How are candlestick patterns created?

All candlestick patterns are actually just representations of what we don't see. It could be the market's movement on the lower timeframe, and the candle is the sum of the timeframes you are observing.

Traders only use the pattern and try to stick to a pattern so that trading never knows why the candlestick pattern could form. But if you take a closer look at price behavior, the story will be completely different. For example, when you see a bearish pinbar candle on the chart, at first glance you think it is a bearish reversal signal. But actually, if you look at the candles on a lower timeframe, you will spot a different signal.


A pinbar candle formed after the price broke out successfully


But the price story is completely different when you look at the low timeframe

This is just an example, and it is not necessary to observe all candlestick patterns on low timeframes.

Candlestick pattern is nothing more than a name for Trader to recognize

Most candlestick theory books only teach traders how to trade based on that pattern, but rarely explain in detail why candlestick patterns might form.

How do you know if a pinbar or engulfing candle appears due to traders taking profits or losing traders?

Both actions above can trigger pinbar candles, but only one of them is likely to generate profits for you when trading. Nobody realizes this, no textbook delves to this extent, so trade courses or teachers all think that all candlestick patterns are the same.


Look at the bearish pinbar candle on the chart (where the arrow is pointing down). Many Trader brothers know that such a falling pinbar candle is the result of traders placing sell orders. But if you look a little better, this reduced pinbar is popping up in trend. Furthermore, you also don't see any resistance appear on the chart. Such a "solitary" bearish pinbar candle is more likely because the big boy is taking profits rather than entering a sell order. There is no way for you to spot this if you just stereotyped the candlestick pattern when trading the market.

This is similar to the other candlestick patterns you see in trade books. There are more than a dozen similar candlestick patterns. While there are times when you can make money trading with those candlestick patterns, you won't be able to succeed because you can't discern which candlestick patterns are more likely to reverse.

In short, not all candlestick patterns are the same, some will be better than others. The problem is not the name of the model, but the reason why they form. And more importantly, in the dozens of candlestick patterns you can learn, you only need two candlestick patterns, the first one is the pinbar candle, the other one is the engulfing candle (bullish engulfing, bearish engulfing).