Mastering Financial Pattern Recognition

Chapter 9. Candlestick Patterns Exit Techniques

Whenever a candlestick pattern appears, you have to think about three types of techniques (events):

The entry technique

This technique controls the buy or sell price you use upon validating the pattern. In other words, would you buy at the next open price after the appearance of the pattern, or would you use another price?

The target technique

This technique controls where to liquidate the position profitably. It can be referred to as the pattern’s potential or its expected reaction range.

The stop technique

This technique controls where to liquidate the position at a loss. It can be referred to as the pattern’s invalidation point or the stop-loss point.

This chapter discusses the two exit techniques, which are the target and stop techniques.

Note

Note that the entry technique assumes initiating a trade (long or short) on the open of the candlestick that follows the one that validates the pattern.

The Symmetrical Exit Technique

This technique gives an easy target for any candlestick pattern based on the size of a key candlestick inside the pattern. The symmetrical exit takes the distance of the high and low of the key candlestick and projects it from one of the extremities (depending on whether it is a bullish or bearish pattern).

Note

The key candlestick is the one used to determine the symmetrical target. Generally, it is the candlestick that either confirms the pattern or defines it. For instance, the key candlestick of a ...