<s> Legal Notices and Disclaimer: Trade Chart Patterns Like The Pros - 2007ALL RIGHTS RESERVEDNo part of this book may be reproduced or transmitted without the express written consent of theauthor and the publisher.This book relies on sources and information reasonably believed to be accurate, but neither theauthor nor publisher guarantees accuracy or completeness.Trading is risky. You are 100% responsible for your own trading. The author, Suri Duddella,specifically disclaims any and all express and implied warranties. Your trades may entailsubstantial loss. Nothing in this book should be construed as a recommendation to buy or sellany security or other instrument, or a determination that any trade is suitable for you.The examples in this book could be considered hypothetical trades. The CFTC warns that:HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS,SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADETHAT AlVY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSESSIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARPDIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THEACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADINGPROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCERESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OFHINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVEFINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELYACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOREXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO APARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIALPOINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS.THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS INGENERAL OR TO THE INIPLEMENTATION OF ANY SPECIFIC TRADING PROGRAMWHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OFHYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELYAFFECT ACTUAL TRADING RESULTS.ISBN 978- 1-60402-72 1- 1COPYRIGHT O 2007 - Suri DuddellaCharts are created with TradeStation Software from TradeStation Securities.Printed in the United States of America
ACKNOWLEDGMENTS
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It has been many years since I first thought of writing this book. Sometimes I wasdiscouraged about finding the time necessary to write such a book. Sometimes aclear concept or design for the book was mentally unavailable. With encouragemeniand support from some of my friends, I finally gained the courage, time, motivationand focus to begin the project. Below are the friends who encouraged me to writethis book and who have significantly influenced my ideas and concepts. My sincerethanks to them all. Without their help, this book wou.ld not have been possible.
Dan ("Dr") DossJosh SilvermanMichael SteinhardtSuneeta BindalMark WhitingMark BooherMichael TaylorTradestation Securities
Special thanks to my editor, John LoCastro from word-design.org for editingand re-writing this book.Also, I sincerely thank Scott Carney of harmonictrader.com and Michael Jardine ofenthios.com who have graciously given me permission to use a portion of theirwork on Harmonic patterns and Market Structures in this book.
TABLE OF CONTENTSCHAPTER 1: CHART TYPES..
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1.1. Basic Charts, 11.2. Candlestick Charts, 51.3. Three Line Price Break Charts (3LPB), 9
CHAPTER 2: BAR GROUPS.. ...................................132.1. Market Structures, 132.2. Three Bar Groups, 192.3. Matching HighsILows, 232.4. n-Bar Rallies/Declines, 272.5. 7-Day Narrow Range & Inside Day, 3 12.6. 7-Day Wide Range & Outside Day, 35
CHAPTER 3: PIVOTS. .............................................393.1. Floor Pivots, 393.2. Globex (Overnight) Pivots, 433.3. Opening Range Pivots, 473.4. FibZone Pivots, 5 1
CHAPTER 4: FIBONACCI........................................554.1. Fibonacci Trading, 554.2. Symmetry Patterns, 6 14.3. Market Fractals, 65
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CHAPTER 5: HARMONIC PATTERNS.. .....;..........695.1. ABC Patterns, 695.2. Gartley Pattern, 735.3. Bat Pattern, 795.4. Butterfly Pattern, 835.5. Crab Pattern, 87
CHAPTER 6: GEOMETRIC PATTERNS.. ...............916.1. Triangles, 9 16.2. Rectangle Pattern, 996.3. Flags, 1036.4. Wedge Patterns, 1096.5. Diamond Pattern, 115
CHAPTER 7: CHANNELS.. ................................1197.1. Rectangle Channels, 1197.2. Donchian Channel, 1237.3. Broadening Pattern (Megaphone), 1277.4. Linear Regression Channel, 1337.5. Andrew's Pitchfork, 137
CHAPTER 8: BANDS.. .......................................1418.1. Bollinger Bands, 1418.2. Keltner Bands, 1458.3. Fibonacci Bands, 149
CHAPTER 9: ZIGZAG.. .....................................1539.1. Zigzag Patterns, 1539.2. Elliott Wave, 1579.3. Crown Pattern, 161
CHAPTER 10: PRICE-ACTION.. .........................16510.1. Cup and Handle Pattern, 16510.2. Head and Shoulders Pattern, 16910.3. Parabolic Arc Pattern, 17510.4. Three Hills and A Mountain Pattern, 17910.5. Three Valleys and A River Pattern, 18310.6. Spike and Ledge Pattern, 187
