THE COMPLETE GUIDE TO CANDLESTICK PATTERNS
By this comprehensive guide you will learn how to spot candlestick patterns that aid in analysing price direction in Forex Trading, as well as learn to read a candlestick chart to analyse previous price movements.
What is a Candlestick?
A Candlestick is a visual tool used to analyse data from a technical perspective. Typically, this data will be financial in origin, stocks, currencies, commodities, etc. Candlesticks measure data that is constantly fluctuating, a single candle will represent a certain amount of time and will show you a few key pieces of information for that timeframe.
HOW TO READ JAPANESE CANDLESTICKS
Japanese Candlesticks are comprised of 4 main components, the Open price, the High price, the Low price, and the Close price. These are shortened simply to OHLC.
OHLC – Open, High, Low, Close
The Open price is the price in which the instrument you are analysing enters your chosen timeframe. If you are on an Hourly chart, this will be the price that the instrument will have been at precisely on the hour. If you are on a Daily chart, this will be the price of the instrument at the very start of the day. On a bullish candle, this will be the lowest part of the wider section (real body) of the candlestick, and on a bearish candle, this will be the highest part of the wider section (real body) of the candlestick.
The Close price is the price in which the instrument you are analysing exists your chosen timeframe. If you are on an hourly chart, this will be the price that the instrument will have been at a moment before moving into the next hour. If you are on a Daily chart, this will be the price of the instrument at the very end of the day. On a bullish candle, this will be the highest part of the wider section (real body) of the candlestick, and on a bearish candle, this will be the lowest part of the wider section (real body) of the candlestick.
The High price is the highest price that the instrument reached during your selected timeframe, it is represented as the tip of the thin line that protrudes from the top of the candlestick.
The Low price is the lowest price that the instrument reached during your selected timeframe, it is shown as the bottom of the thin line that protrudes from the bottom of the candlestick.
As you can see from the image, the ‘Real Body’ is referring to the wider section of the candlestick, this section shows you the difference between the Open and Close prices of the instrument you are analysing, depending on your chosen timeframe.
Wicks, or shadows, refers to the thin lines that protrude from the top and bottom of the candlestick. These show the total movement of the instrument you are analysing, with the tip of the upper wick/shadow showing the High price, and the bottom of the lower wick/shadow showing the Low price.
WHY WE USE JAPANESE CANDLESTICKS
Japanese Candlesticks are a useful tool when it comes to technical analysis. They provide 4 points of information as opposed to the single point you would get with alternative charting formats such as the line graph. However, there is only so much information you can get from these candlesticks.
The way we see them at Forex Trading Masters is not exclusively from a technical perspective, we also see them from a psychological perspective. Human beings are the variable in the equation; market movements are based mostly on the sentiment of your fellow traders, even those with the most market-moving power that sit in some of the largest financial trading institutions in the world are human.
The Psychological Element to Japanese Candlesticks
Japanese Candlesticks themselves are emotionless elements, tools for us as traders to use to better understand the information we are looking at. They have no thoughts, no feelings, no soul. But what they do have, is influence. Candlesticks influence our decisions, and human beings are superstitious, and habitual.
Time is a construct of humanity; therefore, timeframes are also a construct of humanity. The importance we give to the minutes, the hours, and the days is entirely within the human psyche. Sure, the night and day cycle are a natural phenomenon, but we as people have decided where and when the hours fall, we decided on 24 hours in a day, we decided on 60 minutes in an hour, and we decided that these elements were important.
So how does this tie into Candlesticks?
Simple. We as people inherently care where the price of an instrument might be when the clock ticks over to the next hour, or the next day. There is no natural reason for us to care outside of our own psychological predisposition. The price an instrument happens to be at when that clock ticks over has no importance in and of itself, WE give it that importance.
Once you realise this concept, you start to understand that your fellow traders, your fellow human beings, your fellow servants of superstition, are what drives the power of these candlesticks and their patterns.
The patterns themselves are just a summary of price movement, sure you may be able to determine strength in either direction or a loss of momentum, but these can easily change regardless of the candlestick patterns themselves. What often gives these candlestick patterns the power to move the markets is the belief in them, the thousands of traders that see them and ACT.
If you understand how your fellow traders see these patterns, you will also begin to understand how your fellow traders will potentially affect the momentum or direction of the markets themselves as they begin to place their trades.
SINGLE CANDLE PATTERNS
TWO CANDLE PATTERNS
THREE CANDLE PATTERNS
FOUR+ CANDLE PATTERNS
Bullish Marubozu Candlestick Pattern
What is a bullish Marubozu?
A bullish Marubozu candlestick pattern indicates that there is so much buying interest in the instrument that market participants were willing to buy it at every price point during the session, so much so that it closed near its high point of the day.
Unlike many other candlestick patterns, it does not matter what the past trend has been, the action during the session indicates the trend has changed emphatically and is now bullish.
How to identify a bullish Marubozu
A bullish Marubozu is a single candlestick pattern with no upper or lower wicks or shadows. One should watch for the full Marubozu candlestick to form before drawing any conclusion. The general expectation is with the change in market sentiments and a surge of bullishness, the trend is likely to continue for the next few trading sessions.
How to trade a bullish Marubozu
A bullish Marubozu candlestick pattern is a strong bullish signal and once it is formed, traders and investors may consider going long with a stop loss placed blow the candle. If the bullish Marubozu is formed in an uptrend, then it indicates a strong continuation of the trend. On the other hand, if it forms at the end of a downtrend, it implies a reversal of the trend, and that the sentiment has turned bullish. If the latter happens, then it is likely that several bullish candles would be formed after this pattern and traders may use this opportunity to make gains by going long.
Traders with a decent level of risk appetite would buy it on the same day to ensure maximum gain while a risk averse traders would buy it on the next trading session after getting confirmation through the formation of the next candle.
Although the risk averse traders are buying at higher prices and hence with deep stop loss levels, the trade-off here is they are buying only after doubly confirming the establishment of a strong bullish trend.
Bearish Marubozu Candlestick Pattern
What is a Bearish Marubozu?
A bearish Marubozu is a single candlestick pattern that shows the session’s high price is equal to the open price and the low price is equal to the close price, which shows the sellers are in control of the market and market participants were willing to sell at every price points. Hence, the price closed near the low point of the trading session. It is a pattern that shows extreme bearishness.
How to Identify a Bearish Marubozu
It is a bearish single candle pattern with no upper or lower wicks or shadows. If a bearish candlestick appears in a downtrend, it means continuation of the trend. However, if it occurs in an uptrend, then it is a convincing sign of a trend reversal in the market. The candle must be around twice the size of the recent preceding candles to indicate the strength of the pattern.
How to Trade a Bearish Marubozu
It is expected that the trend seen on the Marubozu day is likely to continue for the next few trading sessions. Hence, a trader should look for opportunities to sell or go short after the appearance of a bearish Marubozu pattern with a stop loss being placed below the candle.
Trade can be executed based on the respective trader’s risk appetite. Risk takers may take short positions on the same day of the formation of a bearish Marubozu while risk averse traders may wait for confirmation on the next day before placing new bets.
However, traders should avoid trading on the basis of either extremely short or extremely long Marubozu candlestick as they may give false signals. They can mean either reduced activity or extreme activity, respectively.
A small candle may mean subdued trading activity and hence determining the direction of the market would be difficult. Similarly, a long Marubozu candle may mean extreme activity and so the stop loss would also be very deep and hence difficult to identify or protect the downside if the trade goes wrong.
Bullish Spinning Top Candlestick Pattern
What is a Bullish Spinning Top Pattern?
A bullish spinning top pattern is a single bullish or positive candlestick pattern that indicates uncertainty in themarket. It is defined by a small body with long wicks on both sides, ideally of similar lengths.
This candlestick pattern is also classified as a neutral pattern because it indicates indecisiveness among thebuyers and sellers with neither of them having the upper hand.
