Here are some of the most typical blunders new traders make when using Japanese candlesticks.
1. You try to find meaning in EVERY candlestick that appears on the chart.
Markets are “noisy” a lot of the time. When predicting future market changes, not every candlestick is useful.
Instead of looking at every candlestick, concentrate on those where the price is currently trading near key support and resistance levels.
So, first determine where you believe these levels are, and then begin looking for candlestick patterns.
2. You have an overactive imagination.
If you have to zoom in 500% or squint at the Japanese candlestick chart because you think you “see something,” you generally don’t.
You don’t have to try to label the candlestick forms you see in a textbook.
When you expect to buy, look for signs of strong purchasing pressure, and when you intend to sell, look for indications of strong selling pressure.
3. Your imagination is too weak.
Japanese candlestick designs that, according to textbook examples, should appear after three candles may actually form after five candles.
The fact that a three-candlestick pattern requires four candlesticks to produce does not render the pattern incorrect.
The meaning remains the same. Understanding the price activity behind the candlestick pattern is more important than memorizing its standard form.
4. You forget the forest from the trees.
If you consistently focus on shorter time frames, such as 5-minute charts, without taking a step back and trying to see the “larger picture,” your trades will be caught off guard.
Try not to narrow your focus too much.
5. You don’t wait for confirmation.
Some candlestick patterns are thought to be “self-confirming,” but many are not.
Before acting on a pattern, wait until the candlestick has closed and fully formed.
Always wait for confirmation that the price is moving in the expected direction.
For example, if you see a Tweezer Bottom, wait until the candlestick after the dual candlestick pattern closes higher before going long.
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