Poliuu Jko

THE CANDLESTICK TRADING BIBLE
11.1 – Trading Pin Bars with Confluence

Confluence occurs when multiple technical indicators generate the same signal. This trading concept
is utilized by price action traders to filter their entry points and identify high probability signals in the
market. Whether you are a beginner or advanced trader, trading with confluence is a must, as it enables
you to focus on quality setups rather than quantity and significantly enhances your trading perfor-
mance.
Confluence refers to the combination or conjunction of two or more things. For instance, when search-
ing for a pin bar signal, it is important to find other factors of confluence to confirm our entry rather
than taking any pin bar that we find on our chart.
Factors of confluence include:
• The trend: This is one of the most important factors of confluence, as it is the first thing most
successful traders look for on their charts. You cannot trade any setup without identifying if it is
in line with the market’s direction or not. A bearish pin bar in a downtrend is a more powerful
signal than one in a range-bound market.
• Support and resistance levels and supply and demand areas: These major levels have signifi-
cant importance in the market, as all large participants observe these specific areas.
• Moving averages: I personally use the 8 and 21 moving averages. This technical trading tool acts
as dynamic support and resistance and is a crucial factor of confluence in trending markets.
• Fibonacci retracement tool: I use the 61% and 50% Fibonacci retracement levels to identify the
most powerful areas in the market.
• Trend lines: Drawing these lines on your charts provides us with an idea of the market’s direction
and assists us in identifying the most important reversal points in the market.
When analyzing your chart, you are not required to find all these levels to determine whether a trade
is valid or not. If you can find just one or two factors of confluence that come together with a good pin
bar setup, that is sufficient to make a profitable trade. For example, an obvious pin bar signal near a
support or resistance level in line with the market’s direction.
Please see the illustration below:
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In the example above, we have a high probability setup with four factors of confluence.
1) The Trend: The market is currently in an upward trend, indicating that we should follow the trend
and search for buying opportunities.
2) The Level: The support level is a critical key level in the market. As shown, the price broke out of
the resistance level and pulled back to it.
3) The Signal: The bullish pin bar formation after the retracement back to the support level.
4) Another Signal: The rejection of the pin bar from the support level, and the 21 moving average
acting as a dynamic support level.
All of these factors work together to provide a strong trading signal to buy the market. Please refer to
the example below:
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The example below displays four confluent levels that indicate a powerful trading signal. The first
factor is the bullish trend, and the second is the resistance level that becomes support. The third factor
is the 21-moving average, which acts as a dynamic support level. The final factor is the pin bar for-
mation near these levels in line with the bullish trend.
If you adopt this trading concept, you will significantly change how you perceive the market. You will
begin trading like a sniper by patiently waiting for the best trading setups to occur, rather than attempt-
ing to force trades.
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11.2 – Pin Bar Trades Examples

I will provide you with some trading examples to help you understand how to trade using the pin bar
candlestick pattern with the trend, and how to use the confluence concept to confirm your entries.
Please see the chart below:
This is the daily chart for NZDUSD. As you can see, the market is currently trending downwards. This
is the first piece of information that we gather from this chart. After breaking out of the support level,
which then becomes a resistance level, the price retraced back to this level and formed a pin bar can-
dlestick pattern. The formation of the pin bar near the resistance level indicates that the retracement
move is over and that the beginning of an impulsive move is likely to occur.
When we add the 21 moving average and Fibonacci retracement to the chart, we can see that the pin
bar is rejected from these levels. This indicates that this level is crucial and that sellers are willing to
push the market lower. In this example, we have solid reasons to sell the market. The first reason is
the downtrend. The second reason is the formation of the pin bar near the resistance level, which indi-
cates the end of the pullback and the beginning of a new move downwards. The third reason is the
rejection of the pin bar from the resistance level and the 21 moving average. The last reason is the pin
bar’s rejection from the 50% Fibonacci retracement level, which is considered to be one of the most
powerful key levels in the market.
Take a look at the chart below to see what happened next:
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The chart above shows that our analysis was correct because it was based on solid reasons for entering
the market. This is the method I want you to learn so that you can trade the market successfully. Please
take a look at another chart below.
The chart above displays two significant buying opportunities. As the market trended up, the formation
of the first pin bar after retracing back to the support level presented a high probability entry point.
What further confirmed our entry were the rejection from the 21-moving average and the 50% Fibo-
nacci retracement. The same situation occurred with the second pin bar, which enabled us to enter the
market again and yield more profits.
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11.3 – Trading Pin Bars in Range Bounds Markets

