I can say with certainty that pure candlestick charts are extremely useful. Many experts can stare at a single candlestick chart for half an hour.
Of course, if you're talking about memorizing candlestick patterns, that's not very useful. But if you're trying to understand the logic and meaning behind candlestick patterns, then it's very useful.
This is a 15-minute chart of eggs. You can see that eggs are rising smoothly and healthily above the EMA21 moving average, and the open interest and trading volume are also well-coordinated.
What can you glean from just a few candlestick charts?
1. In the area to the right of the first arrow I drew in my first diagram:
(1) The bulls in the market are relatively at ease and feel that they can continue to hold their positions because the upward trend is very healthy.
Any slight pullback will be met with buying pressure pushing the price back up, giving the bulls absolute dominance.
(2) Potential bulls outside the market are waiting for an opportunity. They also want to go long, but they are reluctant to chase the high price. After all, the volatility of eggs is too high now. If they chase the high price, the profit and loss ratio is very low, and they are also easy to get trapped.
Therefore, as soon as there is a pullback, people rush in to buy, which is why the market shows that it can be pulled up as soon as it falls, indicating a surge in buying.
(3) For short sellers, there are no good selling points in the whole area. Some friends may think that the big bearish candlestick far to the left of the first arrow is a good shorting position.
Actually, that's not the case. In such a smooth market, the first pullback is very difficult to succeed.
Moreover, the location of that bearish candlestick was more due to a slightly sharp rise that was too far from the moving average, so a downward correction occurred.
That's all. If you go short, the risk-reward ratio is terrible, and you're extremely likely to get trapped.
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Second, at the position of the first arrow in my first drawing.
(1) This big bearish candlestick is the key candlestick. For a way of thinking or strategy, there are only a few key candlesticks on any chart.
Just like reading comprehension in Chinese, most of the sentences are straightforward and only a few express the author's true thoughts and feelings.
The principle is the same. Why are these key candlesticks key? The core reason is that they provide you with far more information than other candlesticks. The amount of information is the core factor in determining whether a candlestick is key.
For example, in the previous smooth upward trend, small negative and positive candles moved around without much information, but this large negative candle broke the previous smooth upward trend.
This tells us that the bullish and bearish situation has potentially changed, meaning that those who are shorting should be on high alert.
For those who are long, it's advisable to raise your profit-taking and exit points.
(2) However, I think it is still not advisable to short at this position, because in a smooth market, sudden rises and falls are often difficult to form a V-shaped reversal directly, and many people will still come to buy the dip and go long.
Therefore, we must continue to wait and see how the market moves. If you want to short, you must have a basis and support. The most common basis is near the upper or lower edge of the trading range, or near the trend line or moving average.
These key positions are like battlegrounds. By basing your trading on these positions, you can make your stop-loss orders meaningful and valuable while minimizing losses.
(3) In my experience, the first sudden large bearish or bullish candle in such a smooth market will be quickly recovered.
A true reversal, even a V-shaped reversal, will have a few minor fluctuations or doji candlesticks.
Objectively speaking, it has been said that there are two possibilities for a trend reversal: a V-shape or a breakout after a period of consolidation. However, a V-shape can also involve several lines of consolidation, such as small doji stars or narrow up-and-down swings, which do not look like consolidation.
But in reality, there is no substantial difference; the essence is to destroy the momentum of the previous smooth trend.
Third, please look at my second arrow and the circle I drew.
(1) This is what I mean by the fluctuation of the lines. After the K-line indicated by the first arrow broke the upward rhythm, these K-lines essentially confirmed once again that the bullish power was indeed much weaker than before.
If it were still as strong as before, it would quickly rise to a new high. However, it did not. Instead, a series of large bearish candlesticks appeared. This extremely strong negative feedback is essentially a reconfirmation of the information expressed by the bearish candlestick indicated by the first candlestick.
Do you all remember the post I wrote before about the "multiple verification" mindset? You can combine it with the previous post to understand it; the essence is the same.
(2) Although I will not short this candlestick because my principle is not to short above the moving average, many friends will open short positions, which I understand and is not wrong.
If you short at this point, you need to set a wider stop loss, otherwise it's easy to get stopped out. The win rate is relatively high at this point, but the profit and loss is relatively poor. Overall, it's not a place with very high trading quality.
Fourth, please continue to look at the position indicated by my third K arrow.
(1) This is a breakout from the small platform oscillation + the previous bears gradually became stronger + repeated verification that the bulls could not push it up + the price fell below the moving average.
I think it's a particularly good entry point for shorting, but you need to set a stop loss, which is placed slightly above the upper edge of the small platform. This approach offers a good risk-reward ratio and a high success rate.
(2) Although shorting at this point will likely result in a stop loss later, I still think it is reasonable to open a short position at this point.
However, you need to realize what kind of structure this shorting is in, that it's in the top reversal pattern seen in my first chart.
V. Another Perspective
(1) At the position of my third arrow, many friends will open long positions. What are they doing here? It is actually a pullback in an uptrend.
Therefore, the essence of the disagreement between the bulls and bears here is whether this wave of decline in this smooth upward trend is the beginning of a V-shaped reversal or a normal correction.
Before the large bullish candlestick indicated by the third arrow appeared, I firmly believed it was a V-shaped reversal, but my opinion wavered when this large bullish candlestick appeared.
This is also a candlestick pattern with a lot of information, indicating that the bullish power in the market is far greater than it appears on the surface.
(2) So I think it makes sense to go long or short at this key position, it's just a matter of perspective.
To put it another way, as long as you set a stop loss near key levels and go in the direction you believe has a greater advantage, I think you're on the right track.
Therefore, when reading candlestick charts, you should really focus on the underlying meaning, not just the surface appearance. Once you reach this level, you'll understand how useful it is in live trading.
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