Hey hey, what's up my friends, so welcome to the ultimate candlestick patterns trading course for beginners. So i remembered more than 10 years ago when i was in the army right. I remember seeing one friend of mine holding this book on candlestick patterns and i was intrigued. I was thinking to myself right.

How can anyone you know memorize a few candlestick patterns and then trade, the markets profitably. So i was intrigued. I was curious. I snatched the book from him, no just kidding.

I just asked him nicely: hey bro. Can you let me the book, so i took the book from him nicely and devoured right everything i could on candlestick patterns. I learned anything that i could get my hands on and guess what i was consistent consistently losing right from the financial markets and that's because my entire approach to candlestick patents was wrong. So this is why, in today's training right, i want to share with you the truth about candlestick patterns that nobody tells you.

You will also learn how to read and understand any candlestick patterns. Even if you have no training experience, you will learn right. The two common mistakes that almost all new traders make when trading with candlestick patterns and how you can avoid it i'll share with you, a powerful candlestick trading strategy to profit in buu and bear markets and, along the way, i'll share with you. A ton of charts and examples, so you can master candlestick patterns fast, sounds good.

Then, let's dive in. So what is a candlestick pattern? Well, a candlestick pattern is a method of reading a price chart. So you have things like a bar chart a line chart and then we have candlestick chart so to read a candlestick pattern. We have four data points to open high low and close.

Don't worry we'll get to that shortly? If that confuses you, so when it comes to candlestick pattern, it can be formed across different time frames. So it doesn't matter what time frame you're trading on whether you're on a five minutes chart the one hour or the daily. You can apply. Candlestick charts candlestick patterns to your trading, so, let's say you're on the one hour time frame.

This means that every candle, every candlestick pattern will be formed every one hour if you're on a daily time frame, every candlestick pattern will be formed every day and if you're on the weekly time frame, every candle will be formed every week right there. You have it right, so how do you read a candlestick pattern? So let me explain so when you are dealing with candlestick patterns, you would usually see one of two candles: either it's a green candle or a red candle. Sometimes it could be black or white, or sometimes it could be no color and that's what we call a doji and i'll cover that later, but for most of the time right, when you look at most charting platform, it's usually green and red candles. So that's what we'll go with, so how do you interpret this green candle? So remember.

I said that candlestick patterns - it has four data points. So first, here for a green candle, we call this a bull candle. This is the opening price okay this year. This is the closing price this over here is the high.

You might be thinking okay rain, a high of what well it depends on the time frame you're on if you're on the daily time frame. This will be the high of the day, and then this is the low of the day if you're on the monthly time frame, then this is the high of the month and then this is the low of the month. This will be the opening price of the month and this is the closing price of the month. So it's all relative to the time frame that you are using candlestick patterns now moving on a bear candle.

So how do you interpret this one over here? So for a raid candle, a bear candle, the opening price is here and the closing price is here. The high is the same over here and the low is over here. So, if you think about this right, the main difference between a boo and bare candle is the location of their open and closing price so for bull candle. The opening price is here.

The closing price is here so for a bull candle. It means that the market has closed above the opening price for a bear candle. It means that the market has closed below the opening price. So you can see the closing price here is below the opening price for this one.

The closing price here is above the opening price that you see over here, closing above the opening. So in summary, right what we have just covered is this chart over here. So i'll just go through this right, so you can see. This is the high and this is the low.

So this is the high of what well depends on the time frame you're on, if this is on the one hour time frame. This is the high right for the past one hour, and this is the low for the past one hour. Opening price is here: this is the closing price again high is over here for rate candle. This is the low as well, depending on the time frame.

If you're on the weekly time frame, this is the high of the week. This is the low of the week. This is the opening price for a bear candle. This is the closing price of a bear candle and couple of terminologies to walk you through.

So when you see a candle stick pattern, there are two components to it: one is what we call the wick or the upper shadow. So this one here, okay, you can either call it the shadow or the wick. So since this is at the higher portion, we call this the upper shadow or upper wick, and this is the lower one. We call this the lower shadow or lower width and the colored portion of the candlestick pattern this over here.

This is what we call the body. The body of the candle. This over here is the body of the candle okay. So this black line here is called the shadow or wick and the colored one is called the body so moving on right.

There are different types of candlestick patterns, but i would say four main categories, so there are many different candlestick patterns out there i'll say hundreds or more, but if you really kind of categorize them right, they are likely to end up in one of these four categories. Number one is the bullish reversal: candlestick patterns number two bearish reversal: candlestick patterns, number three indecision, candlestick patterns and trend, continuation, candlestick patterns; first, let's get started with the bullish reversal. Candlestick pattern, so here are a few to share with you number one is what i call the hammer. Okay, so, let's you know walk you through what the hammer is so again, there are four data points to every candlestick pattern.

