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Why You Lose Money With Candlestick Patterns 

Last Updated: March 21, 2022

By Rayner Teo


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In today’s episode, you’ll learn why traders lose money with candlestick patterns and what you can do about it.

So tune in right away…


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Hey, hey, what’s up my friend? 

In today’s episode, I want to talk about why traders lose money with candlestick patterns even though they have a pretty good idea of what candlestick patterns are about.

Here’s why…

You memorise the candlestick patterns

When traders learn candlestick patterns from courses, books and etc, they memorize these patterns: the hammer, the engulfing pattern, the harami, the doji, etc. They memorize what these patterns mean, and they trade it literally. 

For example, many traders will make a mistake when they see a hammer as they think it’s always bullish, and they’ll buy because the buyers are in control, the market is going up higher. The next thing you know, the market collapsed lower and they get stopped out.

That’s not the way to trade candlestick patterns. Don’t memorize the meaning of it. Don’t literally trade these candlestick patterns just because it’s green, you buy, and just because it’s red, you sell. It’s not as simple as that.

A better way to approach it is to use what I call the M.A.E.E. formula.  I’ll break this formula down and explain to you what this is all about and how you can use this for your owner candlestick pattern trade. 

The M.A.E.E. formula

Here’s what it means:

M – Market structure

M stands for market structure. The first thing that you want to find out is the current market structure. Is the market in an uptrend, downtrend or in a range? 

A – Area of value

A stands for area of value. Is the market at an area of value? Is it at support? Is it at resistance? Is it bouncing off the upward trendline? Is it coming towards a respected moving average, like the 50-day moving average? 

E – Entry trigger

E stands for entry trigger. Is there a valid entry trigger for your trading setup? An entry trigger could be something like a hammer, a bullish engulfing pattern, a shooting star. 

This is where candlestick patterns shine because they are very useful to serve as an entry trigger to get you into a trade. 

E – Exit

And the last E stands for exits. Where will you exit a trade if you’re wrong? Where’s your stop loss and where is your target profit if the market moves in your favour? 

So this is what the M.A.E.E. formula is all about.

The M.A.E.E. formula walkthrough

Let me give you an example of how to use the M.A.E.E formula to trade candlestick patterns. 

M – Market structure

If the market is in an uptrend, you want to be looking for buying opportunities. So you’ve identified the market structure. 

A – Area of value

Is the price near an area of value? Just because the market is in an uptrend doesn’t mean you want to buy it immediately. You want to buy from an area of value which could be an area of support from the upward trendline which the price respects. 

If it is near an area of value, then move on to the next part:

E – Entry trigger

Do you have a valid entry trigger to enter a trade? An entry trigger could be a hammer showing you rejection of lower prices. Or a bullish engulfing pattern telling you buyers are in control and have overwhelmed the sellers, that’s why price closed near the highs.

That could be a valid entry trigger to enter your trade.

E – Exit

Where do you exit your trade if you’re wrong? Where is your stop loss? You could put your stop loss one ATR below the low of the entry trigger candle. 

As for your target profit, you can look to take profit at the swing high. That’s another way to exit your trade.

Or if you want to trail your stop loss to ride the trend, you can trail your stop loss as well. 

I hope you can see how the candlestick pattern fits into the M.A.E.E. formula. If you follow this M.A.E.E. formula, I’m confident your trading results with candlestick patterns will dramatically improve. 

I can’t guarantee you’ll be a consistently profitable trader and you’ll make tons of money. 

But if you are struggling with candlestick patterns and you adopt this formula, your trading results will improve. 

That’s pretty much it for today’s episode, I hope you’ve enjoyed it and I’ll talk to you soon.

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