Although the pattern follows the same structure and logic as the doji, the notable difference is the former hasa wider body which suggests substantial movements in the price during the candle’s session.
How to identify a bullish spinning top
A bullish or positive candle that has a short body vertically centred between two long wicks or shadows,indicating minor difference in the opening, and closing prices. It represents indecision or uncertainty amongtraders over the future price direction. A spinning top pattern forming at the bottom of a downtrend could mean that the bears are slowly losing control and the bulls may take over. The confirmation comes from the next candle.
How to trade a bullish spinning top
Spinning top candlestick formation are common and hence the pattern can often be inconsequential on its own. What is not certain is the direction in which prices would move but what is certain is the movement of the prices.
Therefore, it is imperative to understand how the pattern was formed and its relation to the overall market trend or sentiment.
Traders should wait for further confirmation either through more technical indicators or fundamental analysis or even by observing the subsequent candle formation before initiating fresh trades.
A safer way to trade this candlestick pattern is by placing half of the intended bet on the pattern’s formation and wait for the subsequent candle for confirmation.
If the price moves in the other direction during the next session, the trader can place the other half of his intended bets, thereby averaging out his risks and rewards.
Bearish Spinning Top Candlestick Pattern
What is a bearish spinning top pattern?
A spinning top pattern in a candlestick is an indicator of indecisiveness before the price gathers further momentum. It is a scenario where neither the buyers nor the sellers are gaining or losing as the opening and closing prices are within a small range.
However, the spinning top formation also indicate the possibility of a trend reversal. If the spinning top occurs at the peak of an uptrend, it means the bulls losing control and the trend is about to reverse.
How to identify a bearish spinning top
A bearish spinning top candlestick pattern can be identified from the size of the candle which is generally small with long wicks. It is usually formed at the peak of an uptrend to be termed as a bearish spinning top as that may indicate a trend reversal from the uptrend peak.
The latter, however, has to be confirmed by the next candle.
How to trade a bearish spinning top
Spinning top, as a candlestick pattern, often marks the very first day of a trend reversal which traders should take note of. However, spinning top pattern forming not at the resistance level may not be of much significance in terms of bearish trend determination. The smart way to trade a spinning top candlestick pattern is to trade when they are formed at levels of significance and, in this particular case, the level of resistance.
Traders who are risk averse, should not trade instantly after the formation of a bearish spinning top pattern but rather wait for further cues from the formation of the next candlestick and the related technical indicators. Traders who have outstanding long positions before the rally started should use this opportunity to book profits.
Finally, trading the spinning top candlestick pattern with a stop loss would be a prudent strategy for all traders as that would make their overall risk reward ratio look good. The other safe strategy is using derivatives as the latter makes tracking price movements easier without the need for ownership of the underlying assets.
Hammer Candlestick Pattern
What is a hammer pattern?
A hammer candlestick pattern is a single bar candlestick pattern that is a bullish reversal signal. It occurs when the price is trading at significantly lower than its opening but rallies within the period to close near the opening price.
A hammer pattern typically occurs when prices have been declining. Sellers attempt to determine the bottom while, buyers come in, absorb the selling pressure, and try to push the price higher. All happens within the same trading session where prices fall after the open and then recovers to close near the opening level.
How to identify a hammer
The single bar candlestick pattern looks like a hammer when it has a lower wick or shadow that is twice the size of the body of the candle. The wicks represent the high and low prices for the session while the real body of the candle indicates the opening and closing prices of the session.
How to trade a hammer
Hammer patterns are most effective when they are preceded by three or more bearish candles. It does not indicate price reversal to the upside until it is confirmed which can only occur it closes above the closing price of the previous session’s hammer pattern.
This confirmation indicates strong buying support and traders tend to take long positions from here on or exit from their outstanding short positions.
For traders taking long positions, a stop loss can be placed below the hammer pattern’s lower wick or shadow or maybe even below the real body if the price movement is really aggressive during the formation of the confirmation candle. As for traders with outstanding short positions, the pattern is an indication that the selling momentum is subsiding and, hence, it would be the ideal time to exit the trade. Therefore, traders can use the hammer candlestick pattern to decide on entries and exits from short term trade although it does not factor in the overall trend in the market.
Inverted Hammer Candlestick Pattern
What is an inverted hammer pattern
An inverted hammer is a candlestick pattern that is usually found after a downtrend and is considered to be a trend reversal signal. It appears on the chart when there is pressure from the buyers to push the prices higher.
How to identify an inverted hammer
An inverted hammer candlestick pattern can be identified by a long upper wick, a shorter body, and a short lower wick. This pattern is formed when bullish traders start to gain confidence again after sellers have pushed the price downwards. The long upper wick shows buyers are pushing up prices as higher as they can while the relatively small lower wick shows that sellers, or maybe even short sellers, are trying to resist the higher prices. However, as the bullish momentum is too strong, the price ultimately settles higher.
How to trade an inverted hammer
An inverted hammer pattern tells the sellers in the market to exit as there is likely to be a trend reversal while telling the buyers to enter the market as a bullish trend is about to start. The appearance of an inverted hammer pattern near the support level may provide the basis for a strong bullish trend reversal and traders can place stop loss limits near the support level to limit their downside risks in case prices move in the other direction.
Traders should note that an inverted hammer pattern is a warning of a potential price change but not a signal, by itself, to buy. Validation of the pattern’s movement will be confirmed or rejected by price actions on subsequent candles.
In order to confirm the signal either way and increase the success rate of the trade, traders should wait for the next trading session and also look at other technical parameters or complimentary signals such as the volume of trade etc. If the opening price in the next session is higher than the closing price of the inverted hammer pattern, then traders may enter into fresh long positions.
Hanging Man Candlestick Pattern
What is a hanging man pattern?
A hanging man pattern is a single bar candlesticks pattern which is a type of bearish reversal signal and is formed in an uptrend. Although many analysts believe the pattern is a key piece of evidence that the strength of the uptrend is waning, and market sentiments are turning but selling solely based on a hanging man candlestick pattern can potentially be a risky proposition.
How to identify a hanging man
A hanging man candlestick pattern has a short body with a long lower wick and a tiny or no upper wick. The inference from this pattern is that a large sell off has occurred after the opening which sent the price plunging but subsequent interest from buyers helped push the price up to near the opening price.
How to trade a hanging man
A hanging man candlestick pattern is not confirmed unless the price falls in the subsequent trading sessions. If that happens, then traders can exit from their outstanding long positions and initiate fresh short positions at this point.
In an ideal hanging man candlestick pattern, the lower wick is usually twice as long as the body of the candle and it indicates that traders want to ascertain the strong entry of the sellers in the session while some traders also look at the accompanying trading volume to get convinced of the price movement. Candlesticks with heavier trading volumes have historically proved to be better price or trend predictors than those with lower trading volumes.
The ideal condition for short traders to trade a hanging man pattern is when the pattern has trading volume that is above average, longer lower wick and is followed by a bearish candle formation on the next day. A confluence of all the above conditions would make price decline almost certain and hence short traders may enter at this point for maximum gains.
The hanging man candlestick pattern is, however, useful for gauging short term momentum and price movements while the longer-term direction remains unaffected.
Shooting Star Candlestick Pattern
What is a shooting star pattern?
A shooting star candlestick pattern is almost similar to the inverted hammer pattern with the key difference being that a shooting star pattern appears in an uptrend. It has a long upper wick or shadow, a smaller body and almost no lower wick.
Its unique structure of a short body with a long upper wick makes it one of the most reliable bearish patterns on the chart and trades use it to make entry points for short trades.
How to identify a shooting star
A shooting star candlestick pattern is formed when an instrument opens, moves up significantly and then closes near the session’s open level. It must appear during an uptrend and the length of the upper wick should ideally be almost twice the length of the real body.
It is considered a bearish pattern because the price goes up significantly after opening but comes down within the same session to close near the session’s opening level.