This is what the opening high low will close. This is the opening price this over here is the closing price, and then this is the high, and this is the low okay and remember the high and low is relative to the time frame that you're on. If you're on a yearly time frame, this is the high of the year and then it's the low of the year. But let's say this is a daily time frame.

This will be the high of the day low of the day. So why is this hammer right? A bullish reversal, candlestick pattern, so let me walk you through the story behind it, so we can see when the price opened for the day right. The sellers immediately took control and pushed the price down lower near this lows of the day. So when the sellers were pushing the price down lower, do you know they were thought they had won the war? You know they're victorious, but somehow you know the the buyers right.

They they regain strength. They gain control, they inject themselves with steroids there and start pushing back against the sellers, so the buyers push back all the way against the sellers, reversing all their losses and finally, closing right near the high of the day over here. So you can imagine this, like you know like in movies right. You know you watch uh uh, you know the good guys getting beaten up getting trash.

You know when all hope is lost all right, they think of their loved ones. All the sacrifice, all the training that they've been through and they turn out, they come back and they start. You know beating the bad guys and they in a you know they win the the battle right same thing over here for for this hammer. So another variation of the bullish reversal - candlestick pattern - could be the polish engulfing pattern, so the story is similar to the hammer.

Only difference is that this is a two candlestick pattern formation. So this one over here, the first scandal you can see sellers are in control. Price open here and then the sellers to control and push the price to close near the low of the let's say this is the daily timeframe close to near the low of the day next day, when the market open, the buyers are pushed back right. All the way up, higher and finally closing right near the highs of the day, the buyers are so strong right.

They even close the price above the previous day highs all right. So you can see that this is a significant uh sign of strength from the buyers. So this is theoretically how this uh patterns should look like, but when you see on a chart, sometimes it's a little bit different, like you know, theory and real world of trading. So let me just share with you a chart and, let's you know, find write.

Some of these patterns together, so i'm not going to go through the entire chart, but a few that stick out to me is that this one over here this looks like a bullish engulfing pattern right. The key thing for a bullish engulfing pattern is that the body the body of the bull candle has covered has engulfed the body of the previous candle. So if you look at this candle over here, the body of this candle has covered and engulfed the body of the previous candle okay. So this over here is a hammer, as you can see quite straightforward and let's find another one.

This one here is not a bullish engulfing pattern, as you can see that this body of this green candle it didn't cover the body of the previous candle. We call this a piercing pattern. I didn't cover that right because i don't want to confuse you too much, but you can see. This is also a bullish reversal, candlestick pattern as the buyers they managed to reverse right most of the losses from the previous day.

So this is how a bullish reversal, candlestick patterns, look like and moving on, bearish reversal, candlestick pattern. So first one to note is what we call a shooting star. So again, let me walk you through this candlestick pattern. This is the opening price.

This is the closing price, this is the high and this is the low. So what's the story behind a shooting star, so you can see when the market first opened the buyers they were in control, they pushed the price all the way up higher. They are about to, you, know, declare victorious right and suddenly out of the blue, the sellers came in and drive down the price lower, so the sellers push the price down all the way down lower. Finally, closing near the low of the day, assuming this is the daily time frame, so this analogy could be like you know you, you gotten back your exam results.

You got an a wow. I got that a and it's only when you realize that it's a for absent, you didn't even turn up for that paper. So that's why you got an a so your whole will come crashing down. Okay, so kind of same story over here for the shooting star and, of course you have another variation of a bullish, or rather bearish reversal candlestick patterns.

You have a bearish engulfing pattern as well, so this one the story is similar. Just that you know this. One takes two candle stick patterns to form. First, one is a bull candle market closed near the highs of the day, second day right, market open here, and then the sellers took sellers to control and immediately push the price down lower.

Closing near the lows of the days reversing right all the gains of the previous day, so this one tells you that you know the sellers right are temporarily in control. So again, looking at the charts, just you know familiar familiarize with it. So let's have a look at a few bearish engulfing pattern and shooting star so this over here, a bearish engulfing pattern notice how the candle of this red one has engulfed or covered the body of the previous day candle. This is another bearish engulfing pattern, and this is another bearish engulfing pattern.

I would say this is a shooting star this. You know. If you look at this, you might say you know this isn't quite like a shooting star, because if you saw earlier the shooting star it was actually a red color body, but here is where it comes. You know where you need to use a bit of common sense if you look at this candlestick pattern.

Yes, this over here right didn't have a red body. It's a green body. The price is closed marginally higher. But if you look at the candlestick patterns are in the context of the entire range of the day, you can see that when the market open here, the buyers push the price higher at one point near the highs of this day, and then the seller drive the Price down lower closing right near the lows of the day over here, so you can see that yes, it's a bull candle, but you can see that there's a strong rejection right of higher prices.