We can determine that a market is ranging when prices move horizontally between a well-defined level
of support and a well-defined level of resistance, without making any higher highs or higher lows.
Once I notice a change in market behavior, I must adjust my tactics and adopt a trading strategy that
suits the new market condition. To confirm a ranging market, I look for at least two touches of the
support level and two touches of the resistance level. Once I have identified the range, it becomes easy
to trade by going long when prices reach the support level and going short when prices approach the
resistance level. Below is an example of a range-bound market:
As you can see, when prices approach key support or resistance levels, we have an opportunity to buy
or sell the market. We just need to wait for a clear price action setup, such as a pin bar candlestick.
Take a look at the illustration below:
The illustration above shows us three trading opportunities. Let me explain to you how you can trade
them successfully:
1) The first one is a pin bar rejected from the support level. You can place a buy order after the pin
bar closes, or you can wait for the market to touch the 50% of the pin bar range. Your stop loss
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should be placed above the support level, and your profit target must be placed near the resistance
level. The risk-reward ratio of this trade is very attractive.
2) The second trading opportunity occurs near the support level. You place a buy order after the close
of the pin bar, and your stop loss should be below the support level. Your profit target is the next
resistance level.
3) The third setup is an obvious buying opportunity. As you can see, the market was rejected from
the support level and formed a pin bar to inform us that buyers are still there, and the market is
likely to bounce from the support level.
Trading from major key support and resistance levels is the easiest way to make money trading range-
bound markets. Never try to trade any setup if it is not strongly rejected from these areas.
The second strategy is about trading in the direction of the breakouts of major key levels or waiting
for the prices to retrace back to the breakout point, and then you go long or short the market.
See the example below:
The above figure illustrates a range-bound market. The price broke out of the support level and retraced
back to the point of the breakout. The formation of an obvious pin bar indicates a high probability
signal to short the market. This is how professional traders trade ranging markets based on this price
action signal.
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To increase the probability of a profitable trade, it is recommended to use technical indicators to con-
firm pin bar signals. However, it is important to not solely rely on indicators to generate signals. In-
stead, combining price action strategies with the right indicators will filter signals and provide the best
setups.
One of the best indicators used to confirm entries in a range-bound market is the Bollinger Bands
indicator. This technical trading tool was developed by John Bollinger to measure a market’s volatility.
The strategy is simple - combine horizontal support and resistance with the upper and lower Bollinger
Bands false breakout. If prices are rejected from major key levels and the bands, it is a confirmation
that the market will bounce from these levels. See the example below:
If you look at the chart above, you will notice how the Bollinger bands act as dynamic support and
resistance levels. When the market approaches the upper or lower bands, prices tend to bounce
strongly. Therefore, if we see that a pin bar is rejected from a horizontal key level and the bands, it is
a clear confirmation to either buy or sell the market.
This confirmation strategy is straightforward, and it will help you decide whether to take a trade or
ignore it. Trading is all about emotions, and sometimes you may spot a nice pin bar signal in a range-
bound market but find it difficult to make a decision. In this case, simply put your Bollinger bands on
your chart. If you see that the signal is rejected from horizontal levels and the bands, don’t overthink
about what you should do next. Just execute your trade, place your stop loss and profit target, and then
stay away and let the market do the work for you.
Please see another illustration below for further clarification:
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The daily chart above shows how this indicator can help us execute our trades with confidence. The
false breakout of the resistance level made by the pin bar was a powerful signal to short the market.
The trade was confirmed by the false breakout of the upper band as well.
Remember that this technical indicator is used only as a confirmation tool in range-bound markets.
Don’t use it to generate signals. Always use it in combination with horizontal key levels, and you will
see how this strategy will positively impact your trading account.
In conclusion, I recommend practicing these strategies as much as possible before opening and funding
your trading account.
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12.0 – The Engulfing Bar Candlestick Pattern

