Candlestick Patterns
Many traders love to identify complicated chart patterns and make trading decisions based on them. There are hundreds of imaginatively-named candlestick patterns that you will find with an online search including Abandoned Baby, Dark Cloud Cover, Downside Tasuki Gap,
Dragonfly, Morning Star, Evening Star, Falling Three Methods, Harami, Stick Sandwich, Three Black Crows, Three White Soldiers, and many more. Believe me, I did not make any of these names up. These candlestick patterns are really out there. As intriguing as their names might be, many of them, in my opinion, are useless and confusing. They’re exceptionally arbitrary and fanciful. The biggest problem with fancy chart patterns is, as Dr. Alexander Elder describes it, “wishful thinking”. You can find yourself identifying bullish or bearish patterns depending on whether you are in a mood to buy or sell. If you’re in a mood to buy, you will find a bullish pattern, eventually, somewhere. If you feel like selling short, you’ll “recognize” somewhere on your chart a bearish pattern. I am skeptical about even the most famous of these patterns. Accordingly, I won’t discuss these types of patterns in this book. Instead, in the following chapter, I introduce a day trading strategy based on a simple formation: the ABCD Pattern.