If you look at this entire upper week right this week over here, this is rejection right of higher prices, all the way down over here. Let me just just show you what i mean right so this over here this entire week. This black line over here is rejection of higher prices. So yes, this to me, even though isn't what a text textbook would call a shooting star pattern, but i would say this to me is still a bearish pattern, because the market right has rejected higher prices so moving.

Alright, let's have a look at indecision, candlestick patterns. Now an indecision, candlestick pattern, literally you know, means what it is. So there are few of this right number, one being a doji, so why is this candle called a doji? What's the significance of a doji? So if you look at this candlestick pattern, you will realize that this candle is missing a body. So if you look at the earlier candlestick patterns, which i've shared with you know, red color, green color, they all have body and the reason why a doji is called a doji is because it doesn't have a body and the reason why it doesn't have a body Is because the opening price and the closing price is at the same price level? So that's why there isn't any body for this candlestick pattern.

So this is the opening price, and this is the closing price. This is the high of the day, and this is the low of the day. So if you look at this kind of story behind it, you can see that the price uh during the day the buyers were in control. They pushed the price up higher.

Then the sellers you know took charge pushed the price down lower near this low of the day. Then the buyers, you know decided to step in and push the price up higher. But just couldn't quite you know, break above the highs. Eventually, they settle at the same price point where the market has opened, so this stuck of war between the buyers and sellers, it's a kind of like even right, there's no winner as of yet so.

This is why we call this an indecision, candlestick pattern. The market is undecided, so it's like you messaging. You know a girl that you like sometimes she gives you long-winded. You know three four paragraphs reply.

Sometimes you get just one word and you're scratching your head. You know. Does she like me or not same feeling down here, you have your dojit man. You are doji, okay, okay! So that's a doji feeling, okay, so another variation is a bullish, spinning top pattern.

So the the story behind this is similar to a doji. Is that the market is undecided? The reason why they call this a bullish, spinning top is because now you have a body, a small body over here this opening price. This is the closing price, but in the grand scheme of things right, this is still in uh. Undecided markets, i would say, the buyers just have marginally the slight advantage over the sellers by the grand scheme of things.

The market is still kind of undecided. So we call this a bullish, spinning top because the market has closed marginally higher compared to the opening price and then on the opposite end. We have the bearish spinning top another another uh indecision, indecision, candlestick pattern. You can see that this is opening price, and this is the closing price.

It's bearish, because right the market is closed below the opening price. By the grand scheme of things you can see that the market is still largely undecided, because the closing price right is kind of like in the middle right between in the middle of the range of the candle. So the range of the candle is between these highs and this lows right between these highs and this lows. So when, if the price closes in the middle of the range right, then it's largely undecided because there isn't a clear winner.

But if the market can close near the high of the day, it's telling you that the buyers are in control, that's why they managed to close near the highest of the day, and if the market can close near the lows of the day, you can say that You know the sellers they are temporarily in control. That's why they managed to push the price down to near the lows of the day. But if the close right is kind of like in the middle, the range of the candlestick pattern, then the market is largely undecided. As what you've seen over here, okay, these three different uh candlestick patterns - so let's have a look at the chart, so you can see how it looks like so you can see over here.

I will call this a is what we call a bullish, spinning top! Yes, it's a green candle, but you can see it's quite undecided because the the price right has closed kind of in the middle of the range between these highs and then this lows near the middle okay. This is another bullish, spinning top. This is a bearish, spinning top uh. What else we can see that you can see over here? This is a doji okay, but this doji right, you would, i would say right.

This is clearly right, not a indecision in the markets. This is something right telling me that the buyers are in control. Why is that? Let me explain so you see over here. This doji is actually called a dragonfly doji.

The opening price and closing price is at the same price level. However, the story behind it is that at this opening price at one point, the sellers tried to drive the price down lower at this low over here, then, the buyers are right, pick things up right and push the price up higher, closing right where they left off And if you look again right, where did the price close relative to the range of the candle? You can see it closed right near the high of the day? So this right to me is a sign of strength. This lower wick, this lower shadow, is rejection of lower prices. So this again, this over here is a bullish reversal.

Candlestick pattern to me, but the name here is called a dragonfly doji, but don't treat it as an indecision candle, because if you read the story closely, you can see actually rejection of lower prices. So the key thing when it comes to candlestick pattern is not to blindly memorize these patterns right, it's very important to pay attention right where the the price close right relative to the range of the candle. So let me give you another example. If you look at a bearish engulfing pattern, why is this a bearish reversal pattern? Because if you look at the closing price of the candle, it closes near the low near the low of the range of the candle.

The range of the candle is between this high and this low. The bearish engulfing pattern closes near the low of this candles range. So this is why it's a bearish reversal, candlestick pattern, okay, but for now we are actually talking about doji. So let me just point to you one more example.

This is a perfect example of a doji indecision in this market, because the upper wick and the lower weight they are pretty much. I would say, of equal length. Opening and closing price is at the same price point so now, moving on. Let's talk about the trend, continuation, candlestick patterns, so a trend, continuation, candlestick patterns - right literally, you know mean what it is right.

