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Price action and candlesticks are a powerful trading concept and even research has confirmed that some candlestick patterns have a high predictive value and can produce positive returns. Especially interesting is a research paper by Gaginalp and Laurent in which they showed that the candlestick patterns:

Three White Soldiers, Three Black Crows and Three Inside Up have a significant short-term prediction value for the course of price. 1 Their research showed that those patterns are predictive about 75% of the time for most of their data sets.

 

Why do candlestick patterns work?

Traders often mistakenly believe that the patterns themselves drive the markets. The first important thing you have to know is that you can’t treat candlesticks like blueprint templates which is what 99% of all trading websites teach you. It’s just wrong!

Only when a trader knows how to “read candlesticks“, he will be able to understand what the patterns tell him about the underlying market dyna...


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