Few assumptions specific to candlesticks

 Before we jump in and start learning about the patterns, there are few more assumptions that we need to keep in mind. These assumptions are specific to candlesticks. Do pay a lot of attention to these assumptions as we will keep referring back to these assumptions quite often later.

At this stage, these assumptions may not be very clear to you. I will explain them in greater detail as and when we proceed. However, do keep these assumptions in the back of your mind:

Buy strength and sell weakness – 
Strength is represented by a bullish (blue) candle and weakness by a bearish (red) candle. Hence whenever you are buying ensure it is a blue candle day and whenever you are selling, ensure it’s a red candle day.

Be flexible with patterns (quantify and verify) – 
While the textbook definition of a pattern could state certain criteria, there could be minor variations to the pattern owing to market conditions. So one needs to be a bit flexible. However one needs to be flexible within limits, and hence it is required to always quantify the flexibility.

Look for a prior trend – If you are looking at a bullish pattern, the prior trend should be bearish and likewise, if you are looking for a bearish pattern, the prior trend should be bullish.

Key takeaways 
1.  History tends to repeat itself – we modified this assumption by adding the factor angle
2.  Candlestick patterns can be broken down into single and multiple candlesticks patterns 
3.  There are three important assumptions specific to candlestick patterns
      I) Buy strength and sell weakness 
      II) Be flexible – quantify and verify 
      III) Look for a prior trend.










 
Location: India

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