I think it was “Professor Harold Hill” in Meredith Willson’s “The Music Man” who said “You Gotta Know the Territory.” That was never more true than in trading the markets; and in that respect it has never been more true that in order to trade in the markets successfully you need to know the 15 or so major Japanese Candlestick Reversal patterns. The great beauty of the Candlesticks is that they have an uncanny ability to forecast major reversals of trend. Most traders would love to be able to get aboard a trend at its inception, if only they could figure out a way to do it. Well, the way to do it exists. Here are a couple of the more aggressive Candlestick charting techniques.

Here’s one: Upon the emergence of a strong “Hammer” reversal pattern at the end of a long downtrend, especially if the Hammer is also an “Abandoned Baby Bottom” (don’t laugh; it’s a recognized, legitimate reversal pattern), some traders will enter a Long position before the close of trading that same day. In the case of a strong Inverted Hammer in the same situation, some traders will immediately enter a Long position upon opening the next day, if the market has opened higher. In the case of an Evening Star, if the third bar (a black bar) is especially strong, some traders will enter into a Short position before the end of the trading day of the third bar.

Not all traders are gaited to be that aggressive. Some will wait until a trend has been established; but they run the risk (as always) that the trend will reverse the moment they make a move. The lesson to be learned is this: never take a position based on Candlestick evidence alone. Combine forces with other Indicators so that you will have a more complete picture.

The sheer number of Candlestick Charting Techniques abroad must be infinite. Develop and use a system and risk management which suits your own trading style and personality. And never risk more than you can afford to lose.