The engulfing bar pattern is one of the most powerful and profitable price action patterns. Knowing
how to use it properly as an entry signal can tremendously improve your trading profitability. In this
section, you will learn how to use the engulfing bar pattern profitably. It doesn’t matter if you are a
beginner or advanced trader; if you are looking for a better trading strategy than what you have been
using, you have come to the right place.
So, what is an engulfing bar pattern? It is a reversal candlestick pattern consisting of two opposite
colored bodies, in which the second body engulfs or entirely covers the first one.
A bullish engulfing pattern forms at the end of a downtrend and provides a clear signal that buying
pressure has overwhelmed selling pressure. In other words, buyers are now in control.
On the other hand, a bearish engulfing pattern occurs at the end of an uptrend and is an indicator of a
trend reversal. It shows that the bulls are no longer in control of the market, and the price trend is likely
to reverse. Please see the illustrations below:
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According to Steve Nison, the father of modern candlestick charting, a candle must meet three essential
criteria to be considered a reversal pattern:
1) The market is in a clearly definable uptrend or downtrend.

2) The engulfing candle consists of two candlesticks, and the first body is entirely engulfed by the
second one.
3) The second real body is the opposite of the first real body.
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12.1 – How to Trade the Engulfing Bar Price Action Signal

To trade this candlestick chart pattern profitably, you need to consider three important elements:
1) The Trend:
When you look at any chart, you’ll notice that there are times when the market is moving clearly in
one direction and times when it’s moving sideways. To be profitable when trading the engulfing bar
pattern, it’s essential to trade in the direction of the trend. You don’t need to have extensive technical
analysis knowledge to determine if the market is trending or not. It’s quite simple; if the market is
making a series of higher highs and higher lows, it’s in an uptrend, and if it’s making a series of lower
highs and lower lows, it’s in a downtrend.
The illustration above depicts a clear uptrend. You don’t need to use an indicator to determine whether
the market is trending or not. Just look at your chart and apply the concept of higher highs and higher
lows, and vice versa. When analyzing your charts, keep in mind that markets move in trends, and
trading with the trend is the most critical element of your technical analysis. Nothing is more important
than the trend, and you should never try to fight or control it, or else you will pay a high price for it.
You can’t make money in any market conditions, no matter how powerful your trading system is. You
must be patient enough and let the market tell you which direction it will take. Successful traders say
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that the trend is your friend, and if you want to master trading the engulfing bar pattern, your first rule
should be to follow the market direction. In other words, the trend should be your best friend.
2) The Level:
Once you identify a clearly definable uptrend or downtrend, the next step is to identify the most crucial
levels in the market. These are the most powerful support and resistance levels.
If prices test a support level and stop, it indicates that buyers are present in the market. This area is
watched by all participants because it represents an excellent buying opportunity. Conversely, if prices
test a resistance level and stop in an uptrend, it is a clear signal that selling strength is present in the
market.
The example below shows how market participants interact with support and resistance levels:
The market has various levels such as trend lines, channels, flags, triangles, and recognizing them on
your chart can assist in identifying better price levels. In trending markets, if the price passes through
a resistance level, that resistance may then become support. Take a look at the illustration below to
understand how to trade the engulfing bar pattern with support and resistance in both bullish and bear-
ish trends:
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There are other technical tools that can help us find the best levels in the market, such as supply and
demand areas, moving averages, and Fibonacci retracement ratios.
3) The Signal:
The signal is an engulfing bar pattern, and you can apply the same rules when trading the inside bar
candlestick pattern. Your ability to identify an engulfing candlestick at a key level in a clear uptrend
or downtrend will greatly enhance the probabilities of making a winning trade. See another example
below:
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12.2 – Trading the Engulfing Bar with Moving Averages

