How to Catch the Top and Bottom with Japanese Candlestick Patterns?

You trade the Japanese Candlestick Patterns (JCP) and you probably wonder why they don't work sometimes. The JCP offers tremendous value and zero value to a trader at the same time. Why it is so?

We know that there must be a preceding trend in order for a reversal JCP to take effect. The most effective JCP is born at the top and bottom of a trend, be it short-term or long-term. Just remember, the top and bottom are the holy shrine for a reversal JCP. If the reversal JCP appears elsewhere, just "next" your chart.

But how do we know where the top and bottom of a trend is? This is the most commonly and frequently asked question we've got from traders around the globe.

It's simple. Support and Resistance. If you don't know what they are yet, please take your initiative to google them. But I need to highlight one important thing about the Support and Resistance here. Do I have your full attention?

90% of the traders, including you, think that the Support or Resistance is a price value. And you draw a beautiful line on your chart. "Oh, when the price touches this Support line here and a reversal JCP is formed, I'm going long and I can smell the profit already. "

This is just not true. The Support or Resistance is NEVER a price value. Instead, it is a price zone. The Support is not $10, it is $10 to $12; the Resistance is not $50, it is $50 to $60. PRICE ZONE.

A picture is ONLY worth a thousand words. I'm generous enough to give you two thousand words here.



From the chart above, the Support is a price zone of 1.1822 to 1.1838.  90% of the traders will draw the Support line as a single price value of 1.1822 because the price level has been touched for 3 times. If you are one of the 90% and a range trader, you'll probably miss the Hammer later because the low of the Hammer does not hit your Support line of 1.1822.

Instead, what we should do is to draw another Support line at the closing or opening price of the candles that have touched the first Support line. There we have a Support price zone.



Though the risk-reward ratio is not 1:2, but we still have a decent return here.

Now, pen down the 3 points below on your notebook:

1. The most effective JCP is formed at the top and bottom of a trend.
2. The top and bottom of a trend can be identified by Support and Resistance.
3. Support and Resistance are never a price value, they are price zone.



---Your Way to Becoming a Profitable Trader---

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