Part III. Simple but fundamental and important patterns. Commander in Pips: Today we will continue to talk about candles, and study some simple, but still important initial, patterns. Major parts of more complicated patterns are based on combinations of those that we will talk about today. Pipruit: And what does “pattern” mean, and for what purposes does is have? Commander in Pips: Although each candle carries important information that tells us about price behavior in particular trading period, and this is very important and could help to make some trading decision itself, patterns are even more useful. A Pattern is a forgone combination of different candles that represents early signs of future price movement with solid probability and allows you to make a trade decision on the early phase of this price movement. In general these patterns could be “reversal”, “continuation” and “Cautionary”. Usually a pattern consists of 1-3 candles. Pipruit: Hold on, hold on…wait a minute, Sir. You want to say, that if we see on the market some predetermined combination of candles, as you call them “patterns” – they can predict further price action? Even more, they can tell, what price action this will be – reversal or continuation? Commander in Pips: Absolutely. But be careful with the “predict” word. Remember, that trading is a business of probabilities, so there is never any absolute certainty. When I say “represents early signs of future price movement with solid probability” – it means precisely what I’ve said. In other words, the appearing of a pattern increases the probably of further moves in a direction according to this pattern. Say, we see some reversal pattern. It does not mean that market will reverse here with 100% probability. But it tells us, that the probability of reversal here, either temporary or long-term, is higher. That’s all. Any pattern could fail. That’s why, we repeat it again and again – you should not rely only on some single tool, whatever it could be – lines, patterns etc… you should use them in complex. How? You will learn a bit later. Another way you should treat the patterns - is as a warning sign. For example you hold a “long position” and market is forming reversal pattern. This thing should worry you. Pipruit: Ok, I think I’ve got it.