Trading the engulfing bar pattern with moving averages can provide a very profitable trading strategy.
However, the lack of knowledge about using the moving average can dramatically damage your trading
account. Traders use moving averages in different ways:
• As a trend following tool to identify the direction of the trend. They buy the market when prices
are above the 200 simple moving average, and they sell the market when it is below the 200 simple
moving average.
• To determine whether the market is overbought or oversold, they watch how prices interact with
the moving averages. For example, in an uptrend, if prices move far from the moving averages, it
is an indication that the market is overbought.
• To predict a trend change by using the crossover strategy. If the moving average crosses over
another, it is a signal of a trend reversal.
Like any trading system, moving averages have disadvantages. This is why you need to know how to
use them successfully under the right market conditions. This trading technical tool does not apply to
all markets. Never try to use it in range-bound or untradeable markets, as you will get many false
signals and will definitely blow up your trading account.
To the best of my knowledge, using the moving average as a dynamic support and resistance in trend-
ing markets, in combination with an engulfing bar pattern signal, is the perfect way to make money in
the market. The strategy is very simple. We will use the 21 and 8-simple moving averages in the daily
and 4-hour time frames. We will define a clear bullish or bearish market, and we simply buy when
price pullbacks to the moving average and an engulfing bar pattern forms.
See the illustration below:
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Conversely, if the moving average is trending downwards, it indicates that the market is in a down-
trend. We would sell when the price retraces to the moving average. The screenshot below illustrates
how prices interact with the moving average as a dynamic resistance level, and how the engulfing bar
pattern represented a high probability setup.
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12.3 – How to Trade the Engulfing Bar with Fibonacci Retracements

Traders use Fibonacci retracement in various ways, but the most crucial levels are the 50% and 61%
retracements. Knowing how to combine this tool with Japanese candlesticks will significantly increase
your profit potential.
Chart analysts believe that major moves typically retrace around 50% or 61% Fibonacci retracements.
This knowledge can help you predict the next significant move in a trending market with high accu-
racy.
The strategy is simple: first, identify a clear uptrend or downtrend, and then define the major corrective
levels using the Fibonacci retracement tool. If you spot an engulfing bar pattern that lines up with the
50% or 61% level, it’s a powerful price action signal, as shown in the chart below:
In the example above, the engulfing bar price action signal coincides with the 50% and 61% Fibonacci
retracement levels. The resistance level that becomes support provides additional confirmation to take
this high probability setup. This trading strategy is very powerful. Here’s another example below that
illustrates the power of the 50% and 61% Fibonacci retracements:
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Trading the market from the 50% and 61.8% Fibonacci levels means that you are trading from better
price levels. As a result, you will have more probabilities in your favor, which will increase your
chances of becoming one of the most successful traders.
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12.4 – Trading the Engulfing Bar with Trendlines

Trend lines provide traders with insight into the market’s psychology, specifically the psychology of
buyers and sellers. They allow professional traders to determine whether the market is pessimistic or
optimistic. This technical tool is used in different ways, either as horizontal support and resistance
levels or to identify price and time by drawing trend lines vertically. There is no wrong way to use
trend lines.
In trending markets, we simply draw trend lines by connecting swing highs or swing lows in price to
highlight a trend. This approach helps us find high probability entry setups in line with the general
trend of the market. See the illustration below:
Connecting the extreme highs on the chart creates a trend line that acts as a resistance level. The for-
mation of the engulfing bar pattern near this level presents a good selling opportunity. If you only used
horizontal support and resistance levels, you would miss out on this profitable trade.
Learning how to draw trend lines is never a bad idea because it is the simplest analytical tool that you
can use to analyze financial markets. It works in all markets, whether it’s forex, commodities, futures,
or options.
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The chart above depicts a bullish trend where the trend line serves as a support level. The price action
signal that emerged provided an excellent buying opportunity.
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12.5 – Trading the Engulfing Bar in Sideways Markets