How to trade a shooting star?
Many traders often use the shooting star candlestick pattern to enter short trades because they believe the bullish momentum is losing its strength. Ideally, traders should wait for the formation of the next candle after the shooting star pattern for confirmation before entering.
If the price declines after the shooting star pattern, then traders may sell their outstanding long positions or go short. However, if the price goes up after the shooting star formation, the latter may have been a false signal, or it is potentially marking a resistance level around its price range.
A shooting star pattern should always be traded with a stop loss above the upper wick to secure any short trade in case market volatility creates any sudden bullish moves and push prices higher.
Similarly, traders should also keep a price or profit target which should ideally be equal to the size of the shooting star pattern.
Dragonfly Doji Candlestick Pattern
What is a dragonfly doji pattern?
A dragonfly doji is a candlestick pattern that indicates a potential reversal of the price either towards upside or downside, depending upon the recent price movements. It is formed when the open, high, and closing prices are the same.
Formation of the dragonfly doji pattern after a northward movement of price warns of a potential price decline while similar formation after a price meltdown would indicate price appreciation. The next candle will provide the confirmation for both.
How to identify a dragonfly doji
A dragonfly doji pattern is relatively easy to identify because of its unique T shape as the open, high, and close prices are equal or remarkably close to each other while the low of the period is significantly lower than the former three. A long lower wick implies that the market tested the location of demand and found it and hence moved up from there. The longer the wick, the more significant the price movement can potentially be.
This implies that the bears tried in vain to push the price downwards, but the price eventually got pushed up. It also means a rejection of the downside and is considered a bullish sign.
How to trade a dragonfly doji
A dragonfly doji pattern does not occur frequently but when it does, it is a warning sign that the price trend may change direction. If it appears after an uptrend, then a decline in prices is set to follow and a dragonfly doji formation accompanied by a higher than usual trading volume is more reliable that a dragonfly doji with lower trading volumes.
Traders willing to place long bets with the dragonfly doji pattern should wait for the price to go above the high of the dragonfly doji but preferably with a stop loss below the low of the dragonfly doji. Long traders should also look at the support level at the low of the candle.
Gravestone Doji Candlestick Pattern
What is a gravestone doji pattern?
A gravestone doji is a bearish trend reversal candlestick pattern in which the open, low, and closing prices are close to each other with a long upper wick or shadow. It is usually seen the end of an advance and the longer upper wick indicates new highs being tested. However, the fact that the closing price is close to the opening price of the session prove that bulls are losing grip over price movements.
How to identify a gravestone doji
A gravestone doji is formed when bullish pressure pushes prices higher but greater selling pressure provide resistance and pushed prices back to the opening level of the session, indicating the bullish rally had been rejected by the market for the time being.
The pattern looks like a side profile of a gravestone and hence the name. Some traders also call it the gravestone of the bulls since the bears have taken over the control of the reigns.
How to trade a gravestone doji
The gravestone doji is a helpful pattern for traders to locate the resistance level and when outstanding long positions should be squared off. However, other indicators should also be used in conjunction with the gravestone doji to determine an actual sell signal.
For short traders of the gravestone doji pattern, the low of the candle could act as the trigger for entry with a stop loss limit placed at the high of the candle. The stop loss limit would protect the trader in case the trade goes against his bets.
Traders should also note the risk level associated with trading the gravestone doji candlestick pattern varies and depends on the length of the wick of the candle. Hence, it would be prudent to have a profit target in place at various points just like the stop loss limits. The profit target may be based on the volatility and the length of the wick.
Long Upper Shadow Candlestick Pattern
What is a long upper shadow pattern?
A long upper shadow pattern appears during a price advance and is often interpreted as a sign that the price is going to reverse, or a downturn is coming. As it occurs when the price moved higher during the session but subsequently goes back down in the same session, it is considered as a bearish signal.
How to identify a long upper shadow
Candlesticks with a long upper shadow or wick indicate the buyers dominated the trading session by bidding prices higher but the sellers ultimately forced the prices to come down from their highs. This contrast of a long high but a weaker close leads to the formation of long upper shadow or wick.
Long wicks typically form when prices are being tested and ultimately get rejected. A long upper wick or shadow indicates that there is not adequate demand at the high level to push the prices higher.
How to trade a long upper shadow
Traders should spot the price levels in coincidence of the long upper shadow or wick to determine the resistance level. A long shadow or wick can be traded as a trend reversal pattern if it is spotted at the top or bottom of a short trend. The length and position of the wick or shadow can help traders gauge the sentiments of the market.
If the real body of the candlestick is small but have a long upper wick, it means that resistance drove the prices back to the opening level despite the push received by the support during the early part of the trading session. In a downtrend, a long upper wick signals a strong potential for prices to move downwards, and traders can use the top of the upper wick as a stop loss level if they are going short.
The logic here is buyers pushed prices to that level but could not breach it to move further high. Hence, a level of resistance has been formed which short traders can use to limit their risks.
Long Lower Shadow Candlestick Pattern
What is a long lower shadow pattern?
A long lower shadow pattern is indicative of a trading session that was dominated by sellers, but the buyers ultimately managed to push the prices up and the session ended on a strong note. Candlesticks wicks or shadows are considered as zones of rejection and long wicks occur when prices are under test and are ultimately rejected.
Some traders and analysts consider a long lower shadow as a bullish signal, but which is quite weak in its capacity.
How to identify a long lower shadow
A long lower shadow pattern features a short candle body and a long lower wick that is typically twice the size of the main body. The presence of a long lower shadow often indicates an impending trend reversal.
If a bearish candle has a long lower shadow, then there is a big difference between the closing price and the low of the session. The bears push the prices downwards, but the bulls took over and propelled the prices back up.
On the other hand, if a bullish candle has a long lower shadow, then there is a big difference between the opening price and the session high. Prices dipped because of the influence of the bears but the bulls managed to pull it back up.
How to trade a long lower shadow
Prior to initiating any trade based on the long lower shadow pattern, traders should first identify if the trend is bullish or bearish. Once that is identified, they should wait for the formation of the next candle to confirm a trend reversal.
If the long lower shadow pattern appears at the top of a bullish trend, then traders should look for the next candle formation to be bearish as confirmation before initiating any fresh trade position. However, in order to minimise the chances of trading bets taking any unexpected turn, it is prudent to combine a long lower shadow pattern with other technical indicators while deciding any trade.
Bullish Kicker Candlestick Pattern
What is a bullish kicker pattern?
A bullish kicker pattern is a two bar candlesticks pattern consisting of a large bearish candle followed by a large bullish candle. As the latter opens with a gap up, the pattern is often interpreted as a sign of upward movement of the price. It is quite a dramatic pattern because market forces get completely shifted almost overnight and the pattern may occur regardless of the preceding market trend.
If a bullish kicker pattern is formed after an uptrend, then it indicates a trend continuation and that the market still has enough potency to continue the upward movement.
On the hand, if a bullish kicker pattern emerges after a downtrend, then it could be a sign that the market may have gone too far and there could be an imminent reversal of trend.
How to identify a bullish kicker
A bullish kicker pattern starts with a bearish candle while the second candle opens with a gap up. The gap should not be filled by the wick of the second candle. In fact, the latter should have a tiny or non-existent lower wick.
How to trade a bullish kicker
The bullish kicker pattern is considered as a strong bullish candlesticks pattern that shows either the market is recovering from a downtrend, or it has enough power to continue on the uptrend. Traders should look at the gap between the candles, the size of the real body of the candlesticks and the length of the wicks or shadows to increase the accuracy of the signal and hence their trade.
However, the pattern on its own may not be accurate enough to be traded without confirmation using other technical filters such as volume of trade, market volatility etc.
If the trading volume is higher than the surrounding candlesticks, then it means many market participants are contributing to the formation of the pattern, thereby raising its reliability and accuracy.
