Understanding Market Environments

In order to take full advantage of single-stick patterns that rely heavily on the market context in which they appear, you first need to know how to quickly and effectively determine the market environment. Being aware of the current market environment is key to properly using most candlestick patterns in general, but especially for the ones I describe in the rest of this chapter.

The three market states

A market or stock is usually defined as being in one of three states:

bullet Bullish: Price behavior trending up

bullet Bearish: Price behavior trending down

bullet Range bound: No discernable trend

Deciding which of the three states a market is in can be as easy as looking back a few weeks on a chart and spotting a general direction or drawing a line that shows the market’s trend. It may also be as complicated as using a technical indicator to reveal the direction of the market. These indicators are covered extensively in Chapter 11, but for this chapter, I use examples where the market trend is easy to decipher.

Identifying the market trend

For a quick ...

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