Last Updated on Feb 7, 2022 by James W
Becoming good at the CFD trading profession is not an easy task. You may have in-depth knowledge about the market still you might not feel confident with your actions. Most people trade the market with a very complex system, eventually failing to focus on the core factors. They keep on making silly mistakes and blow up their trading account within a short time. On the contrary, professional traders rely on a simple price action trading strategy and make decent decisions even in the most complex market.
You might be wondering that learning about tons of candlestick patterns is a challenging task. We will discuss the top four prominent candlestick patterns used by elite traders to ease the trading process. Without any further delay, let’s get into the details.
1. Pin bar
The rookie price action traders often think the pin bar is not that powerful. They try to focus on the complex pattern and start avoiding the pin bar patterns. On the contrary, professional traders consider the pin bar pattern one of the most powerful price action confirmation signals. If you spot the pin bar at a critical resistance, you may expect a decent drop in the price. Similarly, if the pin bar formed near a crucial support level, you should see a strong bullish rally.
2. Doji pattern
Very few traders understand the importance of Doji. The Doji pattern has a small body which means the closing and the opening price of the candlestick is very close to one another. Usually, the Doji patterns indicate a potential shift in the market moment. The professional traders at Saxo consider it as a warning signal. They look for the confirmation signals as soon as they spot the Doji near the support or resistance level. While using the Doji pattern, you should be extremely careful about the time frame selection.
The retail traders often trade the market in the minute time frame and get confused by seeing frequent doji. To get the accurate signals from the chart, you should be using the Doji in the hourly or higher time frame only. The lower time frame price action signals are not that accurate, and it often confuses the retail traders to a great extent.
3. Bullish morning star
The bullish morning star is widely used among professional traders. The pattern is formed in the combination of three unique candlesticks. The first candlestick is a bearish candle, and the second candlestick is usually a doji or bullish pin bar. The third candlestick is a strong bullish candle which signifies the bulls have taken control over the market. When you spot the bullish morning star pattern in the market, you may take the long trade. In that case, you should be placing the stop loss right below the bullish morning star.
4. Engulfing pattern
The engulfing pattern is a potent candlestick pattern that provides strong buying and selling opportunities to retail traders. If you spot the engulfing pattern at the end of an uptrend, you may consider the trend is near its end. On the contrary, you may expect a strong rally if you spot the engulfing pattern at the bottom of a downtrend. The pattern is formed with the combination of two candlesticks. The second candle completely engulfs the first candle. If the second candlestick is bullish, we need to look for buying opportunities. On the contrary, if the second candle is bearish, we need to look for selling opportunities.
While using the engulfing patterns, we need to be extremely careful about our trade execution process. The risk factor should be limited, and we should not take the trades without assessing the support and resistance level. If possible, we should focus on multiple time frame analyses as it will give us a better opportunity to find out the bad trade signals.
