8 Rules For Successfully Trading Candlestick Formations

The last 4 blog posts have taught some of the major candle patterns worth knowing as a forex trader.  And with 8 posts in the past week about candlesticks, we're almost ready to move on to support and resistance.

As a wrap up for now (there's more to learn about japanese candlesticks later), I want to give you some rules for trading candlestick formations.

No matter what forex candlestick formation or other indicator you are basing your trade on, you should follow several rules to ensure that you are making sound judgments when you are trading, that you are trading based on educated reasons and always while practicing sound equity management.

These rules apply specifically if you are trading a morning star , evening star , tweezer top , or tweezer bottom candlestick pattern:

1. Find all of your support and resistance lines.
2. Find and draw all of your trendlines.
3. Find a convergence (a location where there is more than one reason for the market to bounce, such as a trendline or a Fibonacci sequence).
4. Trade in the direction of the trend ("the trend is your friend").
5. Wait to trade until the market bounces at the convergence to make your trade.
6. Buy at the opening of the next candle after the morning star or tweezer bottom has fully formed. Sell at the opening of the next candle after the evening star or tweezer top has fully formed.
7. Set your protective stop loss order at the last level or resistance (if you are trading an evening star or a tweezer top) or at the last level of support (if you are trading a morning star or tweezer bottom).
8. Do not trade morning stars (evening stars) or tweezer tops (tweezer bottoms) if prices are in consolidation (the rapid forex blog will discuss this in more detail in future blog posts).

In my next blog post, I'm going to start explaining support and resistance (this is the real meat-and-potatoes of forex trading).

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