CHAPTER 11: TOPS AND BOTTOMS.. ................19111.1. Adam-Eve Patterns, 19111.2. Trader Vic's 2B Patterns, 19511.3. Trader Vic's 1-2-3 Patterns, 20 111.4. Pipe Pattern, 20511.5. M and W Patterns, 20911.6. Round Top Pattern, 2 1311.7. Round Bottom Pattern, 2 1711.8. V-Top Pattern, 22 111.9. V-Bottom Pattern, 22511.10. Double Top Pattern, 22911.11. Double Bottom Pattern, 23311.12. Triple Top Pattern, 23711.13. Triple Bottom Pattern, 24 1
CHAPTER 12: EXOTIC PATTERNS.. ...........-........24512.1. Dragon Pattern, 24512.2. Sea Horse Pattern, 25 112.3. Scallops Pattern, 255
CHAPTER 13: EVENT PATTERNS.. ....................25913.1. Gaps, 25913.2. Dead Cat Bounce, 26513.3. Island Reversal Pattern, 269
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APPENDIX.. .......... .. .............. .. ....................273Definitions, 274Bibliography, 275About .the Author, 276
FOREWORD by Joshua SilvermanThere is a famous basketball court in New York City called Rucker Park.Legend has it that the amateurs who played there were so good, they could take onthe pros. There were no shoe contracts or television cameras, but fans sitting onthose worn bleachers could see some of the best pure basketball anywhere.If there were a Rucker Park for trading, Suri Duddella would hold courtthere. He may not be a regular guest on CNBC or run a billion dollar hedge fund,but anyone who has had the privilege of trading alongside him will tell you thatSuri's trading skills are second to none. He is consistent and disciplined, but whatsets Suri apart is his ability to find and exploit regular market patterns.Traders at that level rarely let readers have more than a peek behind thecurtain, This book shares Suri's techniques in detail. For .the past two years, I havewatched the book develop from a concept into a finished product. The results haveexceeded even my high expectations, and I will certainly keep a dog-eared copywithin arm's reach of my own trading turret.Plenty of books will tell you what a flag or diamond or Gartley pattern is.Many will tell you whether the patterns are bullish or bearish. But that's where thedetail stops. Because most of these books are written by professional authors, nottraders, they cannot provide any guidance on exactly how to trade these patterns.This book answers the 'how' question. It reveals actual techniques that top tradersactually can and do use, in a format that lets you use them yourself.Beginning and experienced traders alike will benefit from this book. Thebiggest beneficiary, though, is probably Suri Duddella himself. Writing this bookhas forced him to define and hone his techniques. I have watched him bring histrad.ing game to the next level. He is too modest to admit it, but even if this bookdoesn't sell a single copy, it has already been a huge success for him. Applyingthese techniques can help the rest of us improve our trading too.
Joshua SilvermanChicago, IL
REVIEW bv Michael SteinhardtDon't read this book - MAKE MONEY WITH IT! There are hundreds ofTechnical Analysis books and only a handful will ever help you make enoughsuccessful trades to recover the purchase price. Trade Chart Patterns Like ThePros by Suri Duddella is one of those rare opportunities to build a base ofknowledge that can take you further each time you trade.Like the Chinese proverb that says, "Give a man a fish and you feed him for a day.Teach a man to fish and you feed him for a lifetime." Suri has laid out anindispensable tome on trading chart patterns based upon his real-life experiences ina format that will work well for the spectrum of investors - from novice to expert.Unlike the 'encyclopedias' you can find on this unbelievably deep and complexsubject, Trade Chart Patterns Like The Pros stays focused and does notoverwhelm you with mathematical statistics and technical jargon that will surelyturn you off.Instead, Suri's 'trader-sense' perspective helps you identify a pattern and apply therelevant techniques to enter, manage and exit the trade. Each of his 65 patternsincludes a brief synopsis written in plain English and an actual chart to reinforcethe concept, not a conveniently drawn perfect example that never occurs in reallife. This book provides a universal resource for 65 of the most common scenariosthat you will run into regardless of your investing time frame (intraday to weeks ata time) and your preferred financial instrument. It's not enough to recognize apattern; you need to understand the key elements of the trade and how to make itwork for 'long' and 'short' positions. Suri explains the setup and then providesthe entry point triggers as well as an exit strategy with targets for profitable tradesand stops to minimize any losses.What I can promise you is that Suri's practical approach will give you insights thatwill make it harder to lose. Great investing books never sit on the bookshelf - theystay at your side as a trading partner and I can think of no better trader to have atmy side than Suri Duddella. Trade Chart Patterns Like The Pros is destined tobecome one of those rare TA books that you spend less time reading and more timeusing to MAKE MONEY.