So there are two to share with you number one is what we call the falling tree method. You can see this one over here. The first candle is a strong bearish candle. Then the next three candles right.

You can see that the buyers trying to push the price up higher and on this fifth candle. This is a powerful candle, because this red candle over here has closed near the lows of the day and not just that right. This candle over here has erased right. The gains right made over the last three days, so this is a strong sign of weakness in the market and there's a good chance that this market could continue down lower.

So this is why we call it a falling tree method. So the other pattern is what we call the rising tree method. So again, first candle is a strong bull candle and then the next three candles the sellers tried to push the price down lower, but just can't quite do it on the fifth candle, the buyers. You know step in and close right near the high of the day, and this again is a powerful candle, because if you look at this candle, it has erased right the losses right over the last three days.

Okay, so this is the falling tree method and this is the rising tree method. Now some of you might be thinking, hey reiner. Why is this called a falling tree method? Isn't this three candles rising and hey rayna? Why is this called the rising tree method? Isn't this three candles falling? Is this a typo? Is this? You know uh something that you got it wrong? No, i checked it. It's correct and don't ask me why they come up with this naming convention.

I have no idea myself so so yeah so just bear this in mind, even though it sounds a little bit contradicting at times, and another thing to point out is that, to be honest right, when you look at the chart, you rarely get a falling tree method And you rarely will see a rising tree method, because this candlestick pattern is so precise. You know the first candle must be green, then three red candles, then fifth, candle must be green again. It rarely happens right in the real world of trading. But the reason why i'm sharing this with you is because this is very similar to classical technical analysis.

So if you look at this pattern over here, the falling tree method - okay, this is actually what we call a a bare flag pattern. So let me just erase this chart over here. Okay, so a bear flag pattern looks like this market heads down lower. It makes a weak pullback and then, when it breaks this low, it continues down lower again.

So this is what we call a bare flag pattern and it's similar right to the falling tree method that you have seen earlier and the opposite. End of things is what we call a bull flag pattern. Market hits higher, make a weak pullback and then, when price breaks above this highs right, it's what we call this portion here is what we call the bull flag pattern. So if you look at this right in the context of the falling tree and a rising tree method right, you would know what's the meaning behind it right, even though, even though that you know let's say you can't you couldn't find this on the charts.

Okay. So let me just you know, show you a chart right, so you can see the bull and bare flag in action, because a bull and bare flag is much more common right compared to the rising tree and falling tree method. So you can see over here couple futures: this is a blue flag pattern: okay notice, the this weak pullback for a blue flag pattern right. The definition is not as precise when you must have a tree down candle.

No, it doesn't state that the main thing is just that the pullback is weak. The range of the candles is small right and then followed by a breakout of the high of the flag, and the market is expected to continue higher so another example dollar against the south african rain. You can see the bare flag pattern over here this one over here: okay, the market break down this low of the flag and continue down lower. This is another bear flag pattern: okay, the market continues down lower.

So when you see when you compare this classical technical analysis to candlestick patterns right classical technical analysis, in this case right, they are more robust in the sense that it's not as precise that state, oh, must be a tree candle up and then followed by one down Candle, no it's not that precise and not that exact. So this is why the message that i want to bring across is that, when you're dealing with candlestick patterns understand the context understand the story of the candlestick patterns right, don't memorize, right candle for candle! Oh this! One must be, ah, this one is down blah blah blah. No, you will confuse yourself and when you translate it into real world of trading, you find that some of these patterns hardly occur like the rising tree and the falling tree method. Okay, so let's do a quick recap: shall we number one? Every candlestick pattern has four data points open, high low and close next one we spoke about the bullish reversal, candlestick patterns like the hammer and bullish engulfing pattern.

There we spoke about bearish, reversal, candlestick patterns like the shooting star and the bearish engulfing pattern. Then we spoke about indecision, candlestick patterns, the doji, the spinning top etc and then, finally, the trend, continuation, candlestick patterns, like the rising tree method and the falling tree method, and then also focus right to tell you not to blindly memorize these candlestick patterns, because some of Them rarely occur on the chart so understand the meaning behind these patterns is more important than trying to pinpoint the exact pattern on the chart. Understand the story behind this candlestick patterns right the context of it that's far more effective, and at this point right some of you might be thinking. Ah rainer, you know candlestick patterns, that's easy right, i'll, just spot a hammer on a chart and i click buy proof.

Profits. Well, if you do that right, then you're actually making right a common mistake right that almost all traders make when they deal with candlestick patterns. This is why, in the next section, i want to share with you right common mistakes to avoid right when trading with candlestick patterns and if you're losing money with candlestick patterns so far, it's likely because you're making one of these mistakes. So, let's move on okay.

