Candlestick Patterns: Two to Trade & Two to Avoid


– Candlestick charting patterns
are very, very important. They repeat, they repeat and they repeat, and you need to learn to recognize those to spot the best trade opportunities. Today I’m going to talk about two patterns you should be looking for, as well as two you
should focus on avoiding. (upbeat music) Hey everyone, lead trader with
StocksToTrade Tim Bohen here. Be sure to subscribe to our channel, and also please hit that alert button. We release a lot of great
videos and we go live. So, every time we go live I want you to be able to jump in there, see that Q&A, and be notified. So hit that alert bell. Well, in trading you’ll hear
patterns, patterns, patterns. Everybody talks about hey,
look for this pattern, look for that pattern. You might be like, well, that’s great, I’m glad you’re telling
me to look for patterns. But what do I look for in a pattern, and what is a pattern? So I’ve got two that are bullish patterns, something that you should look and be scanning for everyday and look to go along, and then I’ve got two patterns that you should avoid, that in my opinion sucker in a lot of new or intermediate traders. And something I say a lot, and write this down, I think
it’s a great trading rule, one of the most understood or under-weighted trading rules is knowing what not to trade, okay? There’s 16 thousand publicly
traded stocks out there. Everyday there’s hundreds of them that are moving and I think if you can recognize bad patterns, bad setups that keep
you out of those losses, that is a greatly underrated skill. So that’s what I want to talk about to you that you should look to avoid. So I’m going to start out with the bullish uptrending chart. And, remember these are examples, you don’t necessarily have
to focus on the ticker, but we’re looking at the pattern. And in this instance I’ve
got Enphase on screen, you can see it as a long history of kind of consolidation, and then starting right about here it broke out on high-volume
and a big daily candle. So, if you haven’t watched
some of our past videos breaking down candlestick patterns, I might get into a
little bit of the jargon in this video. But go to our library, check out the introduction
to candlestick patterns, the contents there. So if you’re like, hey
what’s he talking about, we cover all of it. So big high-volume breakout, then notice how it just
gradually uptrends. And these are where you want
to draw your trend lines, you’re looking for those
higher lows and higher highs. So those candles are closing higher, or, sorry, opening higher
and closing higher. That’s your gradual uptrending chart. And you can see that Enphase gapped up on big volume, gradually uptrended for four months, gapped up again, and has been gradually
uptrending for three months now. Would you want be in this
stock, you know, back here? I think I would want to be, you know, riding this nice, slow
moving, grinding up stock. It’s up almost 250 percent in roughly six months. That’s the kind of chart
you want to look for. Gradually uptrending, breaking
out on the 52 week chart, with building volume,
higher lows, higher highs. Next one we want to look at is a consolidation and breakout chart. So, you can see this stock A-R-Q-L is one we’ve talked about previously. What I like about this stock
is it tends up to gap up, consolidate, and then re-breakout. So, you can set alerts in StocksToTrade or whatever platform you’re using. So if you miss these big gap ups, you can just set an alert
at that next breakout area. So, for instance, here this
big high-volume candle, it gaps up, stock goes
into consolidation mode. When I talk about consolidation mode, it’s in a tight band. Stock is just tracking sideways and it’s coiling,
sometimes we call it too, where it’s not breaking out but it’s also not breaking down. That means that stock
is collecting buyers, it’s building momentum,
and it’s holding its gains so now everyone is looking
for that next breakout area. Then you can see, big gap up, runs, consolidates, big gap up, runs. Now it’s back in consolidation mode, as today this is a top watch
for that next breakout level. You’re looking to buy
those breakouts with risk, you set your risk on the
failed breakout level. Not every trade is going to work but these are consistent
patterns that repeat, and if you got a trading plan, which I talk about all the time, you can risk small for
big potential gains. So something like this pattern, you might be risking a few percent and be making 10, 15, 20 percent when the trade works. Okay, two of my favorite to watch, the bullish uptrending chart as well as the consolidating
breakout chart. The two I want you to avoid, and, as I mentioned in the beginning, this is important. I think many, many, many newer traders get trapped in these terrible patterns and then they get frustrated, they become backholders and they think trading doesn’t work. So, this is one Blin. This is a stock a lot of traders, literally today, were
talking about in premarket. You know, everybody was abuzz, they had a contract win, it was up in premarket. Now, as of right now, it’s
about to go red on the day. Now, how did I know to avoid Blin? This, there might be no better example in recent memory of a
long-term downtrending chart. Notice, this stock has
done nothing for a year but go lower. Every single time, or every single day it just trends lower. And, when it does bounce, it
closes on the low of the day and continues its trend down lower. Never, ever try and trade
what we call dead cat bounces. This stock, until something
significant happens, should be avoided. And anytime, if you bring up a daily chart that looks like this in premarket, please take it off your watch. Don’t try, especially as a new trader or intermediate trader, don’t
try and trade these patterns. So many of them fail. The risk to reward is just not there on the long-term, downtrending chart. Last one I want you to avoid is what is the called the one and done. This is a chart that, the stock spikes, but then puts in those Doji candles. If you’re not familiar with Doji candles, again, check out our other videos where we break it down. But you can see, every
time the stock spikes, it spikes and then closes
almost on the low of the day. It did it here, it did it
here, did it huge right here. Look at this candle, it ran from 9 to 17, closed it back in the 10, and then the next day got
destroyed down to the sixes. And then it faded, and then
again, did it again here. Went from gapped up to
13, went as high as 16, closed under 12, and then
the next day got destroyed, second day it was already
down to the eights. So avoid these Doji candles, avoid these what we call one and dones. When a stock can’t put in more than one, you know, two, two,
three, four days in a row, it’s an avoid. Now you might win here and there, but they tend to squeeze,
drop, stop you out, and create frustrating losses. So, remember, write this down. The bullish uptrending chart,
the consolidation breakout are the two I want you to focus on. And then avoid the long-term downtrending as well as the one and done chart. And, drop me a candle below. Are you trading these patterns? And particularly, have
you gotten suckered, for lack of a better term, into buying that long-term
downtrending chart? I see many traders who think
they can buy at a discount, so let me know, comment below, have you traded, have you gone along some of those long-term
downtrending charts? Thanks for watching our video,
be sure to comment below with any trading related questions. We love answering your questions. Also, like and share with your friends, and be sure to subscribe to be notified as soon as our next video hits. And if you’re looking to
expand your trading knowledge, don’t forget to check out
all of our other videos. And, be sure to click the trial below. Check out StocksToTrade, I think it is one of the best, most rapidly advancing
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20 thoughts on “Candlestick Patterns: Two to Trade & Two to Avoid”

  1. Thanks for the vid Tim, always appreciate you sharing your knowledge. Id love to see some more videos that focus more on fundamentals, as that appears to be a weak point in my trading. I dont yet have a feeling for what is good and whats not. Thanks, Ill see you on Monday for your livestream!

  2. Can I use Stock to Trade on my phone? I work during the day, and I have to be at work by 7, leaving me without access to chart patterns.

  3. Mostly what I've been looking to trade are the ever running down (bearish) the dying stocks and the ones that spikes few times here and there. For some reason that's what I though Sykes traded.

  4. Taking lots of notes… my BIGGEST problem is that I'll be in a trade and it will go down… and have an amazing bouce, where I could have made great money, but I'm at a loss because I'm stuck in a trade to early… but I'm learning to cut losses quickly so I won't miss it… but it's difficult with PDT rules cause then I justed wasted a trade… but learning that its better to cut losses and live and trade another day.
    -serf

  5. Hey tim.love this video can you do more videos like this.wow showing the chart and explaining more.very useful and helpful

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