Spotting Trend Reversals Using Candlesticks

[TAking]

Anytime you have a breakout from consolidation and a new trend, you like to see volume and a nice green candlestick bar at the breakout. This indicates momentum and will push prices higher.

However, one when a tall green candlestick bar appears at the end of a trend, this is usually a clue that a top is in place. You can then look for a reversal and a short opportunity. If you are in a position and see a 1-minute wonder (tall green bar) it is usually a good sign to take profits or tighten your stops.

A method to determine if a retracement will fail or not is to look at range expansion in candlesticks as well. If the candlestick on a reversal shows range expansion, this is an early sign of a trend failure. There is momentum and panic in that red bar.

Doji's are key candestick patterns that predict a turn of events. The market is undecided on which direction to go. Tony Crabel descibed the doji as a narrow day or a NR7. A NR7 is a day in which the range is narrower than the previous 6 days. Similar to the idea of contracting bollinger bands, you can expect prices to breakout in either direction.

[amz]

Do you use volume to determine whether the pullback will be shallow or deep? Pullbacks with greater volume tend to be failures while shallow volume indicate a continuation of the trend.

[Soultrader]

Originally Posted by amz Do you use volume to determine whether the pullback will be shallow or deep? Pullbacks with greater volume tend to be failures while shallow volume indicate a continuation of the trend.

In a fast moving markets, one minute wonder bars work better than volume. This is because analyzing volume relative to uptrend and pullbacks are more hindsight.

Of course, volume is important as well.

[connor]

I use trend reversals with candlesticks on the YM. What works best for me is a 3 min chart and use either double bottoms/tops and engulfments. I use the MACD and volume. MACD shows me where the trend is. My trades are ususally on the macd cross. It's a 3-bar method. The first bar is the base, the 2nd bar is the signal and the 3rd bar is the profit bar.