Now, let's talk about the first mistake: have a look at this chart over here, so what i've drawn over here, the arrows are simply highlighting right, a few bearish engulfing patterns that are on the chart. So many traders will, you know, study all this reversal. Candlestick patterns. Oh rainer, a shooting star, oh rainer, a bearish engulfing pattern, time to short, and if you do that right blindly, just based on the candlestick patterns, you can see that it's going to be a painful experience.

So you can see over here. This is a bearish engulfing pattern. If you go short, probably this is a losing trade. This is another bearish engulfing pattern.

The market did move slightly in your favor, but, let's be honest, you wouldn't take profit in time. You will likely get stopped out. This is another losing trade. This is another losing trade.

This is uh, maybe a break even but probably a losing trade, and this is another losing trade. So you can see that you know if you just blindly buy hammer you blindly, you know shot when you see a shooting star you blindly shot when there's a bearish engulfing pattern. Your results is going to be quite painful. So what is the mistake down here and it's very simple: the mistake is this trading against the trend right, so candlestick patterns right as much as possible.

You want to be trading in the direction of the trade, so, for example, if you see the market is in an uptrend, you want to be looking to trade right, bullish, reversal, candlestick patterns, like the hammer, the bullish engulfing pattern. If you see the market is in a downtrend, then you want to be looking to. You know spot for bearish reversal, candlestick patterns like the shooting star or the bearish engulfing pattern. Does it make sense so as much as possible trade in the direction of the trade? Now, i'm not saying that you know counter trend trading doesn't work, it can work for advanced traders.

If you, if you know more about technical analysis but for now for beginners, my recommendation is: don't trade against the trend? Your life will be much easier. Mistake number two have a look at this chart. Okay, so this chart you can see over here. Market is in a downtrend notice, a series of lower lows and lower highs.

Lower high lower high lower high market is in a downtrend and then over here we have a bearish engulfing pattern. So reynolds said: okay, look right to trade, various reversal candlestick patterns when the trend is down so now the trend is down. Okay right now. So i'll, look to you know, go short right in this market condition.

Well, just hold your horses first, and the reason for this is because again right. Yes, i agree that the market is in a downtrend, but i don't recommend shorting right just because you spot this bearish engulfing pattern here. Why and the reason is simple: if you look at this market condition, you will notice that this blue line over here, which is the 50-day moving average - it serves to act as like a area of value on this chart i'll share more what an area of value Is but you can see you can treat it like a mean right. You can see that this market tends to pull back towards the 50 period moving average once twice three times four times five times six times, so, in other words, right, if you ask me, there's a good chance that this market could re-test back this 50 period moving Average again, and if the market does make a pullback, imagine right if you are short down here, you are shot near this low over here and the market makes a pullback.

You will likely get stop down. Okay, it's like kind of like you know, having a rubber band in your hands. If you stretch the rubber band quite a bit right, what are the odds of the rubber band stretching further or reverting back to the mean? Well, i'm sure you can agree that there's more likelihood that the mark, the rubber band will, you know, revert back to the mean, and it's the same for this market condition over here. If you look at this market condition, you can see that the market right now is kind of like over extended over stretch right towards the downside.

There's a good chance. It could. You know revert back towards this mean towards this area of value near the 50-day moving average. So, yes, market is in a downtrend.

Yes, we have this bearish engulfing pattern, but we still don't want to shot the market quite yet - and this brings me to mistake - number two, which is you know, trading far from an area of value right: don't trade far from an area of value, because when the Market makes a pullback right. You will likely get stopped out of your trade. So now, at this point you might be wondering: okay reyna, i can't you know trade against the trend and not far from an area of value. Then how should i trade candlestick patterns? Well, that's what i'll cover right now introducing right the tay formula so now, what does the tay formula stand for? So let me explain: t stands for trend simply means right to trade in the direction of the trend.

So if the market is in an uptrend, you only look for buying opportunities, and likewise, if the market is in the downtrend, you only look for selling opportunities. So let me illustrate to you know: what do i mean by trends so for an uptrend? It will look something like this: the market hits higher pulls back breaks out, hits higher, pull back, hits higher, pull back hit higher. So if you look at it at the big picture wise, you will see a series of higher highs, higher highs, higher highs and higher low higher low higher low. And if you look right from left to right, you can see the market right trending moving right higher over time.

This is what we call an uptrend and if you spot an uptrend on the chance, you only want to be looking for buying opportunities. So, on the other hand, right downtrend is just the opposite. I will go faster for this, so market hits lower pullback hits lower pullback hits lower pullback hits lower, so you can see right. Series of lower lows and lower highs overall from left to right market is heading down lower over time.

So this is a downtrend and when the market is in a downtrend, we only want to look for selling opportunities. So let me share with you a chart right, a few charts, so you can see what i mean. So if you look at this chart over here, let me ask you: is this market condition in an uptrend or a downtrend so again right? The concept is pretty simple. If you look from left to right, you can see this market is heading higher over time.

