Back to Basic

Afraid to Pull the Trigger? Here’s Why (and How to Fix It)

Ever sat in front of your screen, finger hovering over the buy button, heart pounding like you’re about to defuse a bomb? Yeah, me too. It’s called “Afraid to Trade” syndrome, and it’s the silent killer of retail traders—especially those with small accounts.

Why? Because hesitation is expensive. The market doesn’t wait for you to get comfortable. If you freeze up, the move you’ve been waiting for will leave without you. Worse? You’ll probably jump in late, chasing price like a panicked tourist running after a departing train. Not a good look.

So, let’s talk about why this happens and, more importantly, how to fix it.

Why Are You Afraid to Trade?

1. You’re Overvaluing Every Trade

Let’s be real, when your account is small, every trade feels like it matters more. You don’t have the luxury of deep pockets, so every loss stings like a betrayal. But that mindset turns each decision into an emotional rollercoaster.

Fix it:

Think in probabilities. No single trade defines your success. A good strategy plays out over dozens, even hundreds of trades. Your goal? Execute well, manage risk, and let the math do its thing.

2. You Haven’t Truly Accepted Risk

Saying “I accept risk” and actually accepting risk are two different things. If the thought of losing makes your stomach tighten, you’re probably risking too much.

Fix it:

Lower your position size. Seriously. If your stop loss getting hit makes you want to punch a hole in your desk, your risk is too high. Scale it down until a loss feels like a paper cut, not a gunshot wound.

3. You Don’t Trust Your Strategy

When you hesitate, deep down, you don’t believe in what you’re doing. Maybe you haven’t backtested enough, or maybe you’ve been burned too many times. Either way, doubt is the enemy of execution.

Fix it:

Go back to the charts. Backtest your setups. Track your trades. Build confidence through data, not hope. If your setup is solid, your job is simple: execute it without hesitation.

I use Market Replay function of TradingView to test my strategies.

TradingView is my go-to platform for Live trading and Market Replay. It is cloud-based which means you can access from anywhere. And the ability to code in pine script opens up opportunities for traders to grow and profit. I am happy to recommend TradingView to traders at all levels.

4. You’re Chasing Perfection

News flash: no trade setup is 100% perfect. If you’re waiting for a flawless entry where risk is microscopic and profit is guaranteed, you’ll be waiting forever.

Fix it:

Accept imperfection. Edge, not certainty, makes money. Take high-probability setups and trust the process. If you lose? Fine. Next trade.

5. You’re Too Attached to Money

Trading with money you can’t afford to lose? Yeah, that’s a problem. If losing $50 on a micro lot trade feels like losing rent money, you’re in the wrong headspace.

Fix it:

Only trade with risk capital. If you’re depending on trading to pay bills, you’ll make emotional, fear-driven decisions. And fear-driven traders get eaten alive.

Practical Steps to Overcome Fear

Set a Daily “Pull the Trigger” Rule → Commit to taking X number of valid setups per day. No excuses.
Use a Trade Checklist → Define your setup criteria. If it checks out, you must take the trade.
Reduce Size Until You Feel Nothing → If fear is paralyzing, you’re trading too big.
Detach from Outcomes → Focus on execution. If the setup is there, take the trade. Win or lose, it’s just one step in a larger game.
Rewire Your Mindset → Winning traders aren’t fearless. They act despite fear because they know the long-term game.

Final Thought: Just Take the Damn Trade

Look, hesitation will kill your trading career faster than a bad setup ever could. Fear is natural, but letting it control you is optional. The only way through it? Trade. Make mistakes. Learn. Repeat.

Because the reality is, if you wait for fear to disappear, you’ll never trade at all.

So go on. Pull the trigger.

22 years of Trading: A Twitter Thread Worth Reading [2022]

by Gav

22 years of trading: A twitter theread worth reading

If you trade and are on Twitter, you have probably followed Tom (@Trader_Dante). Tom does not need any intro here. Go check out his tweets.

I found a recent thread tweeted by Tom which summarized his 22 years of trading. It is worth reading, for both experienced and new traders alike. The facts/rules that he mentioned, are not new. In most cases, you know them, understand them, but more often than not, failed to act on them.

You might already read the thread on Twitter. I am posting here just to keep a record and to ignore the noisy replies on the platform.

