Candlestick patterns are most popular commonly used by the traders nowadays. These patterns are a form of technical analysis and charting used in the stock market, forex market, commodity market and all other markets. Candlesticks patterns can be used in all time frames. You can use these patterns for long-term, mid-term, short-term, and day trading and even for swing trading. Candlestick patterns have been in use since the 17th century. Japanese traders used to follow candlesticks patterns in the rice markets. You should always remember that these patterns are only useful when you understand what is happening in each pattern. You must combine with other technical chart patterns to get the result.
Candlesticks charts are more visually attractive than the standard two-dimensional bar chart. There are 4 elements necessary to construct standard bar chart, OPEN, HIGH, and LOW & CLOSING price for a given period of time. Whereas, in the Candlesticks charts the body of the candlestick is called the real body and represents the range between the open and closing prices.
The red body represents that the close in that time period was lower than the open, it’s normally considered as bearish and when the body is green, it represents the closing price was higher than the open is normally considered as bullish. A thin vertical line can be seen above or below the real body known as upper or lower shadow which indicates the high or low price extremes for the period.
The stocks prices open and close at or near its high. It consists of a comparatively long lower wick, no real body, and no upper wick. It is generally seen at the bottom of a move. This reversal signal is more bullish than a hammer.
Prices typically open at a high, sell off and then return back to opening price during the period of dragonfly doji. It does not occur frequently, but when you find the dragonfly doji near the bottom that means it’s giving a strong signal for buying that stock. But keep in mind before buying any stock after viewing dragonfly dozi you should always wait for the next day candle sign. If it’s positive then you can go for it.
Hammer is a simple candlestick pattern made of a single candle line. They are bullish in nature. Hammer candlestick develops during the downtrend. The long lower shadow of the hammer shows a bullish signal irrespective of the colour of the candlestick's real body. The body of the candle may be either green (white) or red (black). This type of candlestick basically forms because of the overpowering of bulls over bears. After opening the market the sellers push the prices down by overselling of the stock. Bulls fought back and finished by winning back some ground. For buying confirmation you should check the next candlestick if it’s bullish or not. For buying, there must be a bullish candlestick after the hammer candlestick. It's finally confirmed that the bulls now have a strength and are taking control.
Inverted Hammer also gives a trend-reversal signal. This type of candlestick pattern can be found after a downtrend. It has a small real body, either bullish or bearish, and has a large upper shadow with a small or no lower shadow. It appears in a market that opens at or near its low, forming a candle with a small real body. Throughout the day buyers rallied price fairly high but were incompetent to withstand the rally. Again, for buying there must be bullish candles stick after the inverted hammer candlestick.
The bullish engulfing candlestick pattern specifies a bullish move ahead. It usually forms at downtrend and directs that bulls are no trying to take control from bears. It is stronger if it gets formed at any prevalent strong support zones. It is mainly composed of two candles. It can be identified by a large green (white candle) engulfing the previous bearish red (black) at the downtrend. The green candlestick started to form when selling pressure force to open the stock price below the previous close. Later the buyer steps up and forces to close the stock price above the previous open for a potential reversal. Wait for the next day signal. If it’s bullish then go for buying the stock.
It is a simple and very effective candlestick pattern to look for when trading short-term up and down swings within a price channel. This bullish reversal pattern appears at the end of a downtrend. The first candlestick must be a ref (dark) candlestick with a large real body and the second candlestick should be green (white) and should below the low of the preceding candlestick. The last candlestick must be closing above the middle of the real body of the first candlestick, with the deeper it pierces the first candlestick the more substantial the pattern becomes. Traders also need this to form in context with another bullish trade setup as trade confirmation.
Morning Star is a strong positive three-line reversal pattern which is bullish in nature and appears at the end of the downtrend. This star can be a lucky star for you. The Morning Star is a sign of good fortune. The first candlestick should be bearish candlestick (red or black) and with a fairly large real body. And the second candlestick must have a small body and it can be either bullish or bearish candlestick. Although a bullish candlestick with a small or no upper wick specifies more bullishness. The second candlestick is the star. The star indicates the sellers were not able to drive the price close much lower than the close of the previous period. It is then confirmed by the third candlestick that must be green or white colour.
This bullish reversal candlestick pattern also appears in the downtrend. The previous candlestick must be red or black and the very next candlestick must be a doji. The high of the Doji must be lower than the open of the previous candle. The low of the Doji must be higher than the close of the previous candle. When a Bullish Harami Cross candlestick pattern is recognized after a bearish move, it can signal a reversal in the price action.
In a downtrend, it signals the continuation of the bullish trend in the same direction. If we compare with other bullish reversal patterns this signal is not strong enough. The two candlesticks next to the first candlestick close at higher prices than the previous ones. Three significant, consecutive and boosting white candlesticks encompasses this formation. The former candlestick paves the way for the new successive candlestick.
These are the main bullish reversal patterns. You can always use this signals for trading either for short term or long term. Always compare these patterns with RSI (Relative Strength Index) and use a stop loss to become a successful investor.
