote books on candlestick patterns in the modern age, they will most likely point out all the working patterns and say how their book is accurate. I bet that they won’t be able to figure out that these are not strong buying and selling pressures. There is no tug of war. There is no institutional heavy buying or selling. There is no high volume. It is just random nonsense price movement. The thing is, even in the real market, since there are so many algorithm trades and so many people buying and selling at the same time, most of the price movement is random nonsense, especially on smaller timeframes. So, many of these candlestick patterns are just created by randomness. They don’t really mean anything.

When we see a doji candle, which is just a pattern where the price started and ended in pretty much the same place, we are told it means indecision. We think the buyers and sellers are standing there scratching their heads, not knowing what to do. But in reality, a doji might just mean that everyone went to lunch, or that a computer program is waiting for a news report, or that two banks are fighting a secret war that hasn’t finished yet. By calling it indecision, we are basically putting human emotions onto random numbers. It is like looking at a stopped car and saying it is confused about which way to turn. But the car isn’t confused. It is just out of gas, or the driver is just waiting for the traffic light to change. We tried to predict why the car stopped, or where it will turn just by looking at it, but we are basically just guessing. Guessing the reason is not a great way to trade with your hard earned money.

In the old days, the creator of the candlestick chart used these patterns to trade rice. But back then, it took days for news to travel. There were no computers or high speed trading. Trading rice was slow, like watching grass grow. But today, the market moves faster than a blink of an eye. Using a rice trading trick from 300 years ago to trade stocks today is like trying to win an F1 race with a camel. Even though the camel looks really fast, I don’t think it can win against a modern car. Let’s say you found a 300 year old treasure map. It has dense forest and a pathway that leads to the treasure marked by an X. But the problem is that things have changed. Instead of a dense forest, there are tall buildings. If you follow this map in the modern world, you might think it is leading you to a tree, but you might fall into a sewer hole. That is a really smelly way to realize that the old map is no longer accurate. Candlestick patterns are like those old treasure maps. There used to be treasure when they were created, but in the modern age, you might step into a hole.

But we traders love these patterns because they provide a sense of comfort in a market that is messy and scary. Imagine you go to a different country and don’t speak their language, but you really have to pee. Since you can’t read the language, you are really panicking and scared. But then you see a sign with a stick figure, and you immediately know where to go to relieve yourself. The sign makes perfect sense in that lost feeling environment. Candlestick patterns are like those signs. The market is a giant mess. And a strong bullish engulfing pattern is like a sign that says the price is going up. You want to believe that sign, because it is the only thing that makes sense in this randomness. It is a sign that repeats itself from time to time, but the outcome of this sign is unknown.

The strong buying pressure sign could have been put there by a prankster who wants you to believe there is strong buying pressure. Once you buy, the prankster can move the price down because he has more money than you. This actually happens in the market. Since these patterns have been there for many decades and everyone reads the same books and learns the same patterns, the patterns become a trap. If a million people all think that a hammer candle means they should buy, and they set their stop loss below the candle, then the big smart traders, institutions with large amounts of money to move the market, know exactly where those million people put their stop losses. It is like playing a game of hide and seek, but the seeker knows exactly where you will hide. So, big smart players might have pushed the price up strongly, creating a hammer pattern. Retail traders with limited info buy the made up pattern, and the trap is set. Now, big smart money can simply create stronger selling pressure that pushes the price just below your stop loss, and they have a perfect advantage. You see, when you bought at the hammer candle and set the stop loss below it, your stop loss, if triggered, will create a sell order to exit that buy position. Big smart money knows this. When they trigger the stop losses of millions of people, many sell orders are created at the same time and place. This creates even stronger selling pressure and pushes the price down. Now, all the big and smart players have to do is exit their short positions and book profits, because the retail traders just got played. On the same hammer pattern, the retail traders lost money, but the big institutional smart traders made a profit. So, if you are using a treasure map that has been available to everyone for multiple decades, the treasure is probably gone, and now all that is left are traps for beginner traders.