Michael Steinhardt, HEDGEfolios founder
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INTRODUCTION
INTRODUCTIONI have been a mathematician all my life and I am drawn to the application ofmathematics in my studies and work. I studied engineering and computers, andeventually found myself involved in the financial markets. The markets offer me anever-ending challenge and the combined application of my true passions-mathematics, logic, computers and money.When I began focusing on the financial markets in 1995, my first inclination was tostudy the price movements of the stocks, which in turn led me to study technicalanalysis. I attended every major market conference and studied many books on themarkets. I was fortunate to meet some of the best market 'gurus' and learn themarket ropes from them. This was the turning point for me and I decided to pursuetrading as my career. Since then--for the past 12 years-I have been studying thefinancial markets and trading full-time rather successfully. I have made manymistakes-and still do to this day--and I am committed to learn from them. I havehad the opportunity to present my trading methods to numerous conferences andhave written many articles in various trade magazines. I found my niche to bePattern Trading.Many brilliant books have been written on Market Theories, Market Geometry andPattern Trading. From these books I found what I consider the best strategies,trading techniques and the most reliable chart patterns. Some of the chart patterntechniques have a very high success rate. I have been trading them, and collectingand documenting the results since 1998. I considered writing a detailed referencebook for my own trading and in 2005, I began to document these ideas andcompile them in a book.The best part of collecting ideas and writing about these patterns has been that ithas significantly improved my own understanding of the inner workings of themarkets, and in many ways has greatly improving my own trading techniques.Here is my book, Trade Chart Patterns Like The Pros. It provides specific andpractical trading techniques and how I trade them. Each pattern is written from theperspective of the trader. Many of the techniques are my own observations and myown trading methods. Not every chart pattern will be suitable for every trader (e.g.,counter trend trading, V-bottoms and V-tops may not be for you). In addition,some charts may be too elusive (e.g., diamonds) or too exotic (e.g., sea horse ordragon). Gartley and Butterfly may be too complex.
Regardless of what patterns you are interested in trading, you must master theirdetails before trading them. Patterns must be studied thoroughly in variousmarkets, time-frames and in all conditions. I have spent almost twelve yearsstudying them thoroughly and they still fascinate me. I believe a few patterns arefully reliable and can be traded every time by themselves without the need ofsupport from other indicators or confirming conditions. Other patterns needconfirmation and may be less reliable traded independently. Knowing when totrade is a very important aspect of trading education and could be the 'key7 to anytrader's success. I constantly remind myself that technical analysis is only tool andpattern recognition is only part of the market analysis. Trading success comes fromkey areas like analysis, trading discipline, execution and money managementskills. I will focus on Pattern Analysis and Trading in this book.
WHY THIS BOOK?There have been many books written on market analysis, technical analysis, tradingtechniques and various trading methods. Most of these books detail very elaborateconcepts, psychology behind the theories, what-if scenarios, statistics and excellentexamples. In my view, though, many of these books miss the 'trader perspective7ofwhen and how to trade. Therefore, in this book I will address the tradingperspective rather than myriad details of pattern history, random comparisons,unproven or semi-useless statistics, or even some random stories. Most traders areanxious to know what and how to trade, and to know where the entry, the stop orthe target is. This book focuses on those points and gives you details of tradingevery pattern. I have covered about 65 of the most unique, frequent and importantpatterns that are presented in day-to-day trading. I have provided credits for theoriginal authors of some of those patterns where possible. There may be otherpatterns which appear frequently which I may have failed to cover. Find somepatterns that pique your interest from the 65 patterns presented in this book andmaster them. You only need one single pattern to be successful.
