Lesson 6: Candlestick Patterns and Price Action Signals

Learning outcomes: Identify high-quality candle signals and confirm them with context.

Candlestick patterns are clues, not guarantees. They only work when paired with real levels and session flow.

Focus on a small set of patterns that you can execute with consistency.

Core concepts

• Rejection wicks show failed attempts at a level.
• Engulfing candles show momentum shifts.
• Inside bars show compression that can lead to expansion.
• Flags and pennants are continuation signals after impulse.
• Confirmation prevents early entries.

Execution framework

1. Identify the key level and trend.
2. Wait for a clear pattern at the level.
3. Confirm with a break of the pattern boundary.
4. Enter on a retest or continuation close.
5. Place stop beyond the pattern invalidation.

Annotated walkthrough

Example: bullish engulfing at demand during London.

1. Confirm the level on H1.
2. Spot the engulfing candle on M15.
3. Enter on the retest of the candle body.
4. Target the next liquidity pool.

Common mistakes

• Trading patterns mid-range.
• Entering before confirmation.
• Ignoring session flow.
• Taking every pattern instead of the best ones.

Checklist

• Pattern appears at a key level.
• Trend alignment confirmed.
• Confirmation candle closes beyond the signal.
• Stop placed beyond invalidation.

Practice drills

1. Collect 20 pattern examples and label outcome.
2. Track which patterns work best for your pairs.
3. Build a two-pattern playbook and trade only those.

Pro tips

• Patterns are filters, not edge by themselves.
• Rejection at levels beats patterns in the middle.
• Take fewer, higher-quality setups.