The Harami pattern is composed of two candles. The body of the first candle is the same color as the current trend, normally black or red for a downtrending market and white or green for an uptrending market. The first candle of the pattern has a long body, the second candles body is shorter. The open and the close of the second candle occurs inside the open and the close of the first candle. The presence of an Harami indicates that a trend may be over.

Because the harami indicates that the trend could be reversing, it signals that it might be a good time to enter into a trading position in line with the reversal. The smaller the second candlestick, the more likely the reversal. In the case of the bullish harami; the higher the second candle closes up on the first candle the more likely the reversal has occured. For the bearish harami, the opposite is the case; the lower the second candle closes down on the first, the more likely the reversal.

The Bullish Harami (bearish Harami is exact opposite)

These patterns need confirmation and should not be seen as a complete reversal. Unless you are a very aggressive trader, a confirmation of the reversal should be seen before committing to a trade.

This article does not represent an in depth study of this pattern, so I would suggest further study before using it in your trading.

The Doji is one of the most important candle signals of all and the only one that looks the same on both Candlestick and Bar charts.

There are many versions of the Doji, but all of them rely on the fact that the open and close are virtually equal. What happens in between decides the type of Doji and has a bearing on the strength of the signal. The length of the shadows will indicate the degree of activity. If the tails are long it indicates volatility; if the tails are short it indicates consolidation.

If the Doji has a large movement both above and below the body it is called a “Long-Legged Doji”; movement only above the body is called a “Gravestone Doji” and indicates the bulls have put up a good fight but the bears have pushed the price back down to its open; movement only below the body is called a “Dragonfly Doji” and indicates the opposite of the “Gravestone Doji”. Each one has it’s own particular meaning and is stronger when it appears in certain positions.

The Doji

The Doji appears in a number of other Candlestick Patterns including the “Star” patterns. It is a very powerful indicator especially when used in conjunction with selected western indicators.

The Doji indicates indecision on the part of both buyers and sellers and in most cases heralds a trend reversal. When you see a Doji on an uptrend, do not ignore it, particularly when it gaps up from the last close. Check your indicators and look for an overbought signal. The chances of a reversal are very high.

If the Doji appears during a downtrend, the indicators need to be showing an oversold position. A bullish confirmation signal will be required before making any commitment to a trade in this case.

I know of traders who base their trading decisions almost exclusively on the Doji signal. But in my opinion that is a very dangerous thing to do.

This article does not represent an in depth study of this pattern, so I would suggest further study before using it in your trading.

The reversal signal is the first thing you need to be looking for when planning a new trade. As their name implies; they signal a reversal in a market trend. A great many fortunes have been made by mastering the skills to spot a trend reversal. It is the stock in trade, excuse the pun, of the Day Trader.

You, as a Day Trader will make your trade as the market hits a high or low and the signals indicate a reversal. You may want to see this as having occurred previously if you want to jump on to a continuing trend or you may want to wait for a new trend reversal to occur before placing your trade. In any case your trades will be placed as close to a high or low as possible and profits taken as you climb or fall to new lows or highs.

Take a look at any candlestick chart and look for large changes in trend. You are looking for high peaks and deep troughs to start with. It makes it easier to see the reversals. Now, try to identify the signals that would have warned you of this impending change. A good charting system that has the added bonus of being completely free, is BigCharts. The charts are clear and easy to read. Make sure you choose “Candlesticks” as the chart style option in the setup menu on the left of the interactive chart section.

If you can master this technique then you can gain runs of many points in each direction that will accumulate a very nice profit. Trade regularly like this and your income will explode.

The important thing here is to learn how to identify the reversal signals. Just a handful will give you the necessary tools to make your trading decisions. Combine those with the selected western indicators and you will be a force to be reckoned with!

But, remember; its not just your signal strategy that accounts for your success. In fact its only around 10% of the skills you need to be successful. The other 90% is discipline and your frame of mind. See my other articles for more about this aspect of trading.

As I promised there are changes happening already – there is a new article posted today regarding the way Candlestick Patterns can reflect investor sentiment you can find that article here or you can also find it filed under “Learn To Trade” in the navigation bar above.

It’s an article well worth reading and can help you focus on your trading efforts.

All the best

Steve

The markets exist to facilitate trading and are driven by floor traders. These are the guys who work the pits every trading day regardless of whether the markets are volatile or not. Just like the circle of the economy, if there is no movement the markets will die and no money will be made.

Therefore, it is important to understand that the perception of what is happening in a market may sometimes have very little to do with actual influences of market news and world events.

In fact I would go further and say that too much fundamental analysis of individual stocks and commodities can often confuse the situation. That’s not to disrespect the work of trained fundamental analysts. I just don’t buy into it myself. I personally do not read any financial magazines or publications. I rely totally on the candlestick patterns to inform me of investor opinion at any given time.

That is the key to this technique; understanding what the majority of investors are feeling and knowing how that sentiment is driving the markets. It is the majority’s reaction to what takes place in the pit that drives an instrument up or down. It is investors perception, fear and greed that will give momentum to a given markets movement.

That is not to say that world events have no impact at all. Take the discovery of BSE in one animal in Washington State, a year or so back, for example. The effect on Live Cattle and Feeder Cattle prices was overwhelming. But this sudden collapse of the market did not take place for almost 24 hours after the news broke! The wise had already closed long positions and immediately gone short. Many fortunes were made over those few days of trading. But, many more fortunes were lost.

A good working knowledge of Candlestick analysis would have warned you of the sudden selling activity and ensured you were correctly positioned for that rare opportunity.

The candlestick patterns will, at the very least tell you it’s time to get out of a trade. If it’s a false alarm then you can always get back in with the loss of a few points instead of the loss of your shirt!

