Taz Trader Blog For Swing Traders
Written on 15-02-2008 8:52 am by Craig
What Are the Best Candlestick Patterns for Shorting Stocks?
If you could only trade 3 candlestick patterns, for shorting stocks, what would they be?
I got asked this question via email and it didn't take me very long to come up with an answer. I trade the same candlestick patterns over and over again!
Here are my top 3 bearish candlestick patterns:
#1 - Shooting Star
This is my all time favorite on the short side. The key with this candlestick pattern is in it having a long tail and a small real body. A rally up to a significant resistance area and an increase in volume from the previous day are some other factors to consider.
#2 - Bearish Engulfing
I like to see this pattern after a very rapid move to the upside against resistance. Give it an added bonus if it is sitting right near a declining trend line. I like the first candle to be significantly smaller than the second.
#3 - Dark Cloud Cover
Lately, it seems that this pattern is becoming more and more reliable. I like how this pattern traps other traders on the wrong side of a move. It is a clear indication that the bulls have lost control. I want to see a deep penetration into that first candle.
I don't think that candlestick patterns are the holy grail to trading stocks. In fact, I think they are pretty much worthless without other factors on the chart to back up the implications of them.
Factors such as...
- A move against a strong downtrend.
- A multiple "up day" rally to resistance.
So, what are your favorite candlestick patterns to trade on the short side? Which ones do you find yourself trading most often?