Imagine you go to a doctor and he looks at your temperature. It’s 99 degrees. Based on that, he says it’s a slight fever, nothing serious, and you should go home. But what if you also had chest pain, troubled breathing, and just got back from a country with a disease outbreak? Suddenly, that 99 degree temperature means something completely different and way more dangerous. The numbers stayed exactly the same, but context changed everything. Candlestick patterns have this exact problem. You see a bullish engulfing pattern and think that it’s a great time to buy. But what if the pattern was formed at a strong resistance area where the price has been rejected five times? Suddenly, that bullish pattern doesn’t look that good. You see candlestick patterns, but you have no idea what’s happening around them. A pattern doesn’t know if it is formed near a resistance, in a downtrend, or in a choppy market. It’s just a shape that is blind to everything else that actually matters. But let’s say your friend claims that every time he wears his red socks, his favorite sports team wins the game. He is convinced his socks are magic. You laugh at him because that’s ridiculous. His socks don’t control what happens in the match. There is no connection between the two things. It’s just random correlation. Candlestick patterns are the red socks of trading. They don’t explain why the price should go up or down. They just say this shape appeared, so the price will go in this direction. But why? What’s the actual cause? What’s the mechanism that makes it work? There is no cause. There is no mechanism. It’s just correlation, like price already moving in one direction making candlestick patterns look good. They are not the actual reason behind the price move. The price move is causing them, not the other way around. But imagine you are traveling and you see multiple signs. One points left and says, this way, and another points right and says, no go this way. Which one will you follow? You are completely frozen because you are getting opposite instructions from different sources. You can’t move because every option contradicts the others. This happens constantly with candlestick patterns. You will see a green engulfing pattern, then a red bearish pattern, then a green bullish pattern, and then a red pattern very close to each other. They are all looking at the same market but giving you completely opposite signals. So, which one should you follow? Many traders take the latest candlestick pattern. But why? When there was an opposite pattern just a few candles ago? Why are they ignoring that one? This is not a trading system. It’s just confusion dressed up as analysis.

The very visual nature of candlestick patterns, which makes them so easy to learn, is also what makes them so easy to break. We are using our eyes to find these shapes, but the market doesn’t care about the shapes. The market didn’t learn about this pattern from a trading guru’s 90 percent win rate PDF. The market cares about supply and demand. If there are 10 people who want to sell an apple, but only one person wants to buy it, then the price will go down no matter how bullish the previous candle looked. If there is only one person selling an apple, but there are 10 people who want to buy it immediately, then the price of the apple will definitely go up as the demand is going up. It doesn’t matter if there was stronger selling pressure before, because previous patterns don’t determine future movement.

In my around nine years of trading journey, I have used candlestick patterns to take trades. I will show you some of the strategies I used, but with a modern explanation. Let’s say you are watching a stock that usually moves as slowly as a turtle, but suddenly it starts moving like a rocket ship. This is almost always caused by a catalyst, which is just a fancy word for a big news event. Like a company making a massive deal, or a billionaire deciding he wants to own the business. When the news hits, I know exactly why the price is moving up. I don’t need to guess if it is an uptrend. I can see the momentum and the reason behind that strong move. The problem is that we aren’t the only ones who saw the news. Institutional traders have lightning fast algorithms and news feeds, and they take trades in less time than it takes for us to even blink. So, by the time we even look at the screen, there is already a giant, strong bullish candle that looks like a skyscraper. This candle is proof that big players are buying. But here is the problem. I have no idea if they are finished buying. Since the news is positive, I want to buy too, but I don’t want to buy at the very top of that skyscraper. If I buy there, institutional traders might decide to start booking their profits, which means they will sell their shares to me right at the top. So, the moment I click buy, the price might fall like a rock, and I will be left holding a very expensive bag of nothing.

But I also know that for big players to buy a massive amount of stock, they need enough people to sell it to them. It is like a giant who hasn’t eaten for three months walking in front of you, but you only offer him a tiny candy. That candy is not going to satisfy his hunger. He will need way more people or way more candies to fulfill his hunger. But the problem doesn’t stop there. Let’s say the giant walks into a tiny donut shop and wants to buy 10,000 donuts. A single donut is going for 10 dollars, but if he tries to buy them all in one second, the shop will run out of donuts instantly. After seeing this high buying interest, the other remaining sellers will start selling at a higher price because they know he is desperate. So the giant has to take breaks to keep the price from exploding. He buys some, then waits for the baker to make more, and then buys again. In the market, this creates slowdown periods in the price action. The price makes a strong move up, but then it pulls back in the downward direction. The market looks for more sellers to fill those big buy orders. Once the price has pulled back enough to look like a discount and there are enough sellers to fill the next round of buy orders, the market makes another move in the upward direction. When this next move happens, the price many times forms a bullish engulfing or a hammer pattern, something like this. Since the price is not at the top and I know there is a strong news catalyst reason for it to move in the upward direction, that is when I like to take a trade. I use a hammer or engulfing pattern as my entry point, like this. A strong buying pressure candle confirms that there is still strong buying interest at lower price levels. You see, before the strong bullish engulfing or hammer pattern appeared, the little red candles were showing that the initial news buying was over. When the strong bullish pattern arrived, it proved that the market is still hungry and there is more demand than supply, especially at lower price levels.