If you identify the swing highs and swing lows, you can see a series of higher high higher high higher high higher high high higher low higher low higher low, so market is in an upfront, and if you look at this chart over here is this market in An uptrend or a down trend so again, if you spot the swing, highs and swing low right, lower high, lower high lower high lower low lower low low low. So i miss out a few swing highs along the way, but i just want to share with you. The big picture is that from left to right, this market is heading lower over time and you want to look for selling opportunities. So one thing to share with you is that if, when you look at the chart and you kind of squint your eyes, you know ask yourself, you know: is this an uptrend or a range, i'm not sure, then just move on to something else.

No one is pointing a gun at your head and say: oh you better, you don't decide whether there's a trend or not. No right, you have options. If you can't decide if it's not clear, move on onto a clearer market or do something another market which is clearer, where the trend is more obvious, okay, don't force the trade or don't you know, force things right when you are in doubt. So when you're in doubt stay out so moving on right, this is the trend portion.

What about the second part of the t formula, a a stands for area of value, so what is area of value so in an uptrend, an area of value is the area on your chart where buying pressure could step in and push the price higher, and if The market is in a downtrend, the area of value is an area on your chart where selling pressure could step in and push the price lower. So the way you want to identify your area of value, you can use things like support and resistance, moving, average etc. So let me give you an example, so let's say we talk about support and resistance if the market is in an uptrend hitting higher pullback hitting higher pullback heading higher, pullback and area of value could be over here right. This is an area of support right tested.

Once there's bounce of support, bounce off support and then come back here a second time, this is an area of value in this uptrend. This is an area of support in this existing uptrend, and this is where we want to be trading from from this area of value. Okay. Likewise, if the market is in a downtrend like this okay, the area of value would be something like this you're going to look to sell at resistance in this downtrend at this area of value, when the market is trending now lower and support and resistance is just One way to define your area of value, another way that i like to use it is to use the moving average.

So, for example, let's say market is in an uptrend, it pulls back, higher, pulls back higher, pulls back higher. Then you overlay with let's say a moving average like the 50 period. Moving average like this you'll find that this market right has bounced off the moving average repeatedly. I look for at least two bounce right, so it bounced over once here.

Second time and the third time right, i would say that i'll treat this moving average as an area of value, because this market right has proven to me that he has bounced off the 50 period moving average at least twice so, there's a there's, a good chance Right, you could bounce off the third time as well, so i will treat this moving average as an area of value as well. So let me share with you a few charts, so you know what i mean. So let me just uh share with you over here. If you look at this chart of copper and i overlay the 50 period moving average, you can see that this market has respected the 50 period moving average a number of times right, tested once twice three times four times five times and now possibly five another six Time over here, okay, so this is an area of value.

This is where i want to look for buying opportunities right for this market. So if i use a tool like, let's say a rectangle, i can draw this area of support this area of value over here. Does it make sense so, in other words right in this uptrend for this market condition? This is where i'm looking for buying opportunities somewhere about here, and if you look closely right, you have the confluence of the 50 period, moving average plus this previous swing high, which could act as support. So this definitely is an area you want to pay attention to and look for buying opportunities i won't blindly buy when the market comes into this price level.

I'll explain why shortly right, but for now this is how you identify an area of value in an uptrend. So, on the opposite right end of things right, a downtrend in this case you can see this market is in a downtrend. So where is the area of value? So again, you can just use a tool, a rectangle tool or a line tool, whichever you prefer. You can see over here.

This is an area of resistance. This one is another one over here, so you can see that this market could possibly right pull back towards this area of value here, where previous swing low right, which could now act as resistance once over. Here and second time over here or you can make a deeper pullback right back into this area of resistance as well, which was previous support, support support right, which became resistance and possibly resistance over here as well. So once you have identified the market, which is trending, the next thing to do is to identify your area of value, so you can use things like support resistance, moving, average, etc, and once you have nailed this down, the third thing is to look for a valid Entry trigger and what is an entry trigger? This is simply a price pattern right that tells you that the buyers are momentarily in control and you can now enter a trade, so this is where candlestick patterns are useful to serve as an entry trigger we covered.

So much right, like you, know the hammer, the shooting star, etc. So now, let's you know kind of combine all this right, all the things that you have learned right and see how we can actually use it to trade, the markets profitably. So let me give you an example right to uh kind of like combine all these tools and concepts that you've just learned. So let's say first thing: we're looking for the t formula is market to be in an uptrend like this okay series of higher highs and higher lows area of value.

Let's say the market comes back into this area of support and this uptrend great entry trigger. We can look for things like a hammer right. Remember. I said that you know you want to be trading.

