It's all about sentiment and psychology on market base on reversal or continuation patterns on last candle. It tell the story on what's happen on the market at the moment. You might get clue from the story whether to enter or stay out from the market, to close or to hold your position.
Basic Rule on reading the reversal pattern
"A trend reversal signal implies that the prior trend is likely to change, but not necessarily reverse. This is very important to understand. Compare an uptrend to a car traveling forward at 30 m.p.h. The car's red brake lights go on and the car stops. The brake light was the reversal indicator showing that the prior trend (that is, the car moving forward) was about to end. But now that the car is stationary will the driver then decide to put the car in reverse? Will he remained stopped? Will he decide to go forward again? Without more clues we do not know."
Steve Nison
JAPANESE CANDLESTICK CHARTING TECHNIQUES
A Contemporary Guide to the Ancient
Investment Techniques of the Far East
Chapter 4 : Reversal Patterns
FullHouse Reversal and Continuation Pattern
Forget about shooting star... forget about harami... forget about dark cloud cover. Everything about the name. A lot of things to remember. You will understand nothing by reciting on your mind the "Name". If you look closely to the pattern you will come out with the criteria of reversal pattern. There is only one or two type of reversal pattern. Please refer the following picture.
You also can refer the criterias from here --> Story behind the candle part 3
But...
As what you can understand from the Steve's philosophy of Reversal Patterns... the pattern is only the early sign or clue... not necessary true unless you understand the whole process of chart.
Solution
Therefore, in order to use the point of reversal as well as the point of entry effectively... you might define your own Support and Resistance level, understand how far the price could go and estimate the swing base on previous history. For example you might ignore the "BUY" signal if the price is relatively high.
One more thing
We will never get the perfect entry all the time. However we still can profit all the session of trading. However if you could always get the perfect timing to enter the market anyway... it's good for you
JAPANESE CANDLESTICK CHARTING TECHNIQUES
A Contemporary Guide to the Ancient
Investment Techniques of the Far East
Chapter 4 : Reversal Patterns
FullHouse Reversal and Continuation Pattern
Forget about shooting star... forget about harami... forget about dark cloud cover. Everything about the name. A lot of things to remember. You will understand nothing by reciting on your mind the "Name". If you look closely to the pattern you will come out with the criteria of reversal pattern. There is only one or two type of reversal pattern. Please refer the following picture.
You also can refer the criterias from here --> Story behind the candle part 3
But...
As what you can understand from the Steve's philosophy of Reversal Patterns... the pattern is only the early sign or clue... not necessary true unless you understand the whole process of chart.
Solution
Therefore, in order to use the point of reversal as well as the point of entry effectively... you might define your own Support and Resistance level, understand how far the price could go and estimate the swing base on previous history. For example you might ignore the "BUY" signal if the price is relatively high.
One more thing
We will never get the perfect entry all the time. However we still can profit all the session of trading. However if you could always get the perfect timing to enter the market anyway... it's good for you
