Hi, I am trying to understand more about candle combinations. I have the following case/example: The stock has a rising wedge pattern. Bought at 3.00 USD and want to sell at the top of the rising wedge at 4.00 USD. The stock is now in the middle, somewhere 3.50 USD. Then I see a big bearish engulfing candle (day 1). Next day, I stepped out just be sure. However end of the day (day 2) I see a bullish hammer candle. So here are my questions: 1. I stepped out mainly because of the bearish engulfing candle. I checked other indicators, but because they were not very positive so I decided to step out. So, my questions are which indicators or ideas do you apply to step out or not after a bearish engulfing candle? 2. If a bearish engulfing candle is followed by a bullish hammer is it a good decision to step in again? Or do you need more indicators/confirmation of a new candle of in this case day 3? In sum, I just want to know if anyone can help which steps one has to take after seeing a bearish candle. If you have to take action immediately or wait another day. Thanks.
Your approach is very frustrating isn't it? That's what happens when you rely too much on a candlestick telling you what to do. Candlestick patterns need to be analyzed in context. If you're determined to follow candlestick signals, then I'd study at least 3 candlestick books. I know this because I've sort of been where you are now. IMO to make this work, you need more knowledge on Support/Resistance, price action, trends, volume, recognizing normal/abnormal price levels, risk management. When you know all this, then you can look at a bearish engulfing and have a better idea if you should sell or hold. Not knowing, your candlestick just becomes a coin flip. I'm not saying candlesticks don't work, just that they are only one part of the analysis, and not at the top of the list.
...sure would like to see a pic of the chart you are working from. maybe look around here, you never know... "Trading an Engulfing Candle at Support & Resistance provides greater conviction." https://www.elitetrader.com/et/thre...t-right-here-baby.335635/page-10#post-5014575