7.1 – Single candlestick patterns
As the name suggests, a single candlestick pattern is formed by just one candle. So as you can imagine, the trading signal is generated based on one day’s trading action. We will learn more about them in this video.
We will understand the multiple candlestick patterns in the following video.
We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- Remember the rules based on which candlesticks work.
- Marubozu is the only pattern that violates rule number 3, i.e. Look for the prior trend.
- A bullish marubozu indicates bullishness.
- Buy around the closing price of a bullish marubozu
- Keep the low of the marubozu as the stoploss
- A bearish marubozu indicates bearishness.
- Sell around the closing price of a bearish marubozu
- Keep the high of the marubozu as the stoploss
- An aggressive trader can place the trade on the same day as the pattern forms.
- Risk-averse traders can place the trade on the next day after ensuring that it obeys rule number 1, i.e. Buy strength, and Sell weakness.
- Abnormal candle lengths should not be traded.
- A short candle indicates subdued activity.
- Long candle indicates extreme activity; however, placing stop loss becomes an issue.