One of the most difficult markets to predict is the sideways and ranging markets. I always recommend
traders to focus on trading trending markets, but the problem is that markets spend more than 70% of
their time in ranging motion.
If you focus just on trending markets, you will probably leave a lot of money on the table. This is the
reason why learning how to approach range-bound markets is a must if you want to make a decent
living trading financial markets.
So, what is a range-bound market? A range-bound market occurs when the market stops making
higher highs and higher lows in case of an uptrend or lower highs and lower lows in case of a down-
trend. The price starts trading between a specific high price and low price. This is a clear signal that
the market is ranging and no longer trending.
As you can see in the example above, the market is not trending, but it is moving within a tight range
between horizontal support and resistance levels. You cannot apply the same techniques that you use
in trending markets to trade engulfing bar patterns in range-bound markets.
Let me give you an analogy. When you are driving your car, you don’t always drive the same way. If
you are driving downtown, you try to drive slowly because you know that driving fast can put your
life or others’ lives in danger. But when you are driving on a highway, your driving style changes
completely because you know that you can drive fast. So, you always try to adapt your driving style
to the appropriate situation.
Similarly, you have to adjust your trading strategy when you are trading the engulfing bar pattern in
range-bound markets. All the price action strategies we discussed before will not work in range-bound
markets, and you have to use the right techniques that fit these market conditions.
Before discussing the right way to trade trendless markets, you have to be selective about trading
range-bound markets to protect your trading account. Not all sideways markets are worth trading, and
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you have to know how to differentiate between sideways and choppy markets. See the illustration
below for an example of a choppy market:
As illustrated above, the market trades in a volatile manner, making it difficult to identify major sup-
port and resistance levels. In such cases, it is advisable to stay away from these types of markets,
otherwise, you may end up damaging your trading account.
When trading the engulfing bar candle in a range-bound market, the first strategy is to trade this price
action pattern from major support and resistance levels as shown below:
The second strategy is to trade the breakout of a range or wait for a pullback. See the illustration below:
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The third strategy is to trade false breakouts of major support or resistance levels.
False breakouts are one of the most powerful price action strategies. They occur in all types of markets,
and if you know how to use them in combination with the engulfing bar pattern at a major support or
resistance level, you can make money in the market by buying the bottoms and selling the tops intel-
ligently.
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12.6 – Trading the Engulfing Bar with Supply and Demand Zones
Supply and demand areas are more powerful than support and resistance levels. They are the places
where banks and institutions buy and sell in the market. If you can identify these turning points, you
can make a difference in your trading account. To successfully trade the engulfing bar pattern with
supply and demand areas, you have to be able to identify quality supply and demand levels on a chart.
According to my experience, there are three factors that define quality supply and demand areas:
1) The strength of the move:

Pay close attention to the way the price leaves the zone. If the market leaves the area quickly, it is
an indication that banks and institutions are present.
2) Good profit zone:
Ensure that the level provides a good risk/reward ratio.
3) Bigger time frames:
The daily and 4-hour supply and demand areas are the most powerful zones in the market.
The chart below shows a quality supply area. As you can see, the move was very strong, indicating
that banks and institutions were present. The formation of an engulfing bar was a clear signal that the
bears are still willing to sell from the same price level.
Below is another example of these areas:
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Identifying supply and demand zones is not a complicated task since these areas are marked by strong
price movements. These zones attract big players who place their pending orders, causing the market
to react sharply when it approaches these levels. Combining trading in these areas with the engulfing
bar price action signal can significantly increase your chances of making profits as a trader.
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12.7 – Money Management Trading Rules

