8 Rules For Successfully Trading Candlestick Formations

Posted March 2nd, 2010 by Rapid Forex 16 Comments »


The last 4 blog posts have taught some of the major candle patterns worth knowing as a forex trader.  And with 8 posts in the past week about candlesticks, we’re almost ready to move on to support and resistance.

As a wrap up for now (there’s more to learn about japanese candlesticks later), I want to give you some rules for trading candlestick formations.

No matter what forex candlestick formation or other indicator you are basing your trade on, you should follow several rules to ensure that you are making sound judgments when you are trading, that you are trading based on educated reasons and always while practicing sound equity management.

These rules apply specifically if you are trading a morning star , evening star , tweezer top , or tweezer bottom candlestick pattern:

  1. Find all of your support and resistance lines.
  2. Find and draw all of your trendlines.
  3. Find a convergence (a location where there is more than one reason for the market to bounce, such as a trendline or a Fibonacci sequence).
  4. Trade in the direction of the trend (“the trend is your friend”).
  5. Wait to trade until the market bounces at the convergence to make your trade.
  6. Buy at the opening of the next candle after the morning star or tweezer bottom has fully formed. Sell at the opening of the next candle after the evening star or tweezer top has fully formed.
  7. Set your protective stop loss order at the last level or resistance (if you are trading an evening star or a tweezer top) or at the last level of support (if you are trading a morning star or tweezer bottom).
  8. Do not trade morning stars (evening stars) or tweezer tops (tweezer bottoms) if prices are in consolidation (the rapid forex blog will discuss this in more detail in future blog posts).

In my next blog post, I’m going to start explaining support and resistance (this is the real meat-and-potatoes of forex trading).

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Related posts:

  1. The Morning Star Candlestick Formation
  2. The Evening Star Candlestick Formation
  3. Japanese Candlestick Patterns – Doji & Spinning Tops
  4. The Tweezer Top Candlestick Pattern
  5. Trading Rules for Support and Resistance

Tags: , , , , , , , , , , ,   Posted in Japanese Candlesticks, Technical Analysis

16 Responses to “8 Rules For Successfully Trading Candlestick Formations”

  1. Jeff HokinsNo Gravatar Says:
    March 5th, 2010 at 4:30 pm

    Thanks for the wrap up post. I’ve been trying to follow the blog in order, but it’s nice to have these posts that organize the thoughts you’ve shared across various posts.

    If possible, I’d like to see some more summary posts once in awhile after you complete a topic.

    ~Jeff

    [Reply]

  2. Preston JonesNo Gravatar Says:
    March 15th, 2010 at 9:43 am

    I’ve been going through your posts. This is my first attempt at the forex and I feel like I’m taking Calculus in college!

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    Rapid ForexNo Gravatar Reply:
    March 18th, 2010 at 8:30 pm

    Preston,
    What’s wrong with Calculus? You seem like a smart guy, you’d probably be an ACE at calc!

    [Reply]

  3. Carl StricklandNo Gravatar Says:
    March 18th, 2010 at 4:58 pm

    How do we know what the direction of the trend is? I’m completely new to this and am trying my best to follow it.

    [Reply]

    Rapid ForexNo Gravatar Reply:
    March 18th, 2010 at 8:26 pm

    Hey Carl,

    Actually, there’s a post that should help you with your question called “Trends and Trendlines | Uptrend Examples,” and there’s an accompanying one with downtrend examples here.

    I’m not saying this to blow you off, but those posts should help you get started looking at trends. Those posts also contain links to other posts, so you can get more information if something is new for you. If you spend a little time on the blog, you’ll start understanding things as I take a lot of time to cross link all of the posts together so you learn all of these concepts together.

    If you have any more questions, please feel free to ask!

    [Reply]

  4. HarveyNo Gravatar Says:
    March 29th, 2010 at 8:30 am

    I see that your rules repeat themselves in several posts. Are you trying to show that these types of “rules” apply to most forex trading scenarios?

    [Reply]

    Rapid ForexNo Gravatar Reply:
    March 29th, 2010 at 10:53 am

    @Harvey – you’re actually right. They’ve been repeated because that’s what forex traders need to know how to do. It may seem a little overboard at first, but when it’s imprinted firmly in your memory so you can trade successfully, uoi’ll be glad you heard it multiple times!

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  5. Tom KavanaughNo Gravatar Says:
    March 29th, 2010 at 8:11 pm

    Thanks for giving some rules for the Japanese candlestick patterns. I find this stuff so fascinating. I’m hoping that it will make me some money one day :)

    Tom

    [Reply]

  6. Marisa CervantesNo Gravatar Says:
    April 7th, 2010 at 2:40 pm

    Hi!
    I am receiving the e-course and just received the 3rd one but it is about candlesticks. We have not seen the basics?
    Is this this way?

    Please let me know, thanks!
    Marisa

    [Reply]

    Rapid ForexNo Gravatar Reply:
    April 7th, 2010 at 7:07 pm

    Hi Marisa,
    Just keep following the course. It’ll cover the basics for you. It’s gotta start somewhere & it’ll come full circle if you stick with it.

    [Reply]

  7. Marisa CervantesNo Gravatar Says:
    April 9th, 2010 at 4:32 pm

    Great! thank you Brian!! and lots of fun in your trip!

    marisa

    [Reply]

  8. Marisa CervantesNo Gravatar Says:
    April 14th, 2010 at 3:05 pm

    Hi Brian,
    Any way we can have your course in a pdf file? Because your blog goes in a nested form and sometimes I want to go back to where I started and I am lost. Thank you!

    Marisa

    [Reply]

    Rapid ForexNo Gravatar Reply:
    April 14th, 2010 at 6:12 pm

    Marisa,
    There is literally a book of trading articles on the rapid forex blog. If you click on the links within the articles, you’ll eventually get it all. If you don’t understand something or think it looks interesting, just click the link. The blog is also organized by categories (see bottom right hand side). You can explore the different topics there.

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  9. Marisa CervantesNo Gravatar Says:
    April 19th, 2010 at 3:16 pm

    Thanks for your response Brian!

    [Reply]

  10. KulvadeeNo Gravatar Says:
    April 21st, 2010 at 2:49 pm

    Hi Brian
    Do you have a tip to know what time of a day each 4hour candle will start? Thanks.

    [Reply]

    Rapid ForexNo Gravatar Reply:
    April 21st, 2010 at 2:54 pm

    @Kulvadee – it doesn’t matter when the 4-hour candles start. We’ll also zoom into the hourly charts for a confirmation. The beauty of this method is that we don’t have to be there at exactly when “perfect” time. As long as we get there that day, we’ll be ok ;)

    [Reply]

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