The uh candlestick patterns right in the direction of the trend. So if the market is in an uptrend, you look for a bullish hammer, a bullish, engulfing pattern. Right as an entry trigger, so in this case let's say you got in you've got a hammer like this okay and then what you can do is you can look to enter on the next day, open right when this trading setup occurs. So let me share with you a few charting examples, so you can understand this trading strategy now this is the chart of dollar against the norwegian chrono.

So using the tay formula that you have just learned, the first part of the tay formula is the trend. What is the trend of this market? So you can see. This is the eight hour time frame on dollar against the norwegian chrono, and if you can't tell what is the trend, then a tip for you is to just zoom out your charts. So you know you can see a better picture so clearly you can agree right that this market, the trend it's in a downtrend.

Okay, that's the first part. Second part: did the price come towards an area of value? We want to be trading from an area of failure, so is it near an area of value? So, in this case you can see. This is previous support. Support, support, support, support, support price breaks below support.

Now previous support becomes what resistance and now is it resistance again? So, yes right, the price is at an area of value. It's at resistance. Next thing e entry trigger. Do we have a valid entry trigger? You know to to short this market.

So look at the charts. Clearly you can see that we have this bearish candle over here and it's not quite what you've just learned earlier. You learn, you know shooting star and the bearish engulfing pattern, but this doesn't seem to you know resemble any of it right. So but here's the thing, let me just walk you through the the uh psychology of this market.

So i said earlier that you know there's no point trying to memorize every single candlestick pattern, because when it comes to the real world of trading, sometimes you may not get the pattern right that you have memorized. So this is why it's important, instead to read to analyze, to read the price action of the markets. So if you look at this right, this green candle over here the buyers right. They tried to break out of resistance, but got rejected by selling pressure, and they just pretty much close in the middle of this range over here of this scandal.

So if you ask me all right this candle over here, i would say you know it's kind of like undecided. There are sellers in the background. At the same time, they are buyers trying to push the price higher. So this is why the price is closed.

In the middle of the range of this candle, so the range of this candle is between these highs and this lows and the price pretty much closed in the middle of it. So i would say you know it's kind of like a tuck of war, be between the buyers and sellers with the buyers having the slight upper hand. So when you look at the next candle over here, which is this red one over here, this is where you have a clue that the sellers right are stepping in and taking control. So this, actually in japanese candlestick terms, is what we call a duck cloud cover.

So it's similar to a bearish engulfing pattern. The only difference between a dark cloud cover and a bearish engulfing pattern is that a dark cloud cover it doesn't cover. It doesn't engulf the body of the previous candle right. Instead, what it does is that it closes below more than the halfway mark of the previous candle.

So we can see that you know if you look at it in terms of strength right. The bearish engulfing pattern clearly is a stronger one, followed by a dark cloud cover, but but it doesn't mean that you know you can't trade a dark cloud cover, because if you look at this from a big picture perspective, you would understand that the price right tried To break out higher got rejected by by sellers right, who pushed the price down lower and finally, closing near the low of this candle here, so you can see that the upward spike followed by the reversal is rejection of higher prices. This tells you that there is a selling pressure coming in right and it's a valid entry trigger for me to go short on the next candle open. So when the candle, when the market open on next candle, i would look to place right an order here at the open to shop this market for stop loss.

I like to set it usually a distance above this uh high, so probably somewhere here and as for target. You can set it just before this swing load somewhere about here. So in this case this will likely be a winning trade right. As you can see market, then collapse lower made a reversal before it hits your target over here.

Okay, so this is just one example. So let's move on and have a look at another one, okay. So this is the chart of canadian against the japanese yen. The daily time frame, as you can see over here so again applying the t formula.

Let me ask you: what is the trend of this market? The trend is in a downtrend, i'm just kidding it's an uptrend. Okay, you can see from left to right. Market is heading higher. It's an uptrend area of value right.

You can see the price coming into this area of value. This area of support over here, and one more thing to add, is about the area of values that, let me just draw this first, this area of support. One thing to add is that, as you trade, the markets right, sometimes you might get lucky and you have multiple confluence factors, multiple areas of value coming together. So in this case i will overlay the 50 period.

Moving average and you'll see what i mean you can see that this market tested the 50ma once twice and he's back here once again for a third time and the 50 period moving average, you know it's uh respected, or rather the market respects the 50 period. Moving average and, at the same time, right, this area coincides with this area of support as well. So this is what i call stack areas stack areas where multiple areas of value come together right and you know to me: it's a high probability area to trade, the markets so and finally, the third thing we are looking for is entry trigger and you can see Over here, this is a bullish, engulfing pattern. The body of this green candle has engulfed has covered the body of the previous candle, so what this is what we call a bullish entry trigger so with all three criterias right: the trend, the area of value, which is the 50 period moving average and the area Of support and an entry trigger, which is the bullish, engulfing pattern, so what i'll do is? I will enter on the next candle open? Okay.

