In this lesson, we will look at the different candlestick patterns that we explored in the previous sections and how to trade them using the support and resistance levels.
But before we get started, it is important to remember that as with any technical indicator or tool, if candlesticks point to a reversal or continuation that does NOT mean it will 100% happen.
This is the forex market we are talking about. Nothing is set in stone!
IMPORTANT: Candlesticks are not the holy grail and not to be used on their own. You must ALWAYS consider market environment and what the price is telling you.
As you already know, support and resistance levels are a valuable tool used by forex traders that help identify possible points on forex charts where price may change directions.
Let’s look at an example from a real forex chart.
In our example, you can see that there is resistance around the 1.4900 level.
What would YOU do in this situation?
I’ll assume that you’d really want to place a trade but decide to wait instead because the candle that touched this level looks quite bullish.
Two candles later you spot a familiar three inside down candlestick pattern, which you being the smart trader you are know is a bearish signal!
Using the pattern as your sell signal confirmation, you go ahead and sell the pair.
Because of your patience and your knowledge of candlestick patterns, you have greatly increased the odds in your favour.
Let’s see what happened after you sold…
The pair almost immediately goes in your favour and bags you hundreds of pips.
Time to go to the nearest car dealership and buy yourself the newest sports car.
And a boat. With matching colours.
You may be thinking, “Why do I have to pair support and resistance levels with candlesticks? I cOuLd GeT a ToN mOrE MoNeY WiTh jUst CaNdLeStiCks AnD maKE MoRe MoNey.
Take another look at the same chart of your hypothetical trade…
I’ve taken my precious time to highlight some potential trade signals based solely on candlestick formations.
Go ahead, have a look.
If you had traded on those candlesticks patterns alone, you would have lost.
By simply pairing candlestick formations WITH support and resistance levels, you have increased your odds of winning.