Now that we discussed the what these candlestick patterns or formations can look like (
click here for that thread), we'll now discuss
HOW to use what you've just studied.
There are a few schools of thought of how to use candlestick analysis. The most traditional way is to find the end of a trend (aka counter-trend). In other words, candlesticks can visually show the
possible end of a trend. In my experience, I have found that candlestick analysis usually will signal the end of a trend; however, a few signals may FAIL before one WORKS. That's part of the game and a risk you have to be willing to accept.
The other important consideration here is how you define a trend and then how you define a counter-trend trade. For example, in day-trading the ES, I personally look for "counter-trend" trades, but the "trend" could literally be a small "micro'" trend. In other words, in my day-trading biz, I use the candlesticks to help show the possible end of one of the many, small "micro" trends that appear throughout the day, every day. I think that's what so powerful about candlestick analysis - while the majority of books, websites, etc. are going to talk about counter-trend on a daily chart, I think the candles can help quite a bit intra-day.
So in the purest form, candlesticks by themselves are meant to show the possible end of a trend. The other key here is what other indicators, if any, you use to aid you in recognizing a candlestick signal. For example, Tin has mentioned his use of volume in candlestick analysis.
And the last consideration for today is whether you use candlestick analysis as the PRIMARY or SECONDARY use in your trading plan. Again, many schools of thought here. I will add this piece of advice after having been 'schooled' by the markets over and over and over again....
I would highly recommend you use something with your candlestick analysis, even if it's as simple as high volume, as Tin has mentioned previously. There's obviously more indicators out there than I could possibly imagine, so perhaps the combo is right in front of you, if you just look hard enough.
Good trading!