Bearish Kicker Candlestick Pattern
What is a bearish kicker pattern?
The bearish kicker is a two-candle pattern that starts with a long bullish candlestick which is higher than the next bearish candlestick. It often forms at the uptrend or the resistance level or even in an overbought stage.
It is an indication of a significant change in the sentiments of the market and is usually based on sudden surprise news. Traders use it to determine which group of participants are in control of the direction of the market.
How to identify a bearish kicker
The bearish kicker pattern does not necessarily form after a large downtrend or uptrend in price but can occur as a reversal in an overbought uptrend. The candle formation shows a bearish sentiment with no buyers inside the gap down.
How to trade a bearish kicker
A bearish kicker pattern can signal it is time to exit any long position at the end of the bearish candle or the second candle. It can also be used as an opportunity to initiate short positions at the end of the bearish candle with a stop loss set at the high of the bearish candle. The pattern is a shift in sentiment that is much quicker than most market participants had anticipated and, hence, there could also be some level of panic selling in the market after the pattern is formed. The latter, in itself, could bring the market much lower. In order to enhance the accuracy of the pattern, traders should note if the gap between the two candles is significant, the size of the candlesticks relative to its surrounding counterparts, the length of the wicks or shadows, the trading volume involved as well as market volatility. A bearish kicker pattern forming after an uptrend could mean a trend reversal while a bearish kicker pattern forming after a downtrend could mean the market has enough strand left to affect a trend continuation.
Bullish Meeting Lines Candlestick Pattern
What is a bullish meeting lines pattern?
A bullish meeting lines pattern is a bullish trend reversal pattern and typically occurs in a downtrend. It is a two-candle pattern with the first being a bearish candle followed by a bullish candle. It reflects more of a stalemate between the buyers and the sellers. An ongoing downtrend is further emphasised with the formation of a bearish candle and raising the confidence of the sellers. Subsequently, the buyers come back and push prices up, leading to a close almost equal to the previous close. The fact that the bulls have been able to replenish the losses and push prices higher instilled more confidence among the buyers, leading to more traders and investors jumping in and turned around the market trend again.
Although the reversal is apparent, it still needs a confirmation from the formation of the next candle.
How to identify a bullish meeting lines
A bullish meeting lines pattern can be noticed if the first of the two-candle pattern is bearish and is part of an ongoing downtrend. The second candle opens with a gap down but manages to close the gap during the session and closes at or near to the close of the first candle. However, as the pattern closely resembles some other candlestick patterns, it is imperative to verify it carefully.
How to trade a bullish meeting lines
The most crucial aspect of the bullish meeting lines pattern is the large gap between the close of the first candle and the open of the second candle which is then filled. The size of the gap helps in determining the accuracy of the trend reversal signal. The bullish meeting lines pattern is considered a bullish trend reversal pattern but it, only by itself, should not be traded and traders should ideally wait for confirmation via the next candle formation. Besides, traders must initiate trades on the pattern with a stop loss limit being placed at or near the last low if a Buy order is placed.
Dark Cloud Cover Candlestick Pattern
What is a dark cloud cover pattern?
A dark cloud cover pattern is a signal of a momentum shift towards the downside. It typically appears at the top of an uptrend and consists of a positive or bullish candle followed by a negative or bearish candle.
How to identify a dark cloud cover
The ideal factors that may enable the formation of a dark cloud cover are an existing uptrend, slowing momentum or bearish inclination and the second candle closing lower than the mid-point of the previous candle. The fact that the candle opened higher but wiped out almost half of the previous session’s gains is what makes it bearish and also gives it the name. Traders interpret it as opening with a ‘sunny’ look but ‘dark clouds’ moved in later. The bearish signal gets more strengthened if the third candle closes below the low of the first candle and the pattern appears near a major resistance level. A high volume of trade during the formation of the pattern adds credence to the bearish indications.
How to trade a dark cloud cover
Once there is confirmation of a dark cloud cover pattern or a momentum shift towards the downside, traders can enter at the opening level of the next candle that has formed after the dark cloud cover pattern.
Smart traders can spread their risks and rewards by setting multiple target levels since the trade is potentially the starting point of an extended move downwards. The advantages of a dark cloud cover pattern are since it appears at the start of a potential downtrend, there could be attractive entry points to the trade. However, confirmation of continued selling must be seen in the next and subsequent few candles to further establish the downtrend and short traders can place an entry at the open of the next candle that is formed after the dark cloud cover pattern.
Bearish On-Neck Line Candlestick Pattern
What is a bearish on-neck line pattern?
The bearish on-neck line pattern is a bearish trend continuation candlestick pattern. It appears in a downtrend and predicts the continuation of the ongoing market trend. It may also appear as a short pullback in an uptrend.
How to identify a bearish on-neck line
It is a two-candle bearish continuation pattern. The first candle is a long bearish one appearing in a downtrend while the second candle is a bullish one that opens below the closing of the previous candle and closes equal to the low of the first candle. The pattern shows that although the sellers are completely in control of the market, the buyers attempted a rally upwards, but the latter fizzled out on the second candle. So, it clearly suggests a continuation of the downtrend.
How to trade a bearish on-neck line
Traders should ideally wait for the formation of a confirmation candle after the on-neck line pattern before taking any fresh trade positions and a bearish candle appearing on the next day would provide that confirmation. If the bearish candle appearing on the third session has a long body, then that would strengthen the conviction of the bearish continuation and so does a gap between the second and third candle.
If the price penetrates the low of the bullish candle, then that can also be considered as a confirmation.
Since the pattern is not particularly influential, especially in the long term, traders are well advised to also confirm the data through other technical indicators as that would help in predicting the future direction of the price.
A method to determine profit taking must be thought of because this pattern inherently does not help in determining profit targets. That is another reason as to why traders should use other technical indicators in association with the bearish on-neck line candlestick pattern.
Bullish On-Neck Line Candlestick pattern
What is a bullish on-neck line pattern?
A bullish on-neck line candlestick pattern is a trend continuation pattern occurring during an uptrend.
How to identify a bullish on-neck line
In a bullish on-neck line pattern, the first candlestick is a bullish one with a long body. The second candlestick opens with a gap up but ends up closing below its open and, in the process, turns into a bearish candlestick. The latter’s close is around the body of the previous candlestick.
How to trade a bullish on-neck line
Like with many other candlestick patterns, traders should wait for the next candle to form to determine the future momentum of the market before initiating any fresh trade positions.
Bearish In-Neck Line Candlestick Pattern
What is a bearish in-neck line pattern?
A bearish in-neck line pattern is a bearish continuation candlestick pattern that appears in a downtrend. It is made up of a negative candle followed by a positive candle.
With the overall sentiment being bearish, market participants are convinced that prices would continue to fall and that is evident from the first candle, which is bearish.
Subsequently, some traders feel the market has gone into an oversold territory and hence try to enter fresh long positions in the hope of a short-term pullback in the market. Although that buying pressure pushed the market slightly, it was never strong enough to change the course of the overall trend, which is overwhelmingly bearish. Once some of the long traders realised this fact, they sold their long positions, thereby adding to the selling pressure in the market.
How to identify a bearish in-neck line
In a bearish in-neck line pattern, the first candle is a bearish one that appears in a downtrend. The second candle opens below the close of the previous candle but closes at or marginally above the close of the first candle. The pattern must be followed by a third candle that should close below the second candle for confirmation.
How to trade a bearish in-neck line
Even though the pattern is considered to be a bearish continuation pattern, traders should also observe other technical indicators such as volume of trade, seasonality of the market momentum, etc to arrive at a fool proof trading strategy.
Bullish In-Neck Line Candlestick Pattern
What is a bullish in-neck line pattern?
A bullish in-neck line is a two-candle trend continuation pattern that appears in a market uptrend.