22 years trading

Here are some of the most important things I’ve learnt (Part 1/2):

1. There is often a huge difference between what you want to do and what you’re good at doing.

Some traders may want the excitement of scalping but don’t have the time or the mental agility. They may be better suited to another style.

Play to your strengths to find your niche.

2. To make it this business you’re in for the fight of your life.

And the biggest enemy is you.

3. If you desperately need to make money to pay the bills or support your family, get another job first.

Needing to make money with urgency puts huge pressure on a trader. This pressure is not conducive to making effective trading decisions.

4. If you want to hit the summit, then you’re going to have to make the climb.

Climbing takes a lot of hard work.

Your aim should be to take money from traders that haven’t put in the work you have and make sure that very few are putting in the level of work you are.

5. Capital is king.

Respect this and preserve it at all times.

If you do not have capital, you cannot trade.

If you cannot trade, you cannot win.

6. You need to know:

– What you want to see
– Where you want to see it
– When you want to see it

7. If you don’t know something, you need to make sure you do.

For example, if you see a large gap in your market and you wonder to yourself how many times gaps fill, stop wondering and gather the data.

This is how you can grow to make confident decisions.

8. You should try to enter the market as close as possible to where you are wrong on your trade idea.

9. You need to learn to forget about the great prices you could have traded at.

The only question that matters is: Should you enter, add or exit, right now?

10. R is not a static concept. It moves with the trade.

If you enter a trade with a 10 tick stop and a 100 tick target and are +90 with a stop at breakeven, you’re evolving R (Risk Reward Ratio) is 0.11. If you get stopped out, you have just lost 90 ticks.

There is no such thing as a free trade.

11. If you can’t look at a market and see who the weak hands are, the weak hand is probably you.

12. Finding and taking excellent trades is not the hard part.

The hard part is trying not to do anything stupid in between them.

13. Intuition comes from studying the market and watching it over a long period of time.

If you get a strong feeling about a market, even if you are not completely sure why, act on it. But know that feelings can be wrong and be quick to act if the market does not confirm it.

14. You need to grow a pair when you’re managing a trade.

The space is littered with traders calling tops and bottoms and taking a few ticks before micromanaging and getting out.

Don’t be one of them.

15. The market almost always tips its hand to which way it is going.

If you can’t see this, you haven’t watched it long enough.

16. The greatest opportunities, the ones that elevate your career massively, usually look very “risky”.

Have the guts to step up when you feel, deep down, that it is time.

Grow a pair and act decisively and don’t be a victim of the “if only I had…” mentality.

17. Keep your transactions to yourself. Do not boast about wins or lament losses to other people – especially those that do not trade themselves.

Most will call you lucky when you win and a fool when you lose. If you get consistent, they will only pester you to trade for them.

18. If you cannot adhere to the last rule and desperately feel the need to show someone where you got in a trade, make sure you’re out of it first.

Market turns occur when you screenshot open positions.

19. Work on finding the base level of risk that is right for you. To do this, you should know your metrics (win/loss percentage etc)

You can’t afford to bet the farm on a trade. But if you trade like a pussy, you will never have a farm to be in the first place.

20. Risk can and should be varied from the base level.

There are benefits to risking a fixed percentage per trade but there are times (and trades) when you should push the envelope.

If you do not understand when these times are, you do not have enough experience.

21. Many traders make a mistake and then compound it in frustration by jumping into an ill-considered position or betting too big etc. This is illogical: If you have a flat tyre, you don’t get out of the car and slash the other three. Don’t be a cunt.

22. It is a bad habit to make the same mistake twice.

It is unforgivable to make the same mistake a third time.

23. Emotions should be dealt with like with calories. Absorb them and then burn them off before you enter the next trade.

24. If you have a problem, the process to solve it is by asking yourself:

– What is the problem?
– Why do I have it?
– How will I solve it?

Many make the mistake of leaving out the second part. Without considering why you have a problem you cannot effectively solve it.

25. Journal everything you do.

Question everything you read.

Test every idea you have.

Compare multiple outcomes on trades. (Start with whether it’s a good idea to move to breakeven. Go onto whether it’s beneficial to take partials)

26. Take time off to recharge when you feel you need it.

Time is a great healer.

27. Money comes and money goes as you win and lose.

The only number that matters is the amount you leave the casino with when you retire.

28. The true cost of trading isn’t always limited to the money you think you’re risking, the education you pay for or the time you spend learning.