If the strong bullish pattern has formed near the end of the pullback, then it is very good. But if the bullish candle has already moved too much in the entry direction, then we need to take the entry at a lower price as much as possible, near where the buying interest grew stronger. We don’t want to take trades at the top where the selling interest was higher. Basically, we want to buy where there is more demand than supply, and we want to sell where there is less demand and more supply. Notice how, even though the entry is taken at or near a strong candlestick pattern, the reason of buying in that direction is based on supply, demand, and a catalyst. We are not saying that the price will move in the upward direction simply because a strong bullish candlestick pattern has formed. We already know that the price has a higher probability of moving in the upward direction than in the downward direction because of the news catalyst and much stronger demand than supply. The candlestick pattern is simply confirming that the big buyers have returned at a better price level.

But here is a catch. Remember the food example I gave before? If you go to a restaurant, you don’t know how the food was made, or if the ingredients were fresh or picked up from the trash. Similarly, if we just look at the pattern, we don’t know if this candle was actually high or low quality. Once we buy, we don’t want to get diarrhea. So I also like to look at the volume to see if big players are actually there. If the institutional traders bought because of the news, there should be a giant volume spike, especially if that stock is usually quiet. When the price takes a break and pulls back, I want to see that the pullback happens with lower volume than the upward move. Imagine if the upward move had high volume, but the pullback move also had huge volume. That would mean the sellers are just as aggressive as the buyers. This is not a one sided fight; it is a war I don’t want to join. So, the downward move must be quiet and on low volume to show that the big players aren’t actually leaving. Then, when the hammer or engulfing pattern appears, I want to see the volume jump up again. This high volume acts as confirmation that a real, heavy position was taken and that the move wasn’t just random noise caused by low volume. Notice how, even though we used a candlestick pattern for the entry, our actual reason for taking the trade was based on something completely different and better. It was based on actual supply and demand and a strong catalyst that had the potential to push the price up. If we try to analyze all candlestick patterns at random places, then we will probably have a bad time. However, in specific places, they are incredibly useful for confirming what the big players are doing.

From previous testing videos, I know the way I draw support and resistance works around 60 percent of the time. That is pretty good, but the story the candles tell makes that 60 percent much more reliable. Imagine a train is coming at you at full speed. Now, are you going to stand on the tracks in front of it? You can clearly see the train is not trying to stop. Even if it tries to stop at this point, it has way too much momentum to stop at your station. It will hit you and end up stopping way ahead of your station. Imagine the support is the station and the price is the train. The price train is coming at you at full speed, making big red candles and showing that everyone is selling. If the train is moving that fast, I don’t care if there is a support station nearby. I am not going to stand in front of it. I would prefer riding the train instead of standing in front of it. If I had bought blindly at this support, then I would have lost money. The train would have hit me and my stop loss. But by analyzing the clearly strong momentum, I avoided getting hit.

When the price comes near the support and the candles start getting smaller and smaller, it is like the train is finally slowing down. When a strong bullish engulfing or a hammer pattern appears near that support, I see it as confirmation to enter a long position at that support. It is as if that selling pressure has calmed down and there is buying interest near that support. But then, I don’t know if this strong train slowed down to reverse in the upward direction. It might be just picking up passengers at this station and will continue to move down in that downtrend direction. I don’t know what’s going to happen in the future. No one knows. But at least I know I am not risking my hard earned money by blindly standing in front of a speeding train. I already know my support areas work around 60 percent of the time, and I am increasing the quality of those trades by looking at the candlestick patterns that are formed near the support and resistance areas. We are not looking at a single pattern from a trading guru’s PDF. We are analyzing the entire speed of the move. We don’t just care about the latest candle. We want to see the strength of the previous candles as well. If there were signs of stronger downward pressure in this support area, such as a strong bearish candle, then this bullish engulfing pattern would have been useless because the overall pressure was still strong in the downward direction. When the volume of the red candles also becomes lower near the support area and strong green candles are formed with higher volume, then I am happy to take a long position near the support.

