This chapter will discuss support resistance candlestick patterns, this is a continuation lesson about Japanese candlestick patterns.
We will try to apply the candlestick pattern that we have studied before, to find the pattern as a decision-maker.
Remember, that candlestick patterns will be useless if only used alone.
You need to understand the market environment which consists of many market participants.
Before proceeding that should be a concern is with any tool candlestick pattern is not something that is sure to happen.
Forex is not like mathematics which is an exact science, forex is about probability.
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Candlesticks with Support and resistance
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Support and resistance are strong zones where prices are hard to a breakthrough.
Using a candlestick with a combination of support and resistance is the simplest way to determine trading decisions.
To understand the concepts of support and resistance, you can read again in the previous chapter, and by analyzing the candlestick patterns and their reactions in this area you can make decisions with a lower risk.
To understand this concept we will try to give an example.
Example candlestick with support and resistance
In this scenario, you find that the resistance area in the EUR / USD pair is 1.4900.
When the price seems to suppress the resistance area you actually want to open buy because you see the price breaking resistance, do you think the price is very strong the bullish trend.
But with patience, you finally decide to wait rather than open buy.
After you wait patiently, finally the next candles appear three inside down patterns, which gives an indication that there will be a reversal of the trend from bullish to bearish.
With that basis then you decide to open sell with the hope that prices will really go down.
While to anticipate if the pattern is invalid then you also decide to place a stop loss above the resistance.
After you open a sell position, then you patiently wait with confidence that the price will continue to fall.
And it turns out your patience pays off with the profit you get from a wide decrease after three inside down patterns appear in the resistance area.
Now see what happens after you open a sell position.
Seeing price movements that are in line with expectations, it makes you scream with excitement, hooray, in the end, I get a profit of hundreds of dollars just by using a candlestick with support and resistance.
It was so excited you immediately went to the dealer and bought a new sports car from the profits you get.
Advantage trading candlestick support resistance
By utilizing support and resistance zones as a reference in determining entry points based on candlesticks, this will minimize the risk because if you rely solely on candlestick patterns, you will most likely get lots of losses.
Support and resistance zones are crucial areas where those areas are strong areas and usually, the price will hard to break through this area.
To determine support or resistance levels, indeed there are no specific rules or conditions, but depends on the interpretation of each trader on the behavior of price movements
In general, how many times a level can withstand price movements, or how fast the level can be broken these support and resistance zone considered valid.
One way to find out whether a support level is valid or not is to look at the formation of price action setups that are formed at these levels.
There are so many false signals if relying upon candlestick alone
In the previous chapter, you learned about single candlestick patterns, dual candlestick patterns, and triple candlestick patterns.
Maybe you think that understanding all this pattern is enough to easily get profit from the forex market.
The reality is not that easy, you can consider the image below for an example if you only rely on candlesticks, you will get a lot of position errors and even face a margin call.
Take a look
When a hammer candle appears, you might open a buy, if you do, take a look, then the price drops and you might find a stop out account.
Then the evening star pattern appears again which is a bearish signal, if you open a position in this area, see what happens when the price rises to reach the resistance level, and maybe you get a stop out account.
Then there is a Doji pattern after the downtrend, you think the trend has weakened and opened a buy position, but if there is a price going back down strongly, and maybe you find the third stop out.
Trading using a Japanese candlestick pattern, this cannot rely solely on the candlestick pattern as a confirmation signal, because it will encounter many false signals that cause several losses.
But by combining your knowledge of support and resistance, you can see price reactions when they enter the zone.
If the candlestick pattern appears which is a sign that there will be a reversal in the direction of the trend in the support and resistance zones, this will minimize the risk of false signals occurring.
And also by using the zone of support and resistance as a trading reference, you will also have a better trading plan, so that you don’t open positions too often even though reversal patterns have appeared on the Japanese candlestick.