The true cost isn’t known at the start.

But one day, someone will bring you the bill and you’ll remember these words.

What is Mean Reversion Trading Strategy

by Gav 1 Comment

Like it or not, the market spends more time moving sideway than trending. Mean Reversion is the strategy that is made for choppy price action.

In this blog post, I want to show you what a Mean Reversion Trading Strategy and how to implement it in your trading.

Table Of Contents

What is Mean Reversion Trading Strategy
The Danger of Mean Reversion Trading
Components of a Mean Reversion Strategy
Examples of Mean Reversion Strategy Implementation
Closing Words
Try Tradingview Pro Charting Platform For 30 days

What is Mean Reversion Trading Strategy

Mean Reversion trading strategy is based on the concept that price tends to snap back to the mean or fair price.

Traders initiate trades when the market is deemed to be overextended. In other words, we trade the market that is well above or below their respective “fair value”.

In contrast to the trend-following strategy, Mean Reversion works well during the choppy and volatile market conditions. During this condition, we expect the price to snap back to mean quickly.

The Danger of Mean Reversion Trading

Mean reversion strategy traders often get killed when a new trend emerges. The market could continue moving without going back to the mean in an extended period of time.

Mean reversion traders get flushed out during the trending market.

Secondly, the mean reversion strategy requires a slightly wider stop loss. You need to give the position space to breathe before it snaps back to mean.

You can’t perfectly time the market. But you can manage your trade to deal with the change.

Mean Reversion could be a useful trading strategy if you manage your risk well.

Below, let’s look at some important components when designing a Mean Reversion trading strategy.

Components of a Mean Reversion Strategy

To design a mean reversion strategy, I always keep the following 4 components in mind.

#1 Fair Value

There are many ways to define the Fair Value of your trading strategy. A mean could be (but not limited to):

Volume Point of Control
Moving average (long term average price)
VWAP
Pivot Point

#2 Overextended zones

These are the areas that markets are oversold or overbought. Depending on the Fair value, the definition of the overextended zones varied.

Here are some examples for you to work on:

For Volume Point Control, value area high low could be used as overextended zones.
For Moving Average or VWAP, standard deviation bands could be used as overextended zones.
If the Pivot point is used as a mean, pivot support/resistance levels could be used as overextended zones.

These are not rules, but some examples for your reference. I hope you get the ideas.

#3 Entry Methods

There are a few entry methods traders could apply to enhance our odds of success. Candlesticks patterns, order flow analysis, or indicators divergence are some of the most popular entry methods.

The point is to find the exhaustion of price at the overextended zones for better entry timing.

#4 Exit points

Regardless of the indicator you use, you will encounter the situation where price keeps on moving in the extended direction without pulling back to the mean. The new trend has formed.

Just like all trading strategies, it is crucial to define the stop levels and profit-taking. As an example, you could use the ATR (Average True Range) for stop levels, and the Mean levels as profit taking points.

Examples of Mean Reversion Strategy Implementation

Here are a few mean reversion strategies you can study.

Bollinger Bands

Bollinger Bands is a popular indicator used to implement Mean Reversion strategy. Bollinger Bands are constructed by moving average and standard deviation bands.

A Simple strategy could be built using Bollinger Bands:

Moving Average as the mean (fair price)
Standard deviation bands as the overextended zones
To time the entry, RSI or Stochastics oversold and overbought zones could be used as triggers.

Keltner Channels

Keltner channels are very similar to Bollinger bands. It consists of an exponential moving average and average true range bands.

The implementation is similar to Bollinger Bands.

VWAP

VWAP is another popular technical indicator used for Mean Reversion trading strategy.

VWAP is constructed using a typical price and volume. To implement the Mean Reversion strategy, we can calculate standard deviation bands.

If you are a Tradingview user, make sure to check out my free VWAP standard deviation bands indicator.

Try Tradingview Pro Charting Platform For 30 days

Tradingview is my go-to FX charting and trading solution. I have done extensive coding and trading on the platform. I am happy to recommend them.

If you are interested in using Tradingview, you can try out the Pro membership FREE for 30 days. This is an excellent time to check out the powerful features of Tradingview charting.

Tradingview 30-day FREE Pro membership trial

Closing Words

We are always told to trade with the trend. It is true. But the fact is, the market spends more time moving sideways. Mean Reversion Trading strategy could fill the void.

