Two patterns, one price, one stop

Candlestick pattern confluence means two different patterns mark the same price level. Often they sit on different timeframes or weeks apart.

Take a stock that fell for two weeks. On the daily chart it printed a hammer, and the hammer's low was 92.40. Three weeks later, after another decline, the 4-hour chart printed a bullish engulfing pattern. Its lowest low was 92.35.

Two separate patterns, each after a real decline, found buyers within five cents of each other. That's confluence. You mark one support line there instead of two.

The extremes are what matter. For support, use the lowest low of the whole pattern, wicks included. For resistance, use the highest high. Bodies and closes don't set the level. If the two extremes sit a little further apart, check them against the zone width you use for that stock.

A single pattern is one moment where one side won. It might be the start of a turn, or it might be noise.

The bigger trap is trend. A hammer only counts after a decline. The same shape after a rally isn't a hammer at all, whatever it looks like. When a pattern fails, check the trend before blaming the pattern.

A second pattern at the same price is independent evidence. Different days, different candles, and the same price got defended twice. That's why the level earns more weight.

None of this has been measured as an edge. It's a reason to trust a level more, and still a judgment call. Treat it as one input to the trade, never as the trade itself.

One move to expect at a confluence level is the lose and reclaim. Price trades below the level, then pulls straight back above it.

How you handle it depends on the candle close. If price only wicked below 92.35 and closed above it, nothing has happened. A wick through a level isn't an exit, so you stay in.

If a candle closed below the level, you're out. That's the rule, even at a strong level. If the next candles then close back above it, that's a fresh setup. Sellers pushed through and couldn't hold it.

A quick reclaim of a double-pattern level reads as a strong setup. It's still a judgment call, so take it with the same stop logic as any other trade.

A strong level tempts you to buy late, after it has already bounced. Work out where the trade stops making sense.

Say the support is 92.35 and you'd exit near 92.25 on a close below it. The next resistance, your target, is 93.45. You need the reward to be at least twice the risk.

The latest entry E satisfies 93.45 minus E equals two times E minus 92.25. Solve it and E is 92.65. Above 92.65, the trade pays less than two to one.

Mark 92.65 on the chart before the open. If price is already above it, the setup is gone. Wait for the next one.

Confluence can change how you build the position. It shouldn't change how much you're willing to lose.

Start with a quarter to a third of what you'd put on one full trade. Add when the level holds and price confirms. Don't add while price sits in the middle of the zone, where you can't tell who's winning.

The extra trust can justify reaching full size sooner once the level proves itself. It can't justify going past full size. Your daily loss limit stays where it was before the open.

Keep one stop for the whole position: a close below the level. Two opinions in one ticker is how a small loss becomes a large one.

If the level fails on a close, the extra trust is used up. Don't rebuy it out of loyalty.

Run these checks on the daily, 4-hour and 1-hour charts, from the current candle leftwards. Skip the trade if any answer is no. Do it before the open, while price isn't moving and the numbers are easy to write down.