So let me just remove the area of value first, so what i'll do is? I will look to enter at the opening price, so let me just draw this line over here, so you can see. This is where i will enter my trade, the opening price, okay, so i'll put it in green. So you can see and understand this. So this is the opening price of this candle, so i've highlighted in green okay.

So the next thing: where do we set our stop loss? Usually i set it one atr below this swing low, i'll share with you how to do it shortly, but for now let me just say that my stop loss will be somewhere here, a distance below the swing low and the reason why i set my stop loss. A distance below this swing point is because there are times right where the markets actually swing down, lower, take out the lows over here and then continue higher, and i will get stopped out right too early right. If i set my stops just below the low. So usually i like to give it some buffer right, so i don't get, you know stopped up prematurely.

So that's the reason reason right for me. You know setting my stops a distance below the low and as for target, i would set it just before this swing. High and the reason why you can consider setting your target before the highs or before the resistance is because you know this is a potential area where sellers might come in, so it makes sense to be looking to take profits right before the selling pressure come in And which could you know, reverse the price down lower? So if you want to be more conservative, if you want to capture a swing in the markets, this is a good level, a good area that you can reference too. So at this point you can see that i have, you know, identified the entry that stops and your target, so another tool to share with you is you can use this tool right.

Call, i'm not sure. What's the name, but you click on this right. Click! Long position, you can actually assess right your risk to reward on this trade, so just click on the green line here and this thing will come up. So what you need to do is that you will realize that there are three circles, this top circle, middle circle and popsicle, i'm just kidding.

This is the bottom circle. Okay, so what you want to do is to adjust the circle to all these three lines. So this one over here, the center circle, is at the green line. The red circle here, or rather the bottom circle, adjust it to the right line over here: okay and the top one over here, the top circle adjust it to the blue line over here.

That's what you'll do, okay, so once you've done that you can actually assess right your risk to reward your potential risk to reward on this trade. So let me illustrate you how to read this, so you can see over here at the bottom here. It tells you that your stop loss is 134 pips, 134.6 pips. Your target is 155 pips, so from a risk to reward standpoint right, it is a 1 to 1.15, so in other words, you're, actually risking one dollar to potentially make a dollar and 15 cents on this trade.

Okay, so you can see that you know if this trade right you take this trade and 50 of the time right. You get winners 50 of the time you get losers right. In the long run, you will be a profitable trader, because your reward right, which is in this case 1.15, is greater than your potential loss, which is this uh one over here right. So this is how you use the risk to reward to to know how much you can potentially make right and how much you can potentially lose on this trade based on your risk to reward.

So with that said, right. Let's move on to another trading example: oh yeah, before i forget right, since we are on a topic of risk reward. Another thing that i want to highlight is this right. So another way to interpret your risk to reward is: let's say you risk one percent of your trading account on each trade.

Okay, and if you have a loss on this trade, you will lose one percent, but if the price hits your target right, it is a potential risk to reward of 1 to 1.15. So you could potentially make a 1.15 return on this trade. If you risk one percent on the trade, so if you risk two percent on your trade right, your potential loss on this trade is two percent, and your potential gain on this trade is just multiplied by two, which is two point. Three percent profit on this rate.

If the market reaches your target, so this is another way that you can use to interpret your risk to reward ratio based on the percentage that you are risking on each trade. Okay. So for now, let's uh move on to the next trading example. So this is the chart of a play, dave and buster's entertainment.

So again, right going with going through the tay formula. We can see that this market is in an uptrend area of value. You can see this market coming into this area of support over here and finally, we have a valid entry trigger. This is what i would call a it's, not really a bullish engulfing pattern, and neither is it a hammer, but still it's a valid entry trigger to go shop because you can see rejection of lower prices.

The price come down into this area of support. Okay, just let me just highlight come down in this area of support. At one point, i was trading near this lows before the buyers stepped in and pushed the price higher, closing back above the area of support. So what i'll do is again, i will look to enter on the next candle open, which is this ugly looking candle here.

Okay, so my entry will be on the candle open here, so it's, let's put it to green, stop loss right now. Let me share with you: how do you actually set your stop-loss such that you don't get stopped out of your trade? You know prematurely, so what you'll do is that if i just go back in time, you can see over here what i'll do is i'll add on one atr below this low over here below this low, so 180 i'll just pull out your atr indicator, which is This one here or this roc, let me just close this. Let me just find it for you look for atr, okay, and i will change this to 20 period and sma, that's kind of like my own default settings. So you can see that over here it is 2.03 okay, it tells you that over the last 20 days, this particular stock play has moved an average of 2.03 cents right over the last 20 days.

So what you want to do is take this number. All right find out what's the low over here and minus 180, which is minus 2.03, so what i'm going to do is to find out what's the low of this candle, the low of this candle is 40 and 81 cents all right, as shown over here. Okay, you can see 40 dollars and 81 cents, so i'm going to take 4081 minus 2.03, and that gives me 38.78 okay 38.78 using my trusty calculator here.