Understanding Market Context

A "Head and Shoulders" pattern or a "Bull Flag" doesn't work 100% of the time. In fact, they fail often. The difference between a winning signal and a "fake-out" is often Market Context.

Before looking for a specific candle pattern, ask yourself:

1. What is the Trend? Is the market making higher highs (uptrend) or lower lows (downtrend)? Never short a bullish breakout in a strong uptrend.
2. Where is the Value? Is the price at a historical Support or Resistance level? A bullish signal in the middle of a range is much weaker than one occurring at a major floor.
3. What is the Volatility? Is there a major news event (like an interest rate hike) coming up? High volatility can ignore technical patterns entirely.

The Lesson: A pattern is just a piece of the puzzle. The context is the whole picture. Always trade in the direction of the dominant market flow.