✅ Lesson 2.4 – Step-by-Step Application

Apply your knowledge of candlestick patterns and support/resistance levels to real market data.

🎯 Lesson Objective

This lesson gives you a chance to apply what you’ve learned about candlestick analysis and support/resistance (S/R). We’ll walk through a real EUR/USD chart together and interpret market behavior using the tools you’ve been developing.

🕯️ Chart Review: EUR/USD, July 25

Let’s analyze what happened to EUR/USD following the doji candle on July 25.

📌 What You Should Observe

Ask yourself the following before looking at the outcome:

• The pair had just seen 5 straight days of gains, with momentum increasing over the last three.

• The current price, 1.4409, had previously acted as resistance on three occasions:

  • Left side of the chart

  • Middle

  • Now again on the right

• This level (1.4409) is near a psychological round number: 1.4400

• July 25’s candle was a doji, signaling market indecision

❓ Question: Based on these clues, do you think the next move was:
A) Higher
B) Lower
C) No change

Write down your answer along with the reasons.

✅ What Actually Happened

If you guessed lower, you were right.

After the indecisive doji, the pair made a brief head-fake upward, then pulled back. This is a classic case of a false breakout, where price temporarily breaks a resistance level before reversing sharply.

This type of move:

• Traps traders expecting a breakout

• Triggers profit-taking by earlier buyers

• Often occurs when no new bullish catalyst is present

🧠 Correct Reasoning Should Include:

• Strong resistance zone at 1.4400 has held before

• Doji candle shows indecision, often signaling a possible reversal

• Momentum fatigue after multiple bullish days

• Profit-taking likely at major resistance

• Without new bullish news, a pullback was more likely than continuation

This scenario reflects the principle of a self-fulfilling prophecy—if enough traders believe resistance will hold, they will act on it, causing the price to reverse.

📝 Instructor’s Notes

• Don’t worry if this seems complex — this is a concept-building lesson.

• The goal isn’t to memorize patterns, but to learn how candlesticks + S/R levels work together.

• Real-world trading requires context-based thinking — and that’s what this exercise strengthens.

📘 Lesson Summary

• Price behavior near key resistance + candlestick signals = predictive power

• Round numbers and historical levels increase the reliability of S/R

• Doji candles at resistance after a rally are common signs of reversal

• Always be alert for false breakouts—and use confirmation before trading them

📘 In the next lesson, we’ll begin exploring trend structure and how it interacts with candlestick analysis.