A gap occurs when a candle opens a distance away (either higher or lower) from the previous close. This happens in markets with fixed trading hours like stocks and exchange-traded funds (ETFs). For Example 1.0
This happens when there’s an imbalance buying/selling pressure at the pre-market open.
The opening price is the price which has the most number of transactions that took place (between buyers and sellers).
Unlike stocks and ETFs, the indian market is traded from Monday to Friday. Thus, you hardly see any gaps on a day to day basis.This means… if you traded candlestick patterns that require gaps, you’ll hardly find it in the indian markets.
And if you can’t find these patterns, how can you trade them?
So… you must “Change” your definition of candlestick patterns to suit this market.
Identify candlestick patterns with a gap (bullish engulfing, evening star, etc.)
Remove the gap of these patterns
For Example 2.0
- Candlestick pattern doesn’t tell you how did price move.
At a quick glance, the candlestick pattern can tell you who’s in control (for the moment).
But, if you want to know how price moved from the open to the close, then it’s impossible to tell just by looking at candlestick patterns.
Here’s what I mean:
For Example 3.0
There are many variations of how price can move from the open to the close. The only way to see what’s going on is to go down to a lower time frame. This is important because how price moves from the open to close could signal the strength of the underlying move.
- Candlestick pattern doesn’t show you the “big picture”
Most of the time people ask me “there is a bearish pin bar on the chart, it looks like the market is heading lower.”
Here’s the thing:
The market will not move higher or lower due to the candlestick pattern (they are the effect, not the reason). So, stop trying to guess where the market is going by looking at the candlestick patterns because it makes no sense. Instead look at the “big picture”, otherwise known as the trend. It tells you where the price has been and where it’s likely to go.