There is one candlestick pattern that applies to many momentum stocks which continuously run for few days or weeks. Many wonder if only they could sell at the top they would not have lost huge sum of money.
The candlestick that plays a major role before negative turn of a stock is the "hammer down" pattern. It looks like a hammer only but an inverted hammer. It looks as shown in the picture below. The closing price is lesser than opening price.
But this one stick is not enough for a good sell decision. The stock must have run up quite significant compared to past month or so. This is the reason why we need to have a look at its candlesticks on previous days for one or two weeks. Those sticks must look like these:
The last candlestick which looks like an inverted hammer is the one that gives a signal. This is typical of all momentum stocks. The next day the stock may open higher than previous close but it will surely fall down as this stick forms only when the big bulls have ran out of steam and bears start short selling.
Having applied this pattern to my own stock trading I had finally concluded that of all different candlestick patterns this one holds good with the highest probability and virtually all of the time. This is highly useful for swing traders who do not have problems with initiating positions but only with exiting positions.