NO OSCILLATORS OR INDICATORS?This book is designed to show .the patterns independently and provide tradingexamples of every pattern. Oscillators and momentum-based indicators have notbeen included. It is important that the reader fully understand just the pattern andits intra-bar relationships, and other indicators may obscure the actualunderstanding of these patterns. I have studied oscillators and have built excellentstrategies to trade with them, but I have had much better success when I rely onsolely on patterns. Hence, I have not included any oscillators in this book. I do notmean to say that oscillators and momentum-based indicators do not work-they dowork with the right mind-set at the right time. Obviously, I am biased toward chartpatterns and truly think they are far more reliable than momentum- or oscillatorbased indicators.
WHAT ABOUT STATISTICS?There are no perfect chart patterns and chart patterns do fail--the key is to knowwhen to trade them and when to avoid them. So, what are the success and failurerates of the patterns? This is very valid question and will be addressed whenstudying the patterns.As an engineer and mathematician I understand the power and the importance ofstatistics very well. To a trader, statistics must be practically useful, but too oftenthey are not. I have seen unproven statistics presentations elsewhere, such as thefailure rate waiting for a downside breakout is 32%--but if you don't wait, it is36%. Or, the average rise is 40%, but most likely it will be 12%. Or, the percentageof high and low price breakouts subject to throwback is 33%. What do thesestatistics mean to a trader? Having been around the trading world the past 12 years,I know a little bit about what and how traders think. While trading, no traderremembers such statistics and no one trades using such specific statistics. Does thetrader's decision change if the throwback rate is 32% instead of 33%? No, hetrades what he sees, what he knows and what he has confidence in. His eyes are seton an entry, a stop and targets, and not on some unproven and semi-uselessstatistics. Hence, I have provided some reliability analysis about a pattern andavoided elaborate statistical analysis in this book.
xvii
BOOK STRUCTURE & FORMATPerspectiveMost concepts in this book are compelled by a 'trading perspective.' After showinghow a pattern has developed, the focus is on what to do next.FormatEach Pattern section is structured to provide: a brief overview, pattern structuredescription and pattern trading examples with detailed entry, stop and targets.Type of ChartsMost charts in this book are presented utilizing bar charts for illustration. I havealso chosen to use some candlestick charts. All charts were created in TradeStation.Time-FramesMost examples are provided with tick, minute and daily charts. I have used stocksand E-mini futures for the examples and pattern descriptions.Charting SoftwareTradeStation Securities
Entry RulesIn trending markets, pattern formation confirmations are critical for tradingsuccess. In counter-trend trading, there are no clear confirmations other than pricetrading at some level, divergence, completion of pattern structure, or plain hunch.Most of the reversal patterns need a price confirmation from price reversal zones.An important technique I implement in my trading is to find a reversal bar (thewider the better) and then entering one or two ticks above that bar's high or belowthe bar's low. I found significant success using this basic technique and use it inexamples throughout this book. For example, if I am presenting a 'long' setup in apattern after a trendline breakout, I initiate a 'long' trade only at 1 or 2 ticks abovethe breakout bar's high. Similarly, if I am presenting a short setup after a trendlinebreakdown, I initiate a 'short' trade only at 1 or 2 ticks below the breakdown bar'slow. These entries are only valid for the next 3 to 5 bars. Beyond that, the setupmay not materialize and should be avoided in most cases.
Stop RulesMost patterns are traded after clear confirmation signals. The success of Patternstructures is dependent on market conditions. A pattern failure may occur when thepattern setup is not valid due to price-action reversals. For example, a Cup andHandle pattern formed in bear markets may fail more than in bullish markets. Eventhough I like dollar stops in my short-term trading, there are many times the stopsare set at a critical Fibonacci con-lluencelevel, or at a major swing high or majorswing low, or at some trendline supportlresistance levels. Once the price breachesany of these levels, in weaker or stronger markets, the pattern structure will fail.Trading against these levels is really a futile proposition. Sometimes pattern rangesare so large that the risk-to-reward may not be attractive. Hence, stop protection atthe half of the pattern range is considered. For harmonic patterns, I implementFibonacci retracementlexpansion ranges for stops.