Take the examples above, look deeper to see if it can fit into your trading systems.

If you are interested in learning more about trading, make sure to check out my Back to Basics of Trading series.

How to trade with ATR (Average True Range)

by Gav Leave a Comment

ATR (Average True Range) is one of the essential tools in my trading toolbox. It is not a holy grail, but it helps me to navigate the trading day and make trading decisions.

In this blog post, I want to go through details of the indicator and how I use them in my trading. Hopefully, it will help you to integrate into your trading system.

How To Trade With ATR

What is Average True Range (ATR)
How to calculate ATR
How does ATR work
Why use ATR
How to use ATR in Trading
How to trade with ATR – Closing words
Try Tradingview Pro Charting Platform For 30 days

What is Average True Range (ATR)

The Average True Range is a technical indicator that was first introduced by J.Welles Wilder.

The indicator does not indicate or predict market direction. Instead, ATR measures the degree of volatility.

Originally, it was introduced for the commodities market. It is now widely used in stocks, futures, and Forex markets.

To understand how the indicator could help you in the trading, let’s look into the logic of it.

How to calculate ATR

To understand the calculation of ATR, you must first understand the definition of True Range. After all, ATR is just the average of a series of True Ranges.

By definition, the true range is the greatest of the following:

How To Trade With ATR – True Range Definition

High for the period less the Low for the period
High for the period less the Close for the previous period
Close for the previous period and the Low for the current period

Take note that, we are comparing the absolute values of the above 3 calculations.

For a 14-period Average True Range,

Current ATR= [(Prior ATR x 13) + Current TR] / 14

Multiply previous 14-period ATR by 13
Add the current True Range value
Divide the total by 14

How does ATR work

# High ATR value

An expanding ATR indicates that there is an increase of volatility in the market. The range of the price bars are getting wider.

A reversal bar with increased ATR indicates the aggressiveness of the move. ATR is not directional. And expansion of ATR value might indicate selling or buying pressure.

A sharp move with a spike of ATR value is usually unsustainable.

#Low ATR value

A low ATR value indicates the narrow range of price bars. Market is moving sideways for a period of time.

An extended period of low ATR indicates consolidation.

Why use ATR

ATR reflects the volatility of the instrument.

Higher ATR figures represent higher volatility and the instrument with lower volatility has a lower ATR.

With the understanding of the volatility, it helps the trader to better manage an entry, stop loss, and profit-taking decisions.

Let’s put it this way.

In a volatile market condition, a tight stop is likely to be triggered before the position even has a chance to develop.

While during the lower volatility period, a wide stop would be a waste. It does not optimize the overall profitability of the trading strategy.

On the other hand, ATR also helps traders to better understand the profit potential of a system. In a less volatile market, a closer take-profit might be more efficient.

Try Tradingview Pro Charting Platform For 30 days

Tradingview is my go-to FX charting and trading solution. I have done extensive coding and trading on the platform. I am happy to recommend them.

If you are interested in using Tradingview, you can try out the Pro membership FREE for 30 days. This is an excellent time to check out the powerful features of Tradingview charting.

Tradingview 30-day FREE Pro membership trial

How to use ATR in Trading

There are two important notes you need to understand before start using ATR:

#1 It is a measurement of volatility

The most important thing you need to know is ATR does not measure or predict trend direction. Do not let others tell you otherwise.

It measures volatility.

#2 ATR is not a standalone indicator

Just like other indicators, ATR is not perfect. It should not be used as a standalone indicator that decides your entry, stop, and take-profit.

It should be used as a complement to your trading strategy. And most of the time, it is a great complement to a trading system.

Trailing Stop Placement

Trailing stop is a mechanism for you to exit a trade to either protect your profit or limit your loss.

If trailing stop is part of your trading system, ATR could be a great supplement for you.

As ATR measures the volatility of the market, it could be used to adjust the trailing stop.

Here is how you could use ATR for trailing stop:

When you are in a trade, check the current ATR reading
Multiply the ATR reading by 2
For Long position, stop loss = Entry- 2xATR
For short position, stop loss= Entry + 2xATR

It is a common suggestion to use 2xATR. It is not a magic number. It might not work for your market. But you get the idea here.

Give your position a breathing space by including current volatility into your stop loss order.

