Three common tools that day traders use to help them determine appropriate entry points are:
Candlestick chart patterns, including engulfing candles and doji
Other technical analysis, including trend lines and triangles
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There are many candlestick setups that day traders can look for to find entry points. The Doji reversal pattern (highlighted in yellow in the image below) is one of the most reliable reversal patterns if followed properly.
Additionally, look for signs of confirmation of the pattern:
A spike in volume on the Doji candle or the candle that follows it could indicate that traders are buying heavily at this level of support and that shorts are starting to run out of steam.
Previous support at this price level, such as the previous low of the day (LOD) or the previous high of the day (HOD)
If you use these two confirmation steps, you can determine if the Doji is signaling an actual turnaround and a potential entry point.
Chart patterns also provide profit targets for exits. For example, the height of the widest part of the triangle is added to the breakout point of the triangle (for an upside breakout), providing a price for profit taking.
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