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Target RulesManaging stops and targets is an art form. Every pattern has its own targets andstops. My trading rule is "never enter a stock just because of some price level (e.g.,Fib. level, MA, Support) alone, but always exit because of some important pricelevel to protect your profits." This rule applies very well to targets. I base many ofmy targets on a portion (Fibonacci ratio) of the prior swing range or multiples of theprior swing range. In channel trading, it is the range of the channel or depth of thepatterns, such as in head and shoulders or swing highslswing lows prior to thepattern formations.
Fibonacci FocusI employ Fibonacci ratios extensively to show support and resistance levels. I use aspecific set of Fibonacci extensions and Fibonacci projections. The primaryFibonacci numbers I focus on are: 0.382, 0.5, 0.61 8, and 0.786 for the retracementsand 1.272 and 1.618 for the extensions. The secondary Fibonacci focus is: 0.236,0.886,2.272, and 2.61 8.
Harmonic relationship FocusHarmonic price zones occur when there is a convergence of harmonic priceratioslnumbers or calculations that occur in a specific area. The trade reversals inthese zones have a very high probability and can be traded with confidence. I haveused harmonic price zones in the book to focus on certain trade examples.
Maior Swing High or Swing LowsMarkets stage major support and resistance zones at key turning points called'swing highs' and 'swing lows.' A major phase of support is established through aseries of lower lows followed by higher highs forming a swing low and aresistance phase is established by higher highs followed by lower lows forming aswing-high. In this book, I focus on taking advantage of these support andresistance zones for either a primary or secondary target. I have used major swinghighs or swing lows as protective profit targets. Most traders like to protect theirprofits at major swing high or swing low as -thetrade has a high probability ofturning or pausing at these levels.
Chapter 1: Chart Types1.I. Basic Charts
Trade Chart Patterns Like The Pros
Basic ChartsTechnical Analysis is the study of price and trend changes in Commodities, Stocks, Futuresand various other market instruments. The price changes are primarily evaluated by variousindicators, oscillators or trading systems to give a trader an edge in trading. Technical analysisis not a perfect science by any means, but it does have certain characteristics, patterns orindications which may be repetitive or may be intuitive and tend to possess Zen-likepredictability power. Technicians plot these prices and price changes on a chart and applyvarious indicators and studies to figure out potential supply and demand areas, trade setups,targets and stops to win.Technicians have developed various methods of representing market data on charts. The mostextensively used charts are bar charts, line charts, candlestick charts and point & figure charts.There are many other variations like Kagi, Renko and Range bar charts. In this section, I willattempt to address the basic charts and their usage.The most basic charts in technical analysis follow simple Cartesian structure (X&Y axes) todraw in 2-Dimensional space. On the X-axis (Horizontal), the time is plotted and on the Y-axis(vertical) the corresponding price is plotted. Any indicators derived from the time and pricevalues, are either overlaid on the chart itself or plotted in secondary-graphs below and abovethe main priceltime chart. Some traders plot volume on the X-axis as a representation ofmarket activity.Charts are plotted using various scales such as arithmetic or log /semi log charts. Arithmeticcharts have the same distance between the prices where as log or semi log charts have avariable distance to represent the proportionate price movements.There are many facets in technical or chart analysis to understand and master. Price, Volume,and Time are the three most basic components of the market. Many successful traders onlystudy price action to make money. Many other traders use complex mathematical theories andfaster computer technologies to analyze and participate in the market action. Nevertheless,regardless of any trading theory or complex mathematical algorithm, the success in themarkets lies with individual who can clearly understand the price-action and make thedecisions to pull the trigger at the right time with excellent discipline. These individualspossess a higher understanding of market theories, market psychology and dynamics andmoney management methods and have mastered their execution skills.Charts, patterns, indicators and software are only basic market tools. Successful traders viewthem just as tools and understand the usage. They build a theory and trade with a solid moneymanagement plan.