But when we are already in a trade, let’s say you have taken a long trade and things are going great, the price is moving in the entry direction and you are in a profit. But the problem is, you have set the profit target above a weak resistance area. This resistance area is weak because it is not clearly visible, especially on other timeframes. Support and resistance areas work when most people can see them. If most people can see the same thing, most people will react in a similar way, such as selling near a resistance area. However, since this resistance is not easily visible, you are not sure if the selling pressure will increase near it. You know that the price has potential to move up, so you have set a bigger profit target. But this weak resistance is a bit annoying. If you were wrong about that resistance and the selling pressure gets really strong near it, the price can move down, giving back all the nice profit and perhaps even resulting in a loss. That is not what we want. So, when the price comes near this weak resistance, we look at the candlestick patterns and their size. If no red candles are formed showing strong selling pressure, then we do not do anything. We let the price cross that resistance and reach a bigger profit target. If we see a big, fat bearish candle indicating a really strong selling pressure at that resistance, it is time to manage that trade early. I like to book the profit early instead of giving back all that nice profit. We can also analyze the volume of these upward and downward moving candles to improve our decision making process.

You see, I share live trade setups with Patreon supporters of the Trading Rush channel. And there, I have many times booked profit early or moved the trade to breakeven for similar reasons. That was the best decision in most scenarios. Profits are like ice cream; if the sun is too hot, sometimes you have to eat it quickly before it melts away. But I was not good at eating the ice cream from the start. I mean, I have been trading for around 9 years now, and I was able to get better at identifying good and bad markets, knowing when to book profits early, and made profits in front of a live audience in the long run only after a lot of trading experience. In the How I made 100 percent profit in a year series that I made for Patreon supporters, I talk about the hammer and engulfing patterns more than anything else. I even say that they are the best and most reliable patterns I have ever used in my entire 9 years of trading journey. And I would say it again: these patterns are the best of all candlestick patterns. I mean, we know that there are a lot of candlestick patterns, and most of them do not work when it comes to telling the story of price movement. Many of them do not come close to the engulfing and hammer patterns. You see, when most other patterns are formed, they just look like normal candlestick movement, even near specific zones like support and resistance. But hammer and engulfing patterns show a much stronger and clearer reversal story of who is winning, the sellers or the buyers. If you have watched the Trading Rush free price action series on the official Trading Rush website, then you know that the hammer and the bullish engulfing patterns are basically the same thing. They tell the exact same price story, but they were split because of our made up timeframes. That is why I like these two patterns the same way: because they are the same thing. They indicate that the buyers grew stronger than the sellers very quickly. Combine that with the volume, other important price zones, and a catalyst, and you have a really high quality setup.

But in all these strategies, there is one big problem. Remember, near the start of this video, I said that candlestick patterns don’t really show the messiness or the detailed tug of war of the price movement. They smooth out that important structure and only show us the final result. And one of the ways I mentioned to solve this problem is to look at a smaller timeframe. For example, let’s say the price movement on the smaller timeframe looks like this. It started here, then moved down, then moved up, then moved down again, and finally ended up closing at a higher price. Since the price movement opened here and closed even higher with a downward move in between, the candlestick pattern on the higher timeframes will look like a hammer or an engulfing pattern, depending on which timeframe you choose and where the candle was split. According to the candlestick patterns of the higher timeframes, the price movement looks like it has strong upward pressure. It clearly looks like a strong bullish candle. But on the smaller timeframes where we can see more detail, the story is somewhat different. Yes, the price started here and ended up at a higher place, but it had multiple instances of strong selling pressure in between, and these are not normal sized candles. They represent heavy selling that is usually caused by institutional sellers. This small buying was weak compared to the heavy selling. On top of that, if the volume of the big selling candles is higher than that of the small green candles, then the story changes completely. Big and smart players are selling at these price levels, and small players are buying slowly or this upward move is just random low volume noise. Suddenly, the meaning of the bullish pattern on the higher timeframe changes completely.

But things can get even more interesting. What if the smaller timeframe of the candlestick pattern looks like this? On the higher timeframe, it’s an engulfing and hammer pattern because the price started here, went down, and then moved up and closed higher. But this time, the downward movement was slow with normal sized candles, but near the end, there was a huge, skyscraper like green candle indicating really heavy buying interest. Fast buying like this is usually caused by big institutional traders. A movement like this usually has higher volume as well. So, in this scenario, the weak or random price movement was showing a downward move, but near the end, the big and smart money showed heavy buying interest. Now, would you go with the weak and small players, or the big and smart players who probably know more and have better reasons to take their positions? I would first find out why the price is suddenly moving up, what the catalyst is, and if I think that catalyst will move the price higher in the long term, then I would prefer going with the big players. In this scenario, when the engulfing or hammer pattern completes on the higher timeframe, I would prefer going in the long direction. In the previous scenario, where the big smart money was selling really fast, the upward move looked weak. In this scenario, I would prefer avoiding long trades even if the hammer and engulfing patterns arrive on the higher timeframe. The important price movement that these candlestick patterns are smoothing out is simply telling a different story.

