Last week we discussed how to enter the market once a Gartley pattern is complete. We considered using a X bar reversal method and using the exact Fibonacci retracement level method. This week we will consider entry with Japanese candlesticks.
For those of you that have skill interpreting candlestick charts, candlestick patterns can be used for entry signals when a Gartley pattern completes. At this point we assume that you have at least a basic knowledge of Japanese candlestick charting. If not, have a look on the internet for the many free educational resources to learn about Japanese candlesticks.
An example of a Japanese candlestick pattern would be the two bar Harami pattern. The first candlestick of a bullish Harami pattern is called the mother. The closing price of the mother candlestick is below the opening price. The range between the opening price and the closing price of the candlestick is referred to as the real body and in this case would typically be colored black or red on the chart. The next candlestick of the Harami pattern is referred to as the baby. The opening price of the baby is lower than the closing price and in this case the color of the baby’s real body is white or green. The important point of this pattern is that the real body of the baby is "inside" of the real body of the mother, thus the name Harami! In addition as the range of the market is getting narrower, it is having a "contraction!" In other words the range between the open and the close of the second bar has to be within the range of the open and the close of the bar immediately preceding it. The Harami is just one example of the many candlestick patterns that one could use to enter the market after the completion of a Gartley pattern.
For example, if we were to use a Harami candlestick reversal on a bullish Gartley pattern we would use the following steps…
1) Wait for the market to touch our Fibonacci retracement level.
2) Wait for the completion of a Harami candlestick pattern.
3) Buy one point above the high of the "mother". Place your stop one point below the low of the mother.
If you have a preference for certain Japanese candlestick patterns versus others, make sure that the candlestick patterns that you choose to use for entering the market are clearly identified in your trading plan.
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