Candlesticks patterns are important trend reversal and trend continuation signals. In the last post we talked about the Engulfing Pattern and how you can use it in a unique manner. If you have been trading this Engulfing Pattern then you must have noticed one thing. Most of the time this pattern is not working now. There is a huge problem now for retail traders. Most candlestick patterns as well as traditional technical indicators like the stochastic, MACD, RSI etc are no more giving reliable signals.
Their huge popularity has lowered reliability because they’ve been deconstructed by hedge funds and their algorithms. These well-funded players rely on lightning speed execution to trade against retail and traditional fund managers who execute technical analysis strategies found in popular texts. In other words, they use software to trap participants looking for the high odds bullish or bearish outcomes. However, reliable patterns continue to appear, allowing short- and long-term profit opportunities. In this post we are going to talk about a very powerful candlestick pattern that is known as the Three Line Strike Pattern.
As you can see in the above video, Bearish Three Line Strike Pattern forms when we have three bearish bars in which each bar forms consecutive lower lows. Then the fourth bar opens even lower than it reverses and goes all the way up to the fourth bar and closes above the first bar. So the fourth bar is a big outside bar that engulfs the first three bearish bars. According to research this pattern has got more than 85% accuracy meaning the buy signal generated by this bullish pattern is above 85% reliable. In the same manner, we have the Bullish Three Line Strike Pattern. This Three Line Strike Pattern has been discovered by Thomas Bulkowski.
In the same manner we have the Bullish Three Line Strike Pattern in which we have three bullish candles formed higher highs then there is a fourth candle that open above the three bullish candles and goes all the way down below the first bullish candle engulfing the 3 bullish candles. You can read in detail how this Bullish Three Line Strike Pattern works as explained by Thomas Bulkowski.
As said above in the opening paragraph of this post that many of the candlestick patterns and technical indicators are giving false signals as the signals generated by them are being used by hedge funds and their algorithms to trap the novice retail traders. So you should stop using traditional patterns and traditional strategies as all of these are being used to trap retail traders and hedge fund managers who are using them.
What you should do is stop remembering the names of these candlestick patterns. Instead you should focus more on the size of the candlestick, its wicks and the close. For example, if the size of the bullish candlestick is big, it means the bulls are firmly in control. In the same manner if the size of the bearish candlestick is big, it means the bears are firmly in control of the market and the sell off will continue. Similarly a large bearish candle with no or very small wicks is an indication that the downward momentum is strong. A close near the high or the low also shows strong momentum in that direction.