But there is another way to find that important information. For example, in the live market, we can check how the candlestick pattern moved before the closing point. If the price opened and then moved down slowly, but then it had a big rejection from the lower prices, then there was strong buying interest near the end, just like this smaller timeframe movement. The downward movement was slow, and then suddenly it moved up. In the live market, you will see that the candle moves down slowly, and then suddenly with strong momentum, it is rejected from the lower prices and moves even higher quickly. In fact, when I was a beginner trader, the first trading strategy that actually worked for me was based on this rejection of price levels. For example, if there was a clearly visible reversal point on the chart, such as the price having moved strongly in the upward direction, I would wait for the price to come back to that strong reversal point. Since the price has moved strongly in the upward direction, that reversal was strong, many people who took long trades near it will probably set their stop losses on the other side of the reversal. In this case, since the reversal was in an upward direction, the reversal point will act as a support and many people will set their stop losses just below it. Something like this. So, what I used to do was draw a horizontal line from that extreme edge of the reversal and then wait for the price to come back and touch it. You see, since that price level is now being watched by many traders, there will be trades taken in the upward direction as a support entry. Some will try to take breakout trades in the downward direction. All that price action will happen at or near that extreme edge of the strong reversal. So, I would wait for the price to move down and slowly touch that extreme reversal point. If that price level was actually important and clearly visible, I should see increased trading activity near it, such as the price moving up and down very quickly as new trades are taken and exited at pretty much the same time. In this war, if I see a really strong rejection from the extreme level and the price moves in the upward direction almost instantly and one of the strong candlestick patterns is formed, like a hammer or an engulfing pattern, I see it as a confirmation of strong buying interest. At this important price level, strong buying pressure was created overall. Now that I know there is buying interest, I try to take trades near that extreme reversal point. If a strong candlestick pattern appears near the reversal point and hasn’t moved too much in the entry direction, I would take trades at the closing price of that candle. If the rejection candle is too big and already moved too much in the entry direction, then I would wait for the price to move down a little so I can get an entry at a better price where the interest began. It’s like a support resistance trade, but taken at the extreme edge of the price movement where trading activity is usually higher. At this extreme reversal point, when the strong rejection happened, the price movement on the smaller timeframe would look something like this, and that’s a pretty good sign.

But the thing is, I have been trading for around nine years now. Near the start of my trading journey, I was using candlestick patterns on the smaller timeframes of the Forex market. But after gaining enough live market experience, I realized that most of the smaller timeframe Forex movement is a bunch of nonsense. Market noise is so high in the Forex market that many candlestick patterns are just random. It’s as if you are in a room that is full of people. They are jam packed and all of them are talking to each other at the same time. In this mess, it will probably be difficult to make out what everyone is saying. It will be chaos, all just noise. But if you are in a room with just two or three friends, then you can all have a nice conversation. You will be able to understand and listen to each other much more clearly. Even if all of you start speaking at the same time, the noise will be much lower compared to hundreds of people in the same room. Many popular markets, including Forex, are like those noisy rooms. There are millions of people taking trades all around the world at pretty much the same time, and there are algorithms and many other factors doing their own thing. Then there are different timeframes and different reasons to take buy and sell trades. There are different indicators and various short term and long term positions. This creates so much random movement that candlestick patterns on these charts are mostly random nonsense.

The only place where momentum setups like this have worked for me is in the stock market. For example, when a stock that usually doesn’t have a lot of volume receives positive news, the volume rises in one direction and with a catalyst to move the price even further. Mainly, the people who saw the news are taking trades on it, not the entire world. This allows for relatively clean price movement. The market noise will be much lower, like only a few people talking in a room. In fact, in my trading experience, the stock market is the only place where you can clearly see strong buying and selling pressure like this, especially with clear uptrending and downtrending volume. If you try to find a strong momentum and catalyst based setup in the Forex market, the volume will probably be messy and you won’t be able to filter the buying and selling interest clearly. Since the Forex market has a lot of market noise, you can easily fall for random candlestick patterns. In my experience, the setups that work better in the Forex or noisy environment are the ones based on price areas, like the support resistance areas. In these cases, we don’t care about the exact price level or a single candle but rather the overall price movement in a wider area.

You know, the next time you make a trade and analyze things with candlestick patterns, you might think about this video, the things you learned, and the tested data. You will read candlestick patterns based not on what they look like, but on what they actually are. If you want to see the reality and not the illusions, then check out more tested data on the official Trading Rush website. To see how I made 100 percent profit in a year, and to see live trade setups that made profits in the live market in the long run, support Trading Rush on Patreon. It’s basically my current strategies applied in the live market and proof of if they work or not. The link is in the description. Thanks for watching.