Yesterday, I talked about using technical indicators to know when you have a good short-sale setup.
And one I mentioned to look for as a sign of buyer exhaustion was the reversal candlestick.
Candlesticks are great for short selling but they’re extremely useful for all types of trades.
My past blogs have discussed the Red Candle Theory (RCT) and others
But today, I want to talk about four more candlestick patterns: two you should be looking for, and two you need to avoid.
Table of Contents
Patterns, Patterns, Patterns
What I love about candlestick patterns is that they repeat, they repeat, and they repeat again…
And we’re always on the lookout for reliable setups that have proven themselves over history.
So today, I’m giving you two bullish candlestick patterns that should be on your radar every single day…
and two ugly setups that I constantly see luring in new traders.
And pay close attention to the second part of my lesson because knowing what not to trade is just as important as knowing what to trade.
And in today’s insanely busy market, if you can learn to spot bad setups and avoid them, you’ll save yourself a lot of time and tons of unnecessary losses.
Pattern #1: The Bullish Uptrending Chart
A stock consolidates for a few months or so, then breaks out with high volume and forms a big green daily candle.
After that, it just grinds higher, putting in higher lows and higher highs.
A great example?
Oklo Inc. (NASDAQ: OKLO). You may know this name because it’s on my nuclear energy sector watchlist.
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OKLO Inc. (NASDAQ: OKLO)
OKLO 6-Month, 1-Day Candles Chart; SteadyTrade
It had a long period of consolidation and then a breakout with volume.
From there, it’s been in a steady uptrend for the last month and has gained over 100% in the process!
Pattern #2: The Consolidation Breakout
With this one, you’ll see a stock put in a high-volume green candle, then trade sideways in a tight consolidation range.
It’s holding its gains and buyers are stepping in…
We call that “coiling up” and waiting for the next move.
It gaps up, consolidates, then boom! Another breakout.
The best part about this setup?
You can set price alerts so you don’t have to watch it all day.
Just wait for the breakout level to trigger, then take your shot with a tight stop loss in case it fails.
As always, not every trade works, but this setup repeats itself over and over.
To set alerts and spot the signs of a breakout like the ones above, the first thing you need is a great trading platform.
It should feature real-time data, charting, technical indicators, and more.
My top pick, and the one I use every day, is StocksToTrade.
It includes everything mentioned above…PLUS, right now, you can get two weeks of both the STT platform and our Breaking News Chat service for $17.
Grab your 14-day StocksToTrade + Breaking News Chat trial today for only $17!
Pattern #1 to Avoid: The Long-Term Downtrending Chart
Avoid this at all costs…I can’t stress this enough.
If a stock has been grinding lower for months, don’t touch it.
If every green candle gets slammed back down, don’t go near it. These are called “dead cat bounces,” and we don’t like them.
Until the stock proves it can hold gains and trend higher, it’s not worth your time.
Pattern #2 to Avoid: Fake Spikes That Trap Traders
This one is sneaky.
A stock spikes hard… but then fades all day and closes on the lows.
The daily chart is littered with doji candles. Doji candles indicate indecision and have a very small trading range with virtually equal open and closing prices.
Every time a stock like this runs, it gives back most of its gains. Don’t be fooled by these “one and done”s.
Of course, you might win one of these here and there. But more often than not, these stocks will give you frustrating losses.
If a stock can’t post multiple strong green days, avoid it. It’s a low-probability setup.
My Final Thoughts…
There are good candle setups and bad candle setups.
Focus on:
🔹 Bullish uptrending charts
🔹 Consolidation breakout charts
And avoid:
🔹 Long-term downtrending stocks
🔹 “One and done” fake spikers
Avoid the junk, focus on high-quality setups, and I guarantee you’ll be a better trader.
For more trading strategies and advice, join our StocksToTrade community.
We have tons of free live webinars that run all day and offer trading tips and tricks, info on our Oracle trading system, and other valuable training.
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade