The No.1 Killer of Japanese Candlestick Pattern (Avoid It or It'd Kill You!)

Hey, Traders! Today, I'm very excited to share with you the No. 1 killer of Japanese Candlestick Pattern (JCP) -- the extreme JCP.

Let's get straight to the point: What is an extreme JCP?

Simply put, the size of the candle(s) is UNUSUALLY LARGE. But how large is unusually large? We can identify by comparing the size of the current candle with the average size of the previous 10 candles.

Hard to imagine? Let me give you some examples of extreme JCP:






Did you see the candle size of the Bullish Engulfing, Dark Cloud Cover and Shooting Star is unusually larger than the average size of the previous 10 candles? They are the extreme JCPs.

Now, my advice to you here is: Avoid trading the extreme JCPs or you risk blowing up your account. 

You're probably wondering; "Why can't I trade the extreme JCPs? Aren't they a valid JCP though?

Some of you may even ask: "The longer the upper shadow of the Shooting Star, the more effective the bearish reversal signal is. This is what I learned from the Learning Hub, is this not true? "

Before I explain, let's take a look at what happened after that:






The price is supposed to go up following the Bullish Engulfing but it did not.

The price is supposed to go down following the Dark Cloud Cover but it did not.

The price is supposed to go down following the Shooting Star but again, it did not.

Why do the extreme JCPs produce false signals?


Why?

To answer the question above, we first need to know when the extreme JCPs are formed. Usually, the extreme JCPs are formed during significant events. For example:

a. In stock market: company announcement and annual report release.
b. In forex market: economic data release, speech and conference.

During these critical moments, the market is flooded with emotions which cause high volatility and make the price movement irrational and illogical. The price movement derailing from its normal course produces highly unreliable JCPs.

If you're a news trader (which I used to be), this post is not for you. But if you're a JCP trader seeking consistent profits, I strongly encourage you to learn to identify the extreme JCPs and avoid trading them.

The 3 main takeaways from today's post:

1. The extreme JCPs can be identified by comparing the average size of the previous 10 candles.
2. The extreme JCPs are usually formed during significant events.
3. Avoid trading the extreme JCPs because they are highly unreliable.




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

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