How to identify a bullish in-neck line
In a bullish in-neck line candlestick pattern, the first candle is a bullish one with a long body followed by a second candle that opens with a gap up. However, the latter closes below its open and around the top of the body of the first candlestick.
How to trade a bullish in-neck line
In this pattern, traders should wait for further signals from the formation of the next candle before initiating any fresh trade and must also look at the volume of trade to be convinced about future momentum of the market.
Bearish Separating Line Candlestick Pattern
What is a bearish separating line pattern?
A bearish separating line pattern is a bearish trend continuation pattern that indicates prices are heading further downwards. It is a two-bar candlestick formation in which both the bars/candles open at the same level but separate from there to move in opposite directions. The pattern appears rarely on candlestick charts.
How to identify a bearish separating line
For a bearish separating line to form, the first candle has to be bullish and form in a negative trend. The second candle, however, must be bearish. As the pattern appears in a predominantly bearish phase in the market, most market participants expect the prices to decline further. However, there is a pullback as no market moves consistently in one direction without a pause and that is evident from the first candle in the bearish separating line pattern. The pullback then ends abruptly with a bearish candle with a gap. The fact that sellers returned to the market with force to negate the pullback rattled some of the market participants who took part in the pullback effort, and they sell their positions. The latter further empowered the downfall in prices and led to the continuation of the bearish trend.
How to trade a bearish separating line
As with most candlestick patterns, it is advisable to not trade on the basis of any one pattern. In the case of this pattern, traders should look at other technical filters such as volatility, seasonality of trade and the momentum in addition to the bearish separating line pattern before placing any fresh trade orders. Besides, trading volumes also give access to crucial information and ideas about the conviction of the market and the significance of each candle in a candlestick pattern.
Another effective way to understand the significance of a candlestick pattern is by observing the range. As with the trading volumes, candles with bigger price range tend to be more significant than those with shorter price ranges.
Bullish Separating Line Candlestick Pattern
What is a bullish separating line pattern?
A bullish separating line pattern is a two-bar bullish trend continuation candlestick pattern that appears in an ongoing bullish trend. It is often interpreted that the bullish trend would continue after a small pullback of prices.
Although the market is predominantly bullish, the bullish sentiments abate briefly and allow the bears to take advantage and push prices down. Then the market opens on the next session with a gap up that signals the continuation of the bullish trend. As many market participants were waiting for the latter signal to place fresh
buy orders, a renewed buying pressure bolsters the bullish sentiment in the market and helped continue the bullish trend.
How to identify a bullish separating line
A bullish separating line pattern is made up of two candles, with the first being bearish and the second candle being bullish. The second candle either opens with a gap up than the first one or opens at the same level and closes higher.
How to trade a bullish separating line
The longer the candles in the bullish separating line, the more reliable is the pattern. However, before placing any trade based on the pattern and its signal, traders should wait for a strong bullish candle to form after the pattern for confirmation. Traders may also want to look at how long has it been since the market tested its past highs and bottoms. They may measure the distance from the last high to gauge the potency of the pullback. The other yardstick for traders willing to trade the pattern could be the volume of trade involved in the pattern as that would give an idea about the entry or exit of big players in the market. Therefore, traders willing to go long using the bullish separating line pattern must note that the trading volume of the second candle must be at least twice the trading volume associated with the first candle.
Bearish Thrusting Line Candlestick Pattern
What is a bearish thrusting line pattern?
A thrusting line, in general, is a two-bar candlestick pattern associated with bearish price trends. A bearish thrusting line tends to put further pressure on the price to move downwards.
How to identify a bearish thrusting line
In a thrusting line candlestick pattern, the first candle is a bearish one followed by a bullish candle. In a bearish thrusting line, the opening of the second candle is lower than the close of the first candle while the closing of the second candle barely touches the closing level of the first candle.
A bearish thrusting line is a continuation pattern, indicating a continuation of the downward movement of the prices. To ensure validation of the pattern, one of the subsequent candles must close below the lowest point of the bullish candle and must be bearish.
How to trade a bearish thrusting line
A bearish thrusting line, on its own, ought not be the only basis for initiating fresh trade positions. Traders should get a confirmation through the formation of a third candle which should be bearish and closes below the body of the second candle.
Once that confirmation is obtained, traders may initiate fresh short positions and, preferably, with stop loss limits. The stop loss limit may be placed above the second candle of the two-bar candlestick pattern.
When it comes to profit targets, since this is a continuation pattern, there is no specific profit target. Therefore, traders should use other price actions in conjunction with the bearish thrusting line pattern to determine profit levels.
In this context, traders must note that if the mid-point of the large bearish candle is breached, then the pattern is invalidated. Moreover, traders ought to be cautious if the pattern appears multiple times in a row. In that case, the chances of a reversal of the trend are quite high.
Bullish Thrusting Line Candlestick Pattern
What is a bullish thrusting line pattern?
A bullish thrusting line is more likely to reverse the price move instead of continuing in the direction of the bearish trend. Hence, it is also called a bullish thrusting line or a weak continuation thrusting line. In this pattern, the first candle must be large and the second one should be smaller. It is often formed after a significant rise in the market that is characterised by several bullish candles before the bullish thrusting line candlestick pattern emerges on the charts.
How to identify a bullish thrusting line
As with all other thrusting line candlestick patterns, this too has a bearish candle followed by a bullish candle. The opening of the second candle is almost at the same level as the close of the first candle while the closing of the second candle is almost at the mid-point of the body of the first candle.
For the pattern to be further validated, one of the subsequent candles must close above the top of the bearish candle and should be bullish.
How to trade a bullish thrusting line
Since the bullish thrusting line is a reversal thrusting line, traders should be ready to trade it with a bullish outlook. However, the pattern needs to be confirmed by the formation of a third candle which should be bullish and must break the mid-point of the first candle. Once that happens, traders may consider initiating fresh long positions with strict stop loss limits. The ideal stop loss limit for this pattern would be below the lower wick or shadow of the second candle.
When it comes to targets or exit points, traders are recommended to use price actions rules and other technical data points for optimum gains. As a note of caution, traders should look that the midpoint of the large bullish candle is not breached. If that happens, then the pattern may be considered invalidated.
Matching High Candlestick Pattern
What is a matching high pattern?
A matching high candlestick pattern is a two-candle formation that typically occurs in an uptrend and signals that the latter is coming to an end. It is essentially built on two Marubozu candlesticks and is part of the trend reversal group of candlestick patterns. As the pattern forms in an uptrend, the sentiment remains bullish, and the prevailing buying pressure continue to push prices up. However, having been in an uptrend for quite some time, some market participants start believing either it has entered into an overbought category or maybe it is time to book profit. As such, the latter start to close their outstanding long positions, thereby creating a selling pressure that leads to it opening with a gap down in the next session. Still, the market manages to recover some of the losses as the sentiment remains overwhelmingly bullish but the negative gap and the failure to breach the previous close started influencing other traders to close their positions and exit. This leads to further selling pressure and the market turns bearish.
How to identify a matching high
In a matching high candlestick pattern construction, the first bullish candle has a long body with no upper wick. The opening of the second candle needs to be higher than the previous one, but both the candles should close roughly at the same level.
How to trade a matching high
Despite the matching high pattern being a signal for trend reversal, traders are well advised not to trade only on the matching high pattern and, instead, look for other technical data points such as volume, overbought levels, seasonality of the bullish or bearish movements etc. Based on optimum alignment of all factors indicating a trend reversal, one may initiate short positions to trade the pattern. Since it is a signal for a change in the trend, the accompanying trading volumes can give a fair idea about the conviction behind the price movement or how many large market participants took part or stayed away from the price moves.
Matching Low Candlestick Pattern
What is a matching low pattern?
A matching low is a two-candle bullish trend reversal pattern that occurs after a downtrend. It consists of two bearish candlesticks which close at or around the same price level and is one of the candlestick patterns that occurs least frequently on the charts.
