To The Moon

Speaker: K-Yong Kan, Investment Representative at Tiger Brokers, walks through the candlestick patterns he has actually used, then shows why the same price action can look different on every timeframe.

[About the Speaker]

K-Yong Kan is an Investment Representative at Tiger Brokers who built the Trading 101 series to help clients learn trading and investing step by step. This is the third of four recaps from Part 2a, Chart Patterns & Candlesticks.

[The Hook]

Candlesticks have patterns of their own, and there are many of them. K-Yong chose to cover only the commonly referenced ones he has used over the years. His bigger point, though, was that a pattern on a single candle or a single timeframe is never the full story.

[Candlestick Reversal Patterns]

• Dojis and Hammers (for example the Dragonfly Doji and the Inverted Hammer): on their own they don't mean much. Their value comes from where they appear, for instance a Dragonfly Doji at the end of a downtrend can hint at a reversal up.

• Bullish and Bearish Engulfing candles: a candle whose body swallows the previous, smaller candle, usually in the opposite colour. K-Yong said this is one he likes, because in his years of trading it has more often than not been a signal worth considering when it shows up at the end of a trend.

• Three Inside Up / Down: a three-candle pattern that appears at the end of a trend. The key rule is that price must break past the first candle's range to confirm it.

• Abandoned Baby, Morning Star and Evening Star: three-candle patterns where a small candle sits between two larger ones, a sign that the trend may be running out of steam. K-Yong said he first learned this one as the morning and evening star. It is even more interesting when it appears together with a Double Top or Double Bottom.

[Candlestick Continuation Patterns]

• Spinning Tops: by themselves they don't tend to mean much. They simply show buyers and sellers are still active at various prices, which is normal in a healthy trend.

• Bullish and Bearish Marubozu: a strong, decisive candle. It is an even better continuation sign when it breaks through a support or resistance level.

[Charts Are Fractal]

Why do patterns look so different from one chart to the next? K-Yong's explanation: charts are fractal, meaning patterns repeat on smaller and bigger timeframes, much like the leaves, branches and trunk of a tree repeat the same shape. A pattern on one timeframe can be a different pattern on another. For example, a double bottom on a lower timeframe can show up as a Dragonfly Doji on a higher one.

[Multiple Timeframe Analysis]

That is why you can't rely on a single chart. K-Yong's approach:

• Use a longer timeframe to gauge the overall trend and a shorter one to find your entry. If the two disagree, give more weight to the longer one.

• Match timeframes to your style. Commonly referenced combinations are Day: 15m, 1h, 4h, D; Swing: 4h, D, W, M; Position: W, M, Q, Y.

• Know who is trading what. Scalpers hold for seconds to minutes and use very short charts. Day traders, like K-Yong, hold for minutes to a few hours and try to close before the day ends. Swing traders hold for days to weeks. Position traders hold longer and pay more attention to moving averages and fundamentals.

His worked example: imagine the daily chart looks bearish, the 4-hour or 6-hour chart also looks bearish, the 1-hour and 2-hour charts look a bit bullish, and the 15-minute chart looks bullish but about to turn. With enough timeframes lined up, a short has a much stronger case. When the timeframes disagree, you lack what he called confluence, and the best choice is often to do nothing.

[Confirmation Before Entry]

K-Yong repeated this one several times. Entering before confirmation may work once or twice, but over many trades it tends not to. He added a human note: on any given day, a bad mood or a stressful moment can push you to take trades you wouldn't normally take, and a clear confirmation rule protects you from that.

[Key Takeaways]

• Context beats the candle. A pattern means more at the end of a trend or at support and resistance.

• Patterns repeat across timeframes. The same move can look like a different pattern on another chart.

• Longer timeframe for direction, shorter for entry.

• Wait for confluence and confirmation. If the timeframes disagree, you may not have a trade yet.

[Call to Action 🎯]

1. Pick a stock and open the timeframe set that fits your style (day, swing or position).

2. Note what each timeframe is showing. Do they agree?

3. Drop a comment: which timeframe combination do you use most?