How To Beat The Market With The One Power Candlestick Pattern To Rule Them All
A hammer can be a pretty handy tool, ask anyone from a construction worker to a farmer and even Thor. It turns out that hammer candlestick formations are also very handy when it comes to trading the markets, especially binary options trading. In fact, it is the most profitable candlestick pattern for Forex and binary options.
I recently came across a video about “candlestick math” and since the original video is over an hour long, I decided to give you a shorter version that cuts all the fluff and still gets to all the good stuff!
These are the candlestick patterns that are deemed to be the most reliable and the most profitable candlestick patterns by traders, whether it be Forex, stocks or indices:
- Harami Candlestick Pattern
- Hammer Candlestick Pattern/ Shooting Star Candlestick Pattern
- Engulfing Candlestick Pattern
- Piercing Candlestick Pattern/ Dark Cloud Candlestick Pattern
These are all strong bullish candlestick patterns when found at the end of a bearish downward move:
Okay, so while you’re still trying to figure out what the heck is going on and how to remember those patterns, what does it actually mean? Well, what that means is if the market has moved down and you see one of these close to a support level, you should expect the market to start moving up again.
And these are their equivalent bearish candlestick patterns that are strong when found at the end of a bullish upward move:
Just like the bullish patterns mentioned previously, these bearish patterns are also part of the small group that form the most profitable candlestick patterns. I must admit, the “Piercing” and “Dark Cloud” patterns were always the ones that caught me by surprise, but they are pretty good at predicting where the market is going to go next. The problem with all this is that it is great information, but I know it can be a little overwhelming too!
That’s a lot to remember, so let’s just go with the hammer candlestick pattern. What? Can we do that? What about those other awesome patterns that are so strong at predicting the market?
Candlestick Math Makes It Easy
The really cool thing is that the hammer candlestick pattern is all we need. Yup, you read that right. When the candles for the Harami, Engulfing and Piercing candlestick patterns are combined using some candlestick math, they all end up being hammer candlestick patterns on one time frame higher. That is why the hammer candlestick pattern is ultimately the most profitable candlestick pattern for Forex, binary options and stocks.
This is what I mean – these end up all being bullish hammer candlestick patterns:
Look at that!!! They’re really all just Hammers if you combine them in your head by doubling-up the bars! That makes it a whole lot simpler to use and to remember, doesn’t it? The most profitable candlestick pattern is also the easiest to spot and remember.
Remember that a candle body consists of the open and closing prices, and in this case, we are combining two candles, and the dotted lines indicate the opening and closing prices of the first and second candles, respectively. When they are combined, they all end up being hammer candlestick patterns. Using the power of candlestick match is pretty cool!
Still a bit confused? Okay, so take the STARTING level of the first bar, and the ENDING level of the second bar. Now you’re going to create a new bar in your head. The new bar consists of the starting level of the first and the ending level of the second, and they form a hammer. Awesome and easy!
And here we have the reverse, the combined bearish candlestick patterns:
The great thing about these patterns are that they all clearly show the market movement and struggle between the bulls and bears in the market. For the bullish candles the market moved down initially, and then the bulls took over and pushed the price back up. It means that there is a lot more upward pressure in the market than downward, and when you combine that with the fact that you are looking at market extremes where prices are likely to reverse in any case, you get a strong signal.
The most profitable candlestick patterns are the ones that you can read easily, that tell you what the market is doing, and where it is going.
Bollinger Bands and Hammers
Here are some examples of bearish hammers taken straight off real charts, these also referred to as inverse hammer or shooting star candlestick patterns.
One of the easiest ways of determining if you are at a point where the market is at a potential extreme is to look at Bollinger bands. Typically when prices are outside of the outer Bollinger bands, they are either in an area where they are trending or going to reverse soon.
Bollinger bands measure how for prices are deviating from the standard, so although it is not entirely scientifically two standard deviations from the norm, it is usually close to the outer 20% of recent price movement.
When you combine that, with the fact that we have a hammer-based pattern where we clearly had the bulls and bears fighting for supremacy in the market, we know that we have a very good potential trend reversal.
In some cases, the price reversal might be short-lived, but for Binary Options trading, that is not a problem, as long as you get the direction correct. Another little trick you can use here in cases where the market is obviously ranging, you will see that we had about three candlesticks before it hits the other side of the Bollinger bands, so we could expect it to take roughly the same time to complete the reversal – which it does.
Here we have a lot of noise in the market, but the moment we see hammer, we know that the market will move up.
Realizing that these candlestick patterns are basically just different versions of the hammer candlestick pattern, makes it much easier to identify what the market is doing. It also makes it a lot clearer why they are the most profitable candlestick patterns. These candlestick patterns such as the dark cloud cover and piercing candlestick patterns act to indicate market reversal points, giving you an edge in your trading.
Hopefully this has helped you to make more sense out of candlestick patterns and how to identify the most profitable candlestick patterns and how to use them in your trading! Trade easy!