So far, you have learned how to identify high probability setups in the market. However, it doesn’t
mean that all engulfing bar patterns are worth trading. Price action signals with low risk/reward ratios
should be ignored. Once the criteria for a high probability setup are in place, there is no need for further
analysis. Just make sure that your trade has a potential risk-to-reward ratio of at least 2:1. This means
that the amount of money you could potentially win should be twice the amount of money you could
potentially lose or more. See the example below:
As you can see, all the conditions were in place to place a buy order. As we discussed before, major
demand and supply zones are the best price levels in sideways markets. The formation of an engulfing
bar in the demand area is a good trading opportunity, but you have to look at the risk/reward to ensure
that the trade respects your money management rules.
This trade has a 3:1 risk to reward ratio, which increases your chances of being a winner in the long
term. For example, if you risk $200 in this trade, you are likely to win $600. It is very important to
calculate your risk to reward ratio before taking any single trade.
Case study:
Imagine you take 10 trades with a 3:1 risk/reward ratio on each single trade, meaning when you win,
you get $600, and when the market goes against you, you lose $200. Let’s suppose you lost 7 trades
and you won just 3 trades. Let’s do the math to see if you are a winner or loser.
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Seven losing trades will cost you $1400, and 3 winning trades will make you $1800. As you can see,
you lost seven trades, but you are still making money. This is the magic of money management.
Entry and exit strategy:
Don’t try to be smarter than the rest of the traders, keep it simple. You know what you are looking for
when you identify an engulfing bar pattern, and you think all conditions are in place to execute your
trade. Take an order immediately after the price action signal forms, put your stop loss below the
candlestick pattern, and simply look at the chart to find the next support or resistance level. This will
be your profit target. See the illustration below:
When you set your protective stop and your target, never look back. Let the market tell you if you are
wrong or right. This will help you trade successfully without being influenced by your emotions.
If the market moves against you, you may not feel good, and it’s normal. Losing money can be emo-
tionally painful, but it is a part of trading. In the trading environment, you have to think differently and
accept the fact that losing is a part of the game.
Studies have shown that successful traders do not risk more than 2% of their equity on each trade. If
you are a beginner, do not risk more than 1%. Do not risk money that you cannot afford to lose on a
single trade, even if the engulfing bar pattern indicates a high probability signal.
No matter how smart you are, you should always think in terms of probabilities. Keep in mind that
you can experience a series of losing trades, and if you risk too much money, you will not survive in
the long run.
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13.0 – The Inside Bar Candlestick Pattern

The inside bar candlestick pattern is one of the most powerful chart setups that professional traders
look out for; however, most traders fail to trade it successfully due to a lack of skills, knowledge, and
poor education.
So, what is an inside bar candlestick pattern? It consists of two candlesticks; the first one is called the
mother candle, which is big and large, and the second one is smaller and located inside the mother bar.
The illustration above shows inside bars at both tops and bottoms. As you can see, the second small
bar is completely contained by the first one, which is the opposite of the engulfing bar pattern. The
inside bar is seen as a reversal pattern because it indicates that the market trend is likely to change,
especially when it is located at tops or bottoms. It is also considered a continuation signal in strong
trending markets.
According to Thomas Bulkowski, a successful investor and trader with over thirty years of market
experience, a bearish inside bar pattern in a bull market can indicate a bearish reversal about 65% of
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the time. In a bull market, it represents a bullish continuation signal about 52% of the time. And a
bullish abandoned baby, as he calls it, is considered a bullish reversal pattern 70% of the time in bull
markets and 55% in bear markets.
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THE CANDLESTICK TRADING BIBLE

11.1 – Trading Pin Bars with Confluence

Factors of confluence include:

Please see the illustration below:

11.2 – Pin Bar Trades Examples

Take a look at the chart below to see what happened next:

11.3 – Trading Pin Bars in Range Bounds Markets

See the example below:

Please see another illustration below for further clarification:

12.0 – The Engulfing Bar Candlestick Pattern

1) The market is in a clearly definable uptrend or downtrend.

12.1 – How to Trade the Engulfing Bar Price Action Signal

12.2 – Trading the Engulfing Bar with Moving Averages

See the illustration below:

12.3 – How to Trade the Engulfing Bar with Fibonacci Retracements

12.4 – Trading the Engulfing Bar with Trendlines

12.5 – Trading the Engulfing Bar in Sideways Markets

See the illustration below:

See the illustration below:

1) The strength of the move:

Below is another example of these areas:

12.7 – Money Management Trading Rules

Entry and exit strategy:

13.0 – The Inside Bar Candlestick Pattern

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