Candle Close Confirmation — Pattern Reference | runic.tools

Identification Rules

A recognizable candlestick pattern (e.g., engulfing, hammer, morning star, evening star) must fully close before confirmation is considered valid.
The confirming candle must close in the direction of the anticipated move — a bullish setup requires a close above the pattern high; a bearish setup requires a close below the pattern low.
Volume on the confirmation candle should be elevated relative to recent average, ideally 1.5–3x average volume for reversal patterns.
Pattern should form at or near a meaningful price level such as support, resistance, or a prior swing point.
A secondary indicator (RSI, MACD, or moving average) should align directionally with the pattern signal.
Higher-timeframe context should not contradict the setup — e.g., a bullish confirmation pattern should not form mid-trend in a strong higher-timeframe downtrend without additional confluence.

Enter on the open of the candle immediately following the confirmed close of the pattern candle.
For engulfing or multi-candle reversal patterns, enter above the high of the final confirmation candle on a bullish setup, or below the low on a bearish setup.
Only enter if volume on the confirmation candle is above average; volume 2–3x average provides the strongest signal, especially for engulfing patterns.
Use a top-down approach: confirm trend direction on a higher timeframe before executing an entry on the primary trading timeframe.

Place stop-loss below the swing low of the full pattern structure on a bullish setup, or above the swing high on a bearish setup.
Confirm the volume spike before committing stop placement — if volume is absent, the pattern may not justify a tight stop and the trade should be avoided.
Do not place stops inside the body or wick of the signal candle — allow room for normal price fluctuation at the level.

Target the nearest significant resistance level (bullish) or support level (bearish) as the primary profit objective.
Scale out or trail stop as price approaches the first target, using a moving average or volume decline as an exit trigger.
Minimum risk-reward ratio should be 1:2 before taking a trade; 1:3 or better is preferred for lower-probability patterns.

Volume spike of 2–3x average on the confirmation candle
Pattern forming at a key support or resistance level
RSI divergence aligning with the reversal direction
MACD bullish or bearish crossover coinciding with pattern close
Higher-timeframe trend in alignment with the trade direction
ADX above 30, indicating a strong directional trend environment
Sustained volume build-up across multiple candles leading into the pattern
Moving average acting as dynamic support or resistance near the pattern
Pattern appearing after an extended trend move, increasing exhaustion probability

Entering before the confirmation candle closes
Ignoring broader market context and higher-timeframe trend
Trading patterns without volume confirmation
Using a single indicator or pattern in isolation
Confirmation bias — only looking for evidence that supports the anticipated direction
Placing stop-loss inside the signal candle's wick