Partner Center Find a Broker

Here are some common mistakes that new traders often make when using Japanese candlesticks.

1. You try to find meaning in EVERY candlestick that appears on the chart.

A lot of the time, markets are “noisy.” Not every candlestick useful when thinking about future price movements.

Instead of looking at every candlestick, focus on the ones where the price is currently trading near important support and resistance levels.

So first identify where you think these levels are, and then start looking out for candlestick patterns.

2. Your imagination is too strong.

If you have to zoom in 500% or squint at the  Japanese candlestick chart because you think “you see something”, there’s probably nothing there.

You don’t have to try and assign a textbook label of candlestick formations you see.

Focus on finding evidence of strong buying pressure when you expect to buy, and evidence of strong selling pressure when you expect selling.

3. Your imagination is too weak.

Japanese candlestick patterns that are supposed to form after three candles based on textbook examples may actually end up forming over five candles.

Just because a three-candlestick pattern takes four candlesticks to form doesn’t invalidate the pattern.

The meaning is still the same. It’s more important to understand the price action behind the candlestick pattern than to simply memorize its standard form.

4. You forget the forest from the trees.

If you constantly just focus on shorter time frames like 5-minutes charts without stepping back and trying to look at the “bigger picture”, your trades will tend to get blindsided.

Try not to make your focus too narrow.

5. You don’t want for confirmation.

There are some candlestick patterns that are considered “self-confirming”, but many are not.

Make sure to wait until the candlestick closes and is fully formed before acting on a pattern.

Always wait for the right confirmation that the price is moving in the direction you’re expecting.

For example, if you see a Tweezer Bottom, it’s more prudent to wait and make sure that the candlestick after the dual candlestick pattern closes higher before going long.