Trade Chart Patterns Like The Pros
Basic Chart TypesBar ChartsBar chart illustration is simple. Within eachtime-frame, a single vertical bar is plottedrepresenting the price range within that timeframe. Each bar may have a left tick showingan Opening Price and a right tick showing aClosing Price. The top of the bar is thehighest price reached within that time-frameand the low of the bar is the lowest pricereached within that time-frame. The timeframe can be 1 tick, 1 minute, 1 day, 3-days,1 week, 1 month or 3-months, or any finitenumbers to represent time. The relationshipbetween the Opening Price (left tick) and theClosing Price (right tick) represent theinvestor's sentiment and the trader'spsychology within the trading session.
Line ChartsLine charts are based on "closing prices"only charts and have a cleaner look. They donot have open, high and low values plottedand potentially eliminate the noise and trulyrepresent the value of the current price andtrue investor sentiment. Line charts can beplotted for highs, lows and open or pivotprices, but are only plotted for a single valueobject series in the entire chart. Line chartsare usually plotted when there is acomparison between two market instrumentssuch as spread charts, comparison charts andrelative strength charts. Also, line charts areuseful for small illustrations and trenddisplays. Most indicators are plotted usingline charts, namely RSI and Stochastics.
Trade Chart Patterns Like The Pros
Basic Chart TypesCandlestick Charts-
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Candlestick charts were devised by Japaneserice traders in the 1600s and are discussed indetail in the next chapter. Candlestick chartsare built on the open to close pricerelationships. The real-body is represented bythe range between open to close and the colorof the candle is black if the price closedbelow the opening price and white if theprice closed above the opening price. The"wicks" on the both ends of candlestickrepresent the trading sentiment beforesettlement. Candlesticks have variouspatterns and truly represent supply anddemand. Traders use candlestick charts withother market indicators such as movingaverages, trend lines and RSI etc., to find thebetter opportunities than western chartingmethods such as bar and line charts.
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Point and Figure Charts
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The Point & Figure (P&F) charting techniqueis one of the oldest methods where the chartrepresents a true change (a box size) in price.In P&F charts, the time passage on the Xaxis is ignored as the chart records the pricechange. P&F Charts have Xs and 0 srepresenting ascent and descent of a fixedbox size price change. Each box size is preset and the price is represented only if theprice trades above or below the previous boxby that amount. The P&F method visuallydisplays clear support and resistance levels.Trades are initiated from these levels onbreakouts and breakdowns. Charts do notmove in congestion range, hence choppytrading can be avoided. Box sizes can be afunction of price range, average true range ora fixed size based on the closing prices.
Trade Chart Patterns Like The Pros
Candlestick ChartsJapanese rice traders invented Candlestick charting methods in the 1600's. "Candlesticks"show a visual representation of traders' emotions; where as "bar" charts or "western" chartsemphasize a focused approach on closing prices. Candlestick charts have a real-body (Open toClose) and shadows (Upper, Lower) showing intra-bar price relations between the key pricevalues. In Candlestick charts, if a price closes higher than the open price then the Candlestickwould be plotted Green suggesting bullish, and if the price closes lower than the open, theCandlestick would be Red, suggesting a bearish condition. The market sentiment is measuredby the "real-body" length and its color. The bigger the real-body the bigger the sentiment andthe smaller the real-body the smaller the sentiment which conveys indecision.Candlestick charts offer a unique advantage over bar charts or line charts since they offer anexcellent visual representation of the relationships with prior Candlestick bars. This indicatessupply and demand along with the support and resistance levels, and possible trade decisionopportunities for trend continuation or reversals.Candlestick charts offer a simple way to show market movements and present outstandingtrading opportunities. There are about 30-40 Candlestick patterns, continuation and reversals,which are helpful in trading. However, these patterns need to be clearly understood andmastered for successful trading purposes. The theory behind Candlestick charting method isnot infallible. All patterns have clear confirmation theories and trading rules. The chartsdemand a full understanding of knowledge of pattern formations for successful trading.
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There are many books written on Candlestick patterns and theories. Below are a few examplesof trading Candlest