Daily Range Projection

Another idea to use ATR is to project the trading day’s extremes.

The idea is to use daily ATR values to project current day’s high and lows.

Here is the calculation

Calculate 20-day ATR up to yesterday’s close
Use current day’s High – 20-day ATR. This is the projected Low.
Use current day’s Low + 20-day ATR. This is the projected High.
These levels will change when the market makes a new high or new low.

The projected High and Low are the assumed extremes of the day. They could be treated as the day’s target or a trade location for counter trend trades.

How to trade with ATR – Closing words

Average True Range could be a useful tool for both swing trading and day trading alike. It offers traders another perspective on the market.

It tells you the volatility of the market. It helps to adjust trader’s expectations.

Again, average True Range is not a holy grail. Traders could benefit from it by integrating the indicator into a well-defined trading strategy.

Do you use ATR in your trading?

Do you have any questions or comments?

Leave me a line in the comment section. I am happy to help.

This post is part of my Back To the Basics of Trading series.

Linda Raschke’s 50 Time-tested trading rules

by Gav 11 Comments

Linda Raschke's Time-tested trading rules — Linda Raschke’s Time-tested trading rules

I read an article by Linda Bradford Raschke about Trading rules and wrote this blog post back in 2006. It is a long but great list. I have reviewed the blog post and publish it again, as I thought it is very useful to new traders.

Maybe you have already known these rules, but, maybe you are just violating them every other day. Maybe, It is time to review your trading rules.

Here are the rules I quoted from her article:

Linda Raschke’s Time-tested Trading Rules

Plan your trades. Trade your plan.
Keep records of your trading results.
Keep a positive attitude, no matter how much you lose.
Don’t take the market home.
Continually set higher trading goals.
Successful traders buy into bad news and sell into good news.
Successful traders are not afraid to buy high and sell low.
Successful traders have a well-scheduled planned time for studying the markets.
Successful traders isolate themselves from the opinions of others.
Continually strive for patience, perseverance, determination, and rational action.
Limit your losses – use stops!
Never cancel a stop loss order after you have placed it!
Place the stop at the time you make your trade.
Never get into the market because you are anxious because of waiting.
Avoid getting in or out of the market too often.
Losses make the trader studious – not profits. Take advantage of every loss to improve your knowledge of market action.
The most difficult task in speculation is not prediction but self-control. Successful trading is difficult and frustrating. You are the most important element in the equation for success.
Always discipline yourself by following a pre-determined set of rules.
Remember that a bear market will give back in one month what a bull market has taken three months to build.
Don’t ever allow a big winning trade to turn into a loser. Stop yourself out if the market moves against you 20% from your peak profit point.
You must have a program, you must know your program, and you must follow your program.
Expect and accept losses gracefully. Those who brood over losses always miss the next opportunity, which more than likely will be profitable.
Split your profits right down the middle and never risk more than 50% of them again in the market.
The key to successful trading is knowing yourself and your stress point.
The difference between winners and losers isn’t so much native ability as it is discipline exercised in avoiding mistakes.
In trading, as in fencing, there are the quick and the dead.
Speech may be silver but silence is golden. Traders with the golden touch do not talk about their success.
Dream big dreams and think tall. Very few people set goals too high. A man becomes what he thinks about all day long.
Accept failure as a step towards victory.
Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker! Don’t let ego and greed inhibit clear thinking and hard work.
One cannot do anything about yesterday. When one door closes, another door opens. The greater opportunity always lies through the open door.
The deepest secret for the trader is to subordinate his will to the will of the market. The market is the truth as it reflects all forces that bear upon it. As long as he recognizes this he is safe. When he ignores this, he is lost and doomed.
It’s much easier to put on a trade than to take it off.
If a market doesn’t do what you think it should do, get out.
Beware of large positions that can control your emotions. Don’t be overly aggressive with the market. Treat it gently by allowing your equity to grow steadily rather than in bursts.
Never add to a losing position.
Beware of trying to pick tops or bottoms.
You must believe in yourself and your judgment if you expect to make a living at this game.
In a narrow market, there is no sense in trying to anticipate what the next big movement is going to be – up or down.
A loss never bothers me after I take it. I forget it overnight. But being wrong and not taking the loss – that is what does the damage to the pocketbook and to the soul.
Never volunteer advice and never brag of your winnings.
Of all speculative blunders, there are few greater than selling what shows a profit and keeping what shows a loss.
Standing aside is a position.
It is better to be more interested in the market’s reaction to new information than in the piece of news itself.
If you don’t know who you are, the markets are an expensive place to find out.
In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word – Nobody! Thus the successful trader does not base moves on what supposedly will happen but reacts instead to what does happen.
Except in unusual circumstances, get in the habit of taking your profit too soon. Don’t torment yourself if a trade continues winning without you. Chances are it won’t continue long. If it does, console yourself by thinking of all the times when liquidating early reserved gains that you would have otherwise lost.
When the ship starts to sink, don’t pray – jump!
Lose your opinion – not your money.
Assimilate into your very bones a set of trading rules that works for you.