As the pattern appears in a downtrend, the market sentiment remains overwhelmingly bearish and market participants anticipate prices to plunge further from their current levels. The formation of the first bearish candle in the pattern bolsters that conviction too.
It is at this point that some market participants begin to think the market has entered into an oversold territory while some other market participants decide to square off their outstanding short positions, leading to some buying pressure in the market and a gap in the formation of the next candle.
The initial buying pressure was not strong enough and sellers managed to push prices down but not below the previous close. Some traders interpreted this as the market strength and further closed their outstanding short
positions, leading to renewed buying pressure in the market. The latter turned around the market convincingly and starts a new uptrend.
How to identify a matching low
In a matching low candlestick pattern, the first candle should be a long bearish one while the second one gaps up but still manages to close at or around the same level. The pattern occurs after a price decline and often hints that the price has reached a support level. The failure of the second candle to close below the close of the first candle creates a support level for a bullish move.
How to trade a matching low
In order to make the matching low pattern worthwhile for trading, traders and investors should also look at other technical indicators before arriving at any conclusion to trade. The other factors include volume, volatility, seasonality of the trade direction etc.
Prima facie, traders could look for a rebound in prices after the formation of a matching low candlestick pattern.
Piercing Line Candlestick Pattern
What is a piercing line pattern?
A piercing line candlestick pattern is considered as a bullish reversal pattern located at the bottom of a downtrend. Coming, as it does, during a downtrend, bulls were successful in holding the prices higher, absorbing the excess supply of the security in the market, and increasing its demand.
How to identify a piercing line
A piercing line is a two-candlestick pattern that forms over two trading sessions.
The first day’s candle is a continuation of the downtrend and is therefore bearish and is of no significance on its own. However, on the second day, a bullish candle is formed that covers almost half the body of the bearish candle that was formed on the previous day. The three key characteristics of the pattern is the preceding downtrend, a gap after the first candle and a strong reversal in the second candle.
In other words, the first session is influenced by the sellers while the second candle is enthusiastically responded to by the buyers. It indicates that although the supply has depleted somewhat but the price levels have attracted fresh demand from buyers too. This dynamic could be an indicator of a fresh price move upwards.
The strength of this pattern is maximum if the bullish candle covers over half of the body of the bearish candle that was formed on the first day.
How to trade a piercing line
Traders and investors should look at few characteristics in a piercing line pattern before initiating any fresh trade. They are the preceding downtrend, the length of the candlesticks and the gap between the two candles, among other factors. Generally, in a bullish trend reversal, traders and investors would typically like to place buy orders to benefit from the upward movement in the prices.
Bearish Belt Hold Candlestick Pattern
What is a bearish belt hold pattern?
A bearish belt hold pattern often hints at reversal in investor sentiment from bullish to bearish. It typically forms during an uptrend. When a bearish belt hold pattern develops, it means the sellers took control of the entire trading session and did not allow the price to push higher than the opening price.
How to identify a bearish belt hold
A bearish hold pattern can be identified when a stretch of bullish trades is suddenly followed by a bearish trade. Candlesticks from previous trading sessions should clearly be in an uptrend to confirm the sentiments have changed.
To confirm the changing trends, one must note that the candlestick is long and the next session’s candle is bearish. The price should close at or near the session’s low.
This pattern may occur in combination with another pattern too.
A bearish belt hold pattern usually does not have an upper shadow or wick which means the sellers maintained a control on the price and never allowed to move it higher than the opening price.
How to trade a bearish belt hold
Traders should not go short straightaway after spotting a bearish belt hold pattern but should look for additional conditions or cues to remove some of the false signals. If the market sentiments are overwhelmingly bullish, then the pattern observed in this case might fail.
It is better to observe at least two trading sessions before making predictions about the direction of the price trend. The pattern is more reliable when it occurs near the market extreme like the resistance level and trend lines.
Moreover, since the bearish belt hold pattern typically occurs at the end of a bullish trend, it is important to know the average length of the market. This can be done using historical data such as the distance between past market peaks and bottoms.
The average of the last few trends may be used as a reference although a strong trend may continue beyond the average length.
Bearish Engulfing Candlestick Pattern
What is a bearish engulfing pattern?
A bearish engulfing pattern is more like a harbinger of lower prices. The pattern consists of a bullish candlestick followed by a bearish candlestick that engulfs the bullish one. It shows that the sellers have
overtaken the buyers and are exerting more pressure to push the price down than the buyers are able to push the price up.
How to identify a bearish engulfing
A bearish engulfing pattern can be identified by the first bullish candle being overtaken or engulfed by a much longer bearish candle, thereby indicating a shift towards lower prices. A much longer bearish candle shows more strength.
The pattern is more reliable when it is preceded by clean bullish move. If the latter is choppy or range bound, then multiple engulfing patterns may occur, but they are unlikely to result in major price movements.
How to trade a bearish engulfing
Traders should ideally wait for the second candle to close and then close their long positions or take fresh short positions. For fresh short positions, traders may put s stop loss limit above the high of the two-bar candlestick pattern.
However, if the overall uptrend is strong, then taking a short position on the bearish engulfing pattern is not advisable as the latter may not be enough to stop the advance for long.
A good shorting opportunity exists only if the overall trend is down, and the price has just seen a temporary uptick but aligns overall with the market downtrend. As mentioned earlier, traders should not look to trade a bearish engulfing pattern in a choppy market even if they see a large body of the engulfing candle as that may leave them with a huge stop loss. The potential reward may not be enough to justify the risk taken. In this context, it is advisable that traders also use other technical filters for the rewards by determining the profit targets.
Bearish Harami Candlestick Pattern
What is a bearish harami pattern?
A bearish harami pattern is a two bar candlesticks pattern that indicates prices may soon reverse towards the downside. An uptrend typically precedes the formation of a bearish harami pattern.
How to identify a bearish harami
A bearish harami pattern can be identified by a long bullish candle followed by a short bearish candle. The opening and closing prices of the bearish candle must be contained within the body of the bullish candle. This pattern is relatively easy to spot in the charts, even for traders who are new in the market.
The opening of the second candle with a gap down to open within the mid-point of the previous candle is an indication of the change in the momentum in the market.
The size of the second bar or candle determines the strength or the potency of the trend reversal and is inversely proportional to the former. Traders may also use other technical indicators to look for signals that the momentum is indeed changing in the market.
How to trade a bearish harami
Identify the existing uptrend and look for signals that the momentum is slowing or reversing.
Once a bearish harami pattern is identified, short positions may be taken when the price falls below the second candle in the bearish harami pattern. Areas of support and resistance may be used to set profit targets. Traders may use multiple target levels to benefit from the downturn since the pattern usually appears at the start of a potentially long downtrend.
As the bearish harami pattern appears after a new high, traders must keep in mind that the market has turned lower from even lower highs in the past. Therefore, subsequent price actions are crucial for trading the pattern. Stop loss limits may be placed above the new high to protect their downside risks.
Traders often use other technical filters to raise the efficacy of the bearish harami candlestick pattern as a trading strategy.
Bearish Harami Cross Candlestick Pattern
What is a bearish harami cross pattern?
A bearish harami cross pattern forms after an uptrend. The first candle is a long bullish one showing buyers are in control and followed by a doji, which shows a period of indecision. Subsequently, if the price drops, then the bearish harami cross pattern is confirmed.
How to identify a bearish harami cross
A bearish harami cross pattern occurs during or at the top of an uptrend and may provide attractive entry points for traders. The first candle indicates that the buyers are in full control of the market. Thereafter, a second candle, a doji, appears and signals a period of indecisiveness and uncertainty have entered the market.
Subsequently, decreasing prices after the formation of the above pattern would indicate the prevailing trend to change and ultimately points to the completion of the bearish harami cross pattern. The significance of the pattern is much more if it forms near a key resistance level.
