Pattern break reversal candlestick trading
A pattern break is a situation where the market prices goes contrary to the
previous pattern of the market prices. But in some cases,
the market prices may break the previous pattern and reverse back into the previous pattern
once again after a very short period; this is what is referred to as a pattern break reversal.
Pattern break reversals should be traded with caution. The trader has to use every means
possible to ascertain that the reversal is real.
This can be done by looking for some types of candlesticks that indicates a trend reversal like the doji,
hammer and hangman candlesticks.
The trader can also choose to use stop loss levels whenever he or she
places an order on the pattern break reversal. The stop loss level should be placed very close to the level where the pattern break occurred to minimise losses.
For example, if a break up occurs on a symmetrical triangle pattern, then the stop loss level should be placed just below the point at which the candlestick went through the upper line of the symmetrical triangle pattern.