Time-tested trading rules – Closing Words

You don’t have to agree and follow the whole list, I don’t. However, there is wisdom in the list.

Trading is a simple but tough business. Keep it as simple as you can. Rules like these are useful to set your mindset right. Have the right mindset, clear routine, and self-discipline, your trading journey will be more enjoyable and, hopefully, profitable.

If you are new to trading, do check out my Back to Basics of trading series, and also the Resource page if you are looking for trading tools.

Which rule(s) is your favorite? Which one doesn’t sound right to you? Let’s discuss this in the comment section.

Try Tradingview Pro Charting Platform For 30 days

Tradingview is my go-to FX charting and trading solution. I have done extensive coding and trading on the platform. I am happy to recommend them.

If you are interested in using Tradingview, you can try out the Pro membership FREE for 30 days. This is an excellent time to check out the powerful features of Tradingview charting.

Tradingview 30-day FREE Pro membership trial

Most Useful Candlesticks Patterns

by Gav Leave a Comment

[Update 2020] I wrote this post back in 2006 when I was just starting day trading. I have decided to review and update this post. The materials presented in this post are still applicable and useful to beginner traders.

I am hitting the wall while working on backtesting programming. I decided to take a break and write a post about candlesticks stuffs that I have recently learned. There are just too many patterns of candlesticks. And I was confused. And I was pissed. And I gave up.

I know the value of candlesticks for day trading. With help from Dave, I am looking at a couple of useful patterns and trying to integrate into my backtesting program of the dummy system. I tried to search on the internet, books and I have sorted out these few valuable patterns.

14 Most Useful Candlesticks Patterns

Most Useful Candlesticks Patterns

Abandoned Baby
Doji Star
Kicking
Mat Hold
Matching Low
Morning Doji Star
Evening Doji Star
Evening Star
Morning Star
Three Inside Up
Three Outside Down
Three Inside Down
Three Outside Up
Dark Cloud Cover

Abandoned Baby

A long black day is followed by a Doji that gaps in the direction of the trend. Then a white day occurs gapping in the opposite direction with no overlapping shadows.

In a downtrend or within a pullback of an uptrend, the market gaps down but does not continue its downward movement. Instead, enough bulls step up to bring supply and demand back into equilibrium and the stock churns in place. This isn’t necessarily bullish, but it’s certainly less bearish. The pattern is confirmed by the next day’s gap up and rally.

Doji Star

A long black day is followed by a Doji that gaps in the direction of the trend. The shadows of the Doji should be short.

In a downtrend or within a pullback of an uptrend, the market gaps down but does not continue its downward movement. Instead enough bulls step up to bring supply and demand back into equilibrium and the stock churns in place. The halt of the downtrend signifies the possibility of a reversal, so confirmation is needed with a strong third day (preferably with volume behind it).

Kicking

A Black Marubuzo (open is the high of the day and the close is the low of the day) day is followed by a White Marubuzo (open is the low of the day and the close is the high of the day) day that gaps in the opposite direction.

The current trend is not very important with a bullish Kicking pattern. The fact that the stock can gap up and rally to close at its high is bullish regardless of the previous trend. Use volume on a white day to confirm the movement.

Mat Hold

A long white day in an uptrend is followed by a relatively small black day that gaps in the direction of the trend. The next two days continue the brief pullback and are small days that stay within the range of the first day. The fifth day is a long white day that closes above the close of the first day and continues the uptrend.

In an uptrend, a long white day is followed by a brief pullback (preferably on lightish volume). The fifth day simply continues the trend. The brief pullback is nothing more than a few days off for the bulls.

