First of all we must know that any type of continuation begins with a breakout. We learnt about Fake breakouts and reversal. If the price moves towards the support / resistance and breaks about or below the S/R without any hesitation then it is Continuation Formation. As I said before, the price MUST breakout for Continuation. There are lot of types of candlestick patters which indicates Continuation Formations. Let us learn on few types which give us good win / loss ration. Please mind these continuations can happen on Horizontal level of S/R or Diagonal Line of S/R or Range Boundaries or Fibonacci Lines.
Breakout Congestion Continuation:
In the above picture assuming the blue line as Resistance Line, you can see a Green momentum candle break beautifully and then there is a hesitation candle or sandwich candle after that a solid green candle which shows the price moving upwards. This patters may happen at all support / resistance but this specially happens on RANGE BOUNDARIES. These are best suited at flat top or flat bottom triangles for best win/loss ratios.
Breakout Congestion Continuation patters is usually made up of 3 candlesticks just like it's name, 1 breakout, 1 congestion and 1 continuation candle stick. Very important thing we must see a full length breakout candle (small wicks and very long body) on the S/R line on diagonal or horizontal line. The Congestion Candle must be a small one preferably either doji or spinning top. Please keep in mind that this congestion candle must close above the resistance line or below the support line. It must never get below the resistance line or above the support line ever. It must show you that the market is remaining above the resistance level or below the support line. The continuation candle will be our trigger candle. We will trade on this candle.
We trade here exactly like we traded our reversal formations. We wait for the congestion bar to close. We place an entry order (2 lots) 5 pips above the congestion candle and stop loss will be at 5 pips below the congestion candle. Please don't try to trade aggressive way as the congestion candle will be very small in size that's the reason why we give stop loss little higher that the usual conservative way. We are going to close 50% of the trade at the closing of the first candle and the remaining after the second candle. Off-course we are going to adjust our stop loss after closing our first 50% to break even.
Breakout Pull-back Bounce:
In Breakout Pull-Back and Bounce Formation, it is almost similar to the Breakout Congestion Continuation Formation but the Breakout candle takes the price little more higher from the breakout point so that it takes little more candles to form for the price to pull back towards the resistance level (or support level) to base our entry.It may take two candles or 3 sometimes for us to take an entry. In the above picture we see two candles are not enough to retest the breakout point. Here you can find a spinning top / doji or a hammer to confirm a trade. Hammer some time is like a fake breakout. Here please keep in mind you are not going to see doji/ spinning top and hammer together. If we see a spinning top or a hammer we trade like above, 2 lots 5 pips above the high, stop loss (5 pips below for spinning top or doji / 50% candle length of candle if it is hammer). we close 50% trade on the first candle and 50% after the closing of the second candle.
Full Swing Reversal:
This is same like the reversal formation with one key difference. In the reversal formation we use it as COUNTER TREND entry signals. But here it is a reversal to follow the trend. Again we are going to trade IN THE DIRECTION of trend in a reversal fashion. We trade in the same way like we trade the reversal formations with hammers, railway tracks, doji, spinning tops, outside bars & inside bars.
Now we learnt different types of Candlestick Patters, Different types of trading Se-ups. From the next week onwards we will start to trade on real charts.
I will post my part-time trades here. In the future we will learn about Intra-day Trading and News Trading too. For all the posts related to Part Time Trading please click here.
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