Please check my next blog regarding the bearish reversal patterns.
What do Candlesticks Look Like?
Candlesticks charts are more visually attractive than the standard two-dimensional bar chart. There are 4 elements necessary to construct standard bar chart, OPEN, HIGH, and LOW & CLOSING price for a given period of time. Whereas, in the Candlesticks charts the body of the candlestick is called the real body and represents the range between the open and closing prices.
The red body represents that the close in that time period was lower than the open, it’s normally considered as bearish and when the body is green, it represents the closing price was higher than the open is normally considered as bullish. A thin vertical line can be seen above or below the real body known as upper or lower shadow which indicates the high or low price extremes for the period.
Bullish Reversal Patterns
• Dragonfly Doji:
The stocks prices open and close at or near its high. It consists of a comparatively long lower wick, no real body, and no upper wick. It is generally seen at the bottom of a move. This reversal signal is more bullish than a hammer.
Prices typically open at a high, sell off and then return back to opening price during the period of dragonfly doji. It does not occur frequently, but when you find the dragonfly doji near the bottom that means it’s giving a strong signal for buying that stock. But keep in mind before buying any stock after viewing dragonfly dozi you should always wait for the next day candle sign. If it’s positive then you can go for it.
• Hammer:
Hammer is a simple candlestick pattern made of a single candle line. They are bullish in nature. Hammer candlestick develops during the downtrend. The long lower shadow of the hammer shows a bullish signal irrespective of the colour of the candlestick's real body. The body of the candle may be either green (white) or red (black). This type of candlestick basically forms because of the overpowering of bulls over bears. After opening the market the sellers push the prices down by overselling of the stock. Bulls fought back and finished by winning back some ground. For buying confirmation you should check the next candlestick if it’s bullish or not. For buying, there must be a bullish candlestick after the hammer candlestick. It's finally confirmed that the bulls now have a strength and are taking control.
• Inverted Hammer:
Inverted Hammer also gives a trend-reversal signal. This type of candlestick pattern can be found after a downtrend. It has a small real body, either bullish or bearish, and has a large upper shadow with a small or no lower shadow. It appears in a market that opens at or near its low, forming a candle with a small real body. Throughout the day buyers rallied price fairly high but were incompetent to withstand the rally. Again, for buying there must be bullish candles stick after the inverted hammer candlestick.
• Bullish Engulfing:
The bullish engulfing candlestick pattern specifies a bullish move ahead. It usually forms at downtrend and directs that bulls are no trying to take control from bears. It is stronger if it gets formed at any prevalent strong support zones. It is mainly composed of two candles. It can be identified by a large green (white candle) engulfing the previous bearish red (black) at the downtrend. The green candlestick started to form when selling pressure force to open the stock price below the previous close. Later the buyer steps up and forces to close the stock price above the previous open for a potential reversal. Wait for the next day signal. If it’s bullish then go for buying the stock.
• Piercing Line:
It is a simple and very effective candlestick pattern to look for when trading short-term up and down swings within a price channel. This bullish reversal pattern appears at the end of a downtrend. The first candlestick must be a ref (dark) candlestick with a large real body and the second candlestick should be green (white) and should below the low of the preceding candlestick. The last candlestick must be closing above the middle of the real body of the first candlestick, with the deeper it pierces the first candlestick the more substantial the pattern becomes. Traders also need this to form in context with another bullish trade setup as trade confirmation.
• Morning Star:
Morning Star is a strong positive three-line reversal pattern which is bullish in nature and appears at the end of the downtrend. This star can be a lucky star for you. The Morning Star is a sign of good fortune. The first candlestick should be bearish candlestick (red or black) and with a fairly large real body. And the second candlestick must have a small body and it can be either bullish or bearish candlestick. Although a bullish candlestick with a small or no upper wick specifies more bullishness. The second candlestick is the star. The star indicates the sellers were not able to drive the price close much lower than the close of the previous period. It is then confirmed by the third candlestick that must be green or white colour.
• Bullish Harami Cross:
This bullish reversal candlestick pattern also appears in the downtrend. The previous candlestick must be red or black and the very next candlestick must be a doji. The high of the Doji must be lower than the open of the previous candle. The low of the Doji must be higher than the close of the previous candle. When a Bullish Harami Cross candlestick pattern is recognized after a bearish move, it can signal a reversal in the price action.
• Three White Soldiers:
In a downtrend, it signals the continuation of the bullish trend in the same direction. If we compare with other bullish reversal patterns this signal is not strong enough. The two candlesticks next to the first candlestick close at higher prices than the previous ones. Three significant, consecutive and boosting white candlesticks encompasses this formation. The former candlestick paves the way for the new successive candlestick.
These are the main bullish reversal patterns. You can always use this signals for trading either for short term or long term. Always compare these patterns with RSI (Relative Strength Index) and use a stop loss to become a successful investor.
Please check my next blog regarding the bearish reversal patterns.