How to trade a bearish harami cross
The first candle shows an ascending trend but is followed by a doji that indicates a period of indecisiveness and uncertainty. Traders often use the pattern to look out for trend reversal signals rather than trading the pattern itself.
However, traders with pre-existing long positions may book profit at this stage or else they may incur losses if prices move in the other direction after the formation of the bearish harami cross pattern.
The doji in the pattern is a good signal but a trading decision should be made only after a confirmation on the following day. If it opens lower, then short positions may be initiated with a stop loss limit placed above the original candle.
Traders and investors must remember that harami cross patterns do not have any price targets. Hence, they should use other method or technical indicators to determine their profit targets or when to exit the trade.
Bearish Meeting Lines Candlestick Pattern
What is a bearish meeting lines pattern?
A bearish meeting lines pattern is reversal on the bearish side in a positive trend and gives an indication that the prevailing uptrend has come to an end. It is a two-candle pattern where the first candle is a positive one while the second opens with a gap.
How to identify a bearish meeting lines
A bearish meeting lines pattern can be identified if the first candle is a positive one in a positive uptrend and the second candle opens with a gap up but closes near to the close of the previous candle.
As the pattern is formed in a predominantly bullish market, the sentiment remains positive and that is evident from the formation of the first candle which is bullish. The same positive sentiment spills over to the next trading session and the next candle opens with a gap up.
It is at this stage that a section of the market participants will start expecting a pullback in prices as the latter have on an upswing for quite some time. This leads to the entry of selling pressure in the market, which pushed the prices down to the close of the previous candle, thereby closing the gap that was formed earlier.
The fact that this gap was bridged quickly by the sellers, becomes a signal that bears are likely to dominate from now on. As more traders realise this, the selling pressure increases, thereby giving birth to a new bearish trend.
How to trade a bearish meeting lines
If a bearish meeting lines pattern is confirmed, then traders can go short if the gap is bigger than the range of the preceding candle or the volume of the second candle is bigger than that of the first candlestick. Stop loss limit may be placed at the last high. If the prices go up for two consecutive sessions with no bullish pattern in sign, then the stop loss is triggered.
Bullish Belt Hold Candlestick Pattern
What is a bullish belt hold pattern?
A bullish belt hold pattern is a single bar candlesticks pattern that suggests a reversal of the prevailing downtrend. It forms when a bullish candle occurs after a stretch of bearish trades.
The pattern occurs quite often on the charts and may offer mixed signals regarding future price movements. Therefore, the reliability of the pattern is enhanced if it forms near a support level.
In fact, the trading volumes accompanying the preceding candles should have been above average to indicate substantial selling and a possible trend reversal to the upside.
How to identify a bullish belt hold
The pattern surfaces after the formation of a series of bearish candlesticks in a downtrend and is quite similar to a bullish Marubozu in appearance.
The opening price of the single bar pattern is significantly lower than the previous session’s low. Ultimately, the pattern closes well into the body of the previous candle, thereby holding the price from falling further. Hence it is called belt hold.
How to trade a bullish belt hold
It is prudent for traders to not trade a bullish belt hold pattern in isolation. They should also look at other technical indicators to confirm the validity of the signal. Conservative traders may wait for a close above the high of the bullish belt hold pattern before entering.
At times, a bullish belt hold pattern may be a mere pause in the overall downtrend. Therefore, it is advisable that traders look for confirmation before entering into any trade. Traders willing to trade the pattern should enter only when the price trades above the high of the bullish belt hold pattern.
As mentioned earlier, the bullish belt hold pattern may appear frequently on the charts across different time frames, but its reliability factor is more on daily and weekly charts since more market participants are involved in the formation of the pattern.
Bullish Engulfing Pattern Candlestick Pattern
What is a bullish engulfing pattern?
A bullish engulfing pattern is a candlestick pattern in which a small bearish candlestick is followed by a large bullish candlestick, the body of which completely overlaps or engulfs the body of the previous session’s candlestick.
It is usually a bullish reversal pattern occurring at the bottom of a downtrend as more buyers enter the market to drive prices higher. The reversal of the trend is more like if the bullish engulfing pattern is preceded by quite a few bearish candlesticks. Traders and investors should look at the preceding candles too to decide on trade instead of just the bullish engulfing pattern. The number of preceding bearish candles is directly proportional to the chances of a trend reversal and looking at the larger context like that would provide clarity on the possibility of a trend reversal.
How to identify a bullish engulfing
A bullish engulfing pattern consists of two candles with the second one completely engulfing the first one. Stronger signals are provided if the first candle happens to be a doji or when subsequent candles close above the high of the bullish candle. It indicates that selling pressures are losing momentum.
How to trade a bullish engulfing
Traders may enter long positions if the price moves higher than the high of the engulfing candle but should maintain a stop loss near the base of the bullish candle to protect any downside risk. The latter must break a key resistance level to be tradeable and the pattern must occur at a swing low.
A bullish engulfing pattern typically has a small upper wick or shadow, which means it closed near the high of the session or when the price was still moving upwards. This makes it more like that the subsequent candle would be a bullish one and may close higher than the close of the bullish engulfing candle.
Bullish Harami Candlestick Pattern
What is a bullish harami pattern?
A bullish harami candlestick pattern is a trend reversal pattern appearing at the bottom of a downtrend. It indicates that the bearish trend is coming to an end or reversing. It typically evolves over a two-day period.
How to identify a bullish harami
The bullish harami candlestick pattern consists of a bearish candle with a large body that is followed by a bullish candle with a small body, often referred to as the doji, enclosed within the body of the bearish candle. The bullish candle opens with a gap up and opens near the mid-point of the previous candle, signifying an early sign of changing momentum in the market. The gap is crucial for this pattern as it also unnerve short traders who then start to cover up their positions, thereby increasing the buying pressure.
How to trade a bullish harami
Traders should ideally go long in a bullish harami candlestick pattern while risk averse investors can take long positions at the close of the day of the second candle. The lowest low for the pattern should be the stop loss trigger.
Since the bullish harami pattern signals a start of a potential uptrend in the market, traders can include multiple levels of profit targets to ride out the pattern with maximum gains.
A key advantage of a bullish harami candlestick pattern is it provides multiple entry points for traders since it usually appears at the start of a potential uptrend.
Traders and investors alike should keep in mind that the bullish harami pattern, in itself, is only a sign of an impending change of direction in the market but, by no means, is sufficient enough to be used arbitrarily as a trigger for fresh entry into the market. Therefore, traders should use other technical indicators in conjunction with this pattern to formulate their trading strategy.
As with many other candlestick patterns, trading volumes associated with this pattern also plays a crucial role and higher volume on the second bullish candle is considered positive.
Bullish Harami Cross Candlestick Pattern
What is a bullish harami cross pattern?
A bullish harami cross candlestick pattern is a large bearish candle followed by a doji and occurs during a downtrend. The pattern is confirmed by a price movement upwards. A price rise above the open of the first candle helps confirm the price would move higher.
How to identify a bullish harami cross
In a bullish harami cross pattern, the first candle is a long bearish candle that indicates control of the sellers. The second candle is a doji which must be contained within the body of the previous candle.
The doji shows a period of uncertainty or indecision have pervaded among the sellers. Thereafter, a rise above the open of the first candle helps confirm the price may be heading higher from here. It is also pertinent to know that harami cross patterns are more suitable for charts with longer timeframes such as weekly or monthly and technical analysts do not trust or use it for shorter timeframes.
How to trade a bullish harami cross
Instead of trading a bullish harami cross pattern, some traders use it as an alert to be on the lookout for a reversal of the price trend. However, traders with an already open short positions, this may be the point to exit the trade as price may begin to rise from here.
Traders willing to enter after the pattern appears may go long with a stop loss being placed below the base of the doji or below the low of the first candle. This is to ensure that if the bets of the traders go wrong and prices continue to move downwards, then their holdings or outstanding positions would get sold or squared off before the losses expand further. A possible point to initiate fresh long positions could be when the price moves above the open of the first candle. Traders and investors are better advised to also use other technical indicators in association with this pattern to devise their entry and exit strategies as the pattern, by itself, does not offer any profit targets.