Matching Low

A long black day is followed by another black day with equivalent closes both days.

In a downtrend or during a pullback within an uptrend, a long black day occurs signaling the bears being in control. The stock gaps up the next day but then sells off to close at the same level as the previous day. The more times a stock can successfully test and hold a low, the higher the chance a reversal will occur once the seller become exhausted. Strength the following day with volume would confirm the pattern.

Morning Doji Star

A long black day is followed by a Doji that gaps in the direction of the trend. The third day is a white day which closes in the top half of the black day.

In a downtrend or during a pullback within an uptrend, the market gaps down but does not continue its downward movement. Instead enough bulls step up to bring supply and demand back into equilibrium and the stock churns in place. This is the bullish Doji Star formation. A subsequent follow through gap up that closes above the midpoint of the black day completes the Morning Doji Star and confirms the reversal.

Evening Doji Star

A long white day is followed by a Doji that gaps in the direction of the trend. The third day is a black day that closes in the bottom half of the white candle.

In an uptrend or within a bounce of a downtrend, the market gaps up but does not continue its upward movement. Instead enough bears step up to bring supply and demand back into equilibrium and the stock churns in place. This is the bearish Doji Star formation. A subsequent follow through gap down that closes below the midpoint of the white day completes the pattern and confirms the reversal.

Evening Star

A long white day is followed by a small body that gaps in the direction of the trend. The third day is a black day that closes in the bottom half of the white candle.

In an uptrend or within a bounce of a downtrend, the market gaps up but does not continue its upward movement. Instead enough bears step up to bring supply and demand back into equilibrium so a small body forms. A subsequent follow through gap down that closes below the midpoint of the white day completes the pattern and confirms the reversal.

Morning Star

A long black day is followed by a small day that gaps in the direction of the trend. The third day is a white day which closes in the top half of the black day.

In a downtrend or during a pullback within an uptrend, the market gaps down but enough buyers step in to halt the weakness. The lack of ability of the bears to press the issue indicates the downtrend may be weakening. The gap up and rally that closes the white day above the top half of the black day confirms the reversal if accomplished with a surge in volume.

Three Inside Up

A bullish Harami pattern is followed by a white day that has a higher close than the second day.

In a downtrend or during a pullback within an uptrend, a bullish Harami pattern forms. This pattern has low reliability, but when it is followed up with another white day, a reversal becomes much more probable ? especially when accompanied by volume.

Three Outside Down

A bearish Engulfing pattern is followed by a black day whose close is lower than the second day.

In an uptrend or within a bounce of a downtrend, a bearish Engulfing pattern forms. By itself this pattern has moderate reliability as a reversal indicator, but when the it is followed by another black day (preferably on strong volume), the overall pattern becomes much more reliable.

Three Inside Down

A bearish Harami pattern is followed by a black day whose close is lower than the second day.

In an uptrend or within a bounce of a downtrend, a bearish Harami forms. By itself this pattern has moderate reliability as a reversal pattern, but when followed by a weak day (preferably with a pick up in volume) the overall pattern becomes much more reliable.

Three Outside Up

A bullish Engulfing pattern is followed by a white day whose close is higher than the second day.

In a downtrend or during a pullback within an uptrend, a bullish Engulfing pattern forms. By itself the pattern has moderate reliability as a reversal indicator, but when the it is followed by another white day (preferably on strong volume), the overall pattern becomes much more reliable.

Dark Cloud Cover

A long white day is followed by a black day which gaps above the high of the white candle and then closes below the midpoint of the first day’s body.

In an uptrend or within a bounce of a downtrend, the stock gaps up and immediately encounters sellers who push the stock back down. This simply signifies the possibility of a reversal that is more reliable if the gap up occurs at resistance and the black day is accompanied by a surge in volume.

Most Useful Candlesticks Patterns – Closing Words

There you have it. My list of most useful candlesticks patterns for day trading.

However, bear in mind that these are not holy grails. The best way to use any market pattern is to play it with the context of the market.

Understand the context of the market, define your trade location, and look for your favorite chart or candlesticks patterns to play out.

If you are looking to learn more about trading, remember to check out the Back To Basics series of blog posts. I have compiled a list of articles that I feel are useful to beginners’ traders.

Also, feel free to check out the Resource page to see the tools I use in my trading.

That’s it.

Be a Better Trader, Today.