A glance with a trained eye at a candlestick chart can immediately alert you to sudden changes in investor opinions. The very anatomy of a candlestick shouts bull or bear. By familiarising yourself with a handful of reversal patterns you can see and predict the actions of the majority of investors. You won’t always get it right, but as long as your exceeding 75% accuracy then you will be making very decent profits.

The Pit

I hear so many people say ‘I can’t trade, it doesn’t work for me. I’ve tried every system going’. Let me tell you right now, anyone can trade.

It’s just a matter of having the discipline to learn how to do it. Some people pick it up quicker than others. Another key point lies in the previous comment; ‘I’ve tried every system going’, heres why:

There’s a huge difference between jumping from one trading technique to another like a kid in a candy store and developing a strategy that will make you a good trader and therefore a rich trader.

That’s what we are going to talk a bit about today. Creating a strategy that will have your trading bank bulging at the seams each and every week.

Not system hopping. Not jumping on the bandwagon of the latest killer system to hit your mailbox. Not running haphazardly through the streets of the markets with no plan or purpose. Clear, strategic actions with one goal in mind …

… to bring in more and more significant winning trades to your trading bank and therefore your bank account.

Now, first off. I’m not a motivational speaker. I’m not going to pump you up and get you excited with an unrealistic set of dreams. Unfortunately for most people life isn’t ideal. However, if you’ll just follow these simple principles I am going to share with you today, you CAN see a tremendous amount of profit in your trading activities. That’s a fact.

Principle #1:

Don’t Give Up Without a Good Reason. The first thing you need to understand is that Rome wasn’t built in a day. Translation: Your trading success isn’t going to happen overnight. Too many people think that buying a manual and opening a trading account is some kind of magic potion that turns anyone into a six-figure income trader within days. It doesn’t happen that way – and dont listen to anyone who tells you it does!

What tends to happen in terms of online trading is this: A new trader buys a manual either online or from a mail shot and plows into it like it’s the Holy Grail of trading success. They have unrealistic expectations of earning a massive amount of money in the first month and they get discouraged when that first trade nets them £10.00 or worse still loses them £100. They dump the system and move on to the next one, again looking for the Holy Grail. Or they quit altogether. Either way, they lose.

The first thing you need to understand is that anything worth obtaining is worth investing in. You’ve got to stick with it. The most successful traders are typically those who put in the most time, effort, committment, discipline and who understand that it takes time to learn any skill, and thats exactly what this is – a skill. So stick with it.

Principle #2:

Set Reasonable, Reachable Goals. Having now realised it takes some time to build a profitable trading business… don’t despair. Don’t be discouraged, just be realistic. Think of all the successful traders you know or have heard of – none of them became successes in the first few weeks. And yet, each of them RIGHT NOW are pulling in full-time incomes from their trading. The key is to simply take your time.

Set small goals that you can reach each day. Arm yourself with a plan and take small achievable steps until you reach that goal. ‘A journey of a 1000 miles begins with one small step’ a well known proverb but so very applicable to this business. I assure you, with proper planning and discipline, you WILL be successful.

You’ve got to make that first £25.00 before you can make that first million. Set reasonable, reachable goals so you don’t get discouraged along the way.

How much do you really NEED to be financially free? How much do you WANT to be earning each month? what will that figure be in 6 months? How about a year? Ok, you have the numbers, now what will it take to get there? Don’t guess, get your calculator and tap it all out. If you are 60% accurate on your trades and you get X amount per trade, how many trades will it take?

So, you need X number of trades. How will you get them? Will you focus on intraday trading across the indices? Good, thats a start.

What else? Are you only able to trade end of day? How many markets do you need to trade to achieve your goal?

You have to have a plan. Set action steps to reach each of your goals.

Principle #3:

Take one step at a time. Now, the ultimate goal is to have a trading bank big enough to allow you to make one or two trades per week or month and earnearn enough from that to achieve your goals. That would be incredible wouldn’t it?

But, to get there, you’ve got to get your trading strategy nailed down. Find a market that will provide you with consistent trades each day whether it be intraday or end of day trading that suits you. I would recommend the FTSE, CAC, and DAX for the European markets, and the DOW, S&P, and NASDAQ for the US markets. This will allow a total of 6 trades per day for end of day trading and potentially any number of trades for the intraday approach. Not all markets will yield a trade each and every day. So, when taking stock of your performance, make sure you take an overall view over, say, a week.

But, having said that, don’t try and run before you can walk. Learn the nuances of one market at a time and get comfortable with your strategy before moving onto the next one. Thats step one.

Don’t try to juggle six balls until you can throw and catch the first one.

After you are happy with the results you are getting from your first market, it’s time to branch out and add more to your lineup.

Principle #4:

Remember to Grow While You Go. It’s a never-ending process. Keep practicing and learning. The more trades you can make, the better. Even the most successful of traders will admit they are always learning and they still make mistakes. The difference is they are skilled enough to minimise the effects of those mistakes.

Commitment, discipline and PRACTICE are your keywords for this business. Don’t be afraid to lose. it’s a cost of running your business. Each time you make a losing trade, analyse it and find out honestly, if it was the fault of your system, one of the times when the patterns just didn’t pan out, or if it really comes down to a lack of discipline on your part. Be honest with yourself. If it was your fault – no one cares except you. If you lie to yourself the only loser is you. Learn by your mistakes and keep a note of every trade you ever make and why you made it. Be brutally honest with it. After all, it’s your dreams that depend on it.

Never chase a trade. If your losing, close out the trade, take a step back and wait until your triggers show again. Trade what you see, not what you would like to see.

I hope these thoughts and principles help you, in some way, to become a better trader.