Advance Block Candlestick Pattern
What Is an Advance Block pattern?
An advance block is a three-candle setup that gives an indication that the prevailing price movement is about to change towards the downside in what was essentially an upward trend.
How To Identify an Advance Block
In an advance block pattern, all the three block of candles close consecutively above each other and are also consecutively shorter than each other. The shorter bodies indicate either the bulls are losing control, or the bears are gradually taking charge to initiate a fall. Each successive day is weaker than the one preceding it and it shows the rally is losing strength.
The pattern warns about a slowing uptrend but does not necessarily predict a bearish trend reversal. Investors should also look for other cues too before taking any strong positions – short or long, although the pattern usually appears during an uptrend and hence considered a bearish trend reversal.
In other words, the pattern can indicate waning enthusiasm among the bulls and a transition towards bearish interest. One clear sign would be the bullish candles getting shorter progressively while the overall markets is making new highs.
How to Trade an Advance Block
The context of the pattern within the overall market trend is crucial to its interpretation and how it should be traded. Investors with long positions should use this warning to square off their outstanding bets while traders looking to take short positions should wait for further cues before initiating new bets. Going short in an uptrend could be risky, especially if there are no other confirmation of a bearish trend reversal. A safer way to trade an advance block is by observing the volumes. If the volumes tend to wane with each bullish candle in the advance block, then it may be interpreted that the market is losing its strength and hence could be a bearish signal.
Bullish Abandoned Baby Candlestick Pattern
What is a bullish abandoned baby pattern?
A bullish abandoned baby pattern is a three bar candlesticks pattern and forms in a downtrend. Traders use it as a sign of a trend reversal. They expect the price to move higher from here on as the pattern shows exhaustion of selling pressure. It may happen due to fundamental factors surrounding the market or even psychological or technical factors.
The theory is prices have been falling significantly and consistently, which is evident even from the formation of the first candle being bearish. The next candle is a doji, which means sellers are losing the momentum and buyers are slowly making an entry. On the subsequent session, a strong bullish candle opens with a gap up,
signifying that buyers have regained their control on the market and selling strength have exhausted for the time being.
Some traders also look for slight variations in the pattern such as formation of multiple doji candles before the strong bullish candle is formed.
How to identify a bullish abandoned baby
A bullish abandoned baby pattern can be identified by three candles. The first one is a strong down candle which emphasises the downtrend. This is followed by a doji candle that forms with a gap down. Finally, there is the third bullish candle that opens with a strong gap up, signifying the end of the downtrend and the start of a price rise.
How to trade a bullish abandoned baby
Some traders may take long positions following a break above the third candle on expectation that the price would move higher from there.
Other traders with relatively less risk appetite may enter with strict stop loss orders just below the low of the third candle. Traders and investors trading this pattern may not that this pattern does not have a profit target. Hence, they should use other technical filters to determine their optimum entry or exit points.
Bearish Abandoned Baby Candlestick Pattern
What is a bearish abandoned baby pattern?
A bearish abandoned baby is a specialised and rare candlesticks pattern in which there are three candles with differing connotations. One is a rising one, the second one being a steady one while the third candle denotes falling price.
The name for this pattern, like most candlesticks pattern names, came from its usage among rice traders in Japan. This pattern typically signals a short-term negative trend reversal in an otherwise overwhelmingly bullish trend.
How to identify a bearish abandoned baby
One must recognise the three main characteristics that make up these patterns to identify whether it is bullish or bearish. The characteristics are the prevailing trend, the proper sequence of the candles and the gap after the second candle.
There should be significant gaps between the middle candle and the two candles surrounding it. That way, the middle candle looks like an abandoned baby.
How to trade a bearish abandoned baby
Traders can use this pattern to exit from long positions and initiate short positions. Formation of this pattern can signal price would continue to move down and bears are back in action. It also means buyers are becoming less aggressive at higher prices and allowing sellers to take over.
As mentioned above, it is a rare pattern because its sequence denotes the market meanders through unhindered bullishness, perfect indecision, and dire bearishness with no overlap of trading range in between sentiments.
An observation of the traded volume along with the pattern would be a prudent trading strategy. If the volume is low, then it means the bulls have given way to the bears. However, the bearish pressure would be short-lived due to the low volume.
Similarly, if there is a surge in trading volume, then the selling pressure will be high, and we can witness a strong bearish trend reversal.
The bearish abandoned baby is a candlestick pattern can help traders make quick gains by leveraging on short positions.
Bullish Side-by-Side White Lines Candlestick Pattern
What is a bullish side by side white lines pattern?
A bullish side by side white lines pattern is a three-line pattern that forecasts a continuation of an uptrend. It is characterized by the price gap between the first line and the subsequent lines.
The psychology that works among the investing community here is the marker is in an uptrend and sentiments are bullish. The conviction is further strengthened by the formation of a long bullish candle. Although the positive sentiment spills over to the next session, a section of the trading community starts to worry about the longevity of the bull run in the market. This concern leads to sell orders hitting the market and it opens with a gap down in the next session.
However, with the underlying bullish sentiment in the market being still strong, a significant part of the trading community still finds the market attractive to enter and they place fresh buy orders. Consequently, the market recovers from the negative gap and starts to move up again.
The common interpretation is that it indicates a short pause in the trend, after which it will move up again.
How to identify a bullish side by side white lines
In a bullish side by side white lines pattern, the first candlestick is a positive or a bullish one and forms in a prevailing uptrend. Thereafter, it gaps up and forms another positive candle. The third candle opens gap down but manages to open and close around the previous candle.
How to trade a bullish side by side white lines
Every market may not work with the bullish side by side white lines pattern since each has its own character and traits. That being the case, one should also look at other data points such as volume and the size of the gaps. If the positive gap is taller than the negative gap in the bullish side by side white lines pattern, it means the buyers are still strong and therefore gives confidence to the traders to trade the pattern convincingly.
Bearish Side-by-Side White Lines Candlestick Pattern
What is a bearish side by side white lines pattern?
A bearish side by side white lines pattern is a three-line pattern that forecast a continuation of a downtrend. It appears when the bearish pressure begins to overpower the market.
It consists of three candles with the first one being bearish and followed by a positive candle that starts with a gap down. The third candle opens and close at or near the same levels as the previous one.
The pattern appears in a predominantly bearish market and so the sentiment is also negative. The bearish nature of the first candle further endorsed the prevailing sentiment as traders and investors sell their holdings or even going short in order to benefit from a falling market.
Although the bearish mood spills over on the next session, some traders now feel the market was oversold. This leads to a tussle between the buyers and the sellers, as is evident from the subsequent two candles. However, the third candle failed to breach the previous candle’s high and that is seen as a key resistance level. Hence, the prices continue to plummet, and the bearish trend continues.
The pattern is a continuous one which means it is expected to move in the direction of the trend.
How to identify a bearish side by side white lines
To identify and confirm a bearish side by side white lines pattern, the first candlestick must be bearish and be part of an ongoing bearish trend. The second candlestick should open with a gap down but end up as a positive candlestick. The third candle closes and opens at roughly the same levels as that of the preceding one.
How to trade a bearish side by side white lines
The formation may warn short traders to close their outstanding positions but there is a high chance that the trend would continue. Hence, traders are advised to look at other cues too for confirmation of the trend before taking any fresh positions.
Bullish Stick Sandwich Candlestick Pattern
What is a bullish stick sandwich pattern?
A bullish stick sandwich is a three-bar candlestick pattern which looks like a sandwich on the trader’s screen. It usually has a characteristic of a trend reversal. It has two bearish candles and a bullish one between them and hence resembles a sandwich. The psychology is the market is testing new lows and is evident from the formation of a