The following is an extract from a recent exchange with a candlestick trader:
Scotty: What do you use as confirmation of a candlestick pattern? For example, on a bullish piercing line pattern, what would you consider as confirmation of this pattern. Would it be just a higher close in the following bar from the piercing line's close? Or is a higher close from the open in the current bar considered confirmation in the case of a gap down next?
IchimokuCharts.com: With ALL Japanese Candlestick reversal patterns there MUST be a prior trend in place i.e. a series of candles with either higher highs and higher lows or lower highs and lower lows (the definitions of an up trend and a down trend). If there is no trend in place or it has only recently been established, there is NO reversal pattern because there is nothing to reverse. Now, confirmation of a reversal pattern is new price trending action in the opposite direction to the prior trend. Therefore, if a down trend is in place (LHs and LLs) and we have criteria for, say a Bullish Engulfing pattern in place, we would require a candle with higher high and a higher low ( an up trend) to CONFIRM the bullish reversal.