the hAnDbook of technIcAl AnAlysIsconsolidation) possess very little associated trend sentiment and this is the reason
why they are regarded as neither bullish nor bearish, within the consolidation. They
also do not represent reversal or continuation patterns within the consolidation.
Many novice candlestick traders initiate positions based on candlestick patterns
that have very little trend sentiment, resulting in unreliable entries.
The behavioral phenomenon of overextension also implies that trend sentiment
will vary with respect to continuation patterns. Although the trend sentiment becomes
more bearish for reversal patterns located further out along the trend, sentiment as-
sociated with continuation patterns actually increases during the early part of a trend
and starts to diminish as the trend extends further out. This is again because the
further out a trend extends, the greater will be the chance of it being overextended
or approaching overextension, which adversely affects the reliability of continuation
patterns. The real trick is to identify when overextension begins to erode the reliability
of continuation patterns unfolding in the expected manner. This can be achieved by
gauging the average trend excursion associated with the amplitudes of dominant
cycles indentified in the market. Once the average trend excursion is found for the
dominant cycle amplitude, the trader will have a sense of when contextual sentiment
will start to wane, rendering the candlestick continuation pattern less reliable.
- size As a general rule, the larger the size of a candlestick or pattern, the more
influence it will have on market action. A large candlestick like a Marubozu tends
to have greater impact on price action as compared to a smaller candlestick. Large
bullish candlesticks or patterns are more bullish than smaller ones and in similar
fashion, large bearish candlesticks or patterns are more bearish than smaller ones.
Larger formations tend to have greater impact and will dominate the sentiment of
more diminutive formations. Figure 14.8 depicts a Marubozu in action.
figure 14.8 A Large Candlestick Impacting Subsequent the Market Action on the
15‐min EURUSD Chart.
Source: MetaTrader 4