How to use candlestick patterns to trade a breakout. By analyzing previous candlestick patterns on your charts, you can find future entries and take profit targets. What I am talking about are not your textbook candlestick patterns such as engulfing patterns or pinbars but rather currently occurring price movements such as the example I am going to discuss here!
You can first watch the video here: How to use candlestick patterns to trade a breakout
Step 1: Find a price movement pattern First step is to identify a price movement pattern. Or if you wish to call it a candlestick pattern. In my case, I found a bearish channel and noticed how price had broken down and then followed up with a retracement before the actual breakout which followed by a "big" drop. From here, two things could have happened. One, either we would see a move outside of the channel which I would have called a pattern breaking move or two, price would break down inside the channel again.
Yes, the charts are infected by the Covid-19 but just don't touch your face and you'll be fine... ;)
Step 2: Look for the repetition
Check out the image above. In the first circled area - price reached the upper line in the channel and dropped down before it retraced back to the upper trendline and then a big candlestick engulfed the previous bullish candles and a breakout followed. No not a zombie outbreak but a breakout down in the channel... Now that we found a pattern, we keep waiting and looking out for a new one that is similar. In the circled area number 2, the one far right in the image, we can notice that another copy of that first pattern is about to re-appear. Step 3: Wait for confirmation and go with the trend
It's easy to be trigger happy and jump in but remember, we want to go WITH the trend and not against it. In this case, the channel is bearish so it is natural to wait for a bearish breakout. If this doesn't happen, then this is a "pattern breaking" move and we don't get the trade we were waiting for. But lo and behold:
As you can see, the same pattern repeated very well. we had another engulfing red/bearish candle which pushed the price down all the way to the lower line of the channel. Which is a "copy" of what happened before, as circled in the image. Also, notice even the number of bearish candles match! 3 red candles to reach the lower line in each case. Now, if you are thinking: "Well, of course it is easy to see now that it already happened!!" - then I suggest you click the link above and watch my video which was recorded live to see this move was "predicted" before it happened. Picking Entry and Earnings How much you could have earned would of course depend on when you entered the trade. For example, if you entered after that first H1 breakout candle closed, then you would have made about 34-35 pips down to the lower trend line. If you had used the lower time frames and found a better entry, well then you could have gained 40-70 pips or more! Regardless, the point of this article and video, is to show you how price action history can help "predict" future movements and provide you with precise entries and exit points! Huge difference between trading with price patterns in mind and without them. Without patterns, I feel blind and I am insecure but with the patterns, I feel like I can tell the future outcome. Well, at least most of the times. Want to find out more about how to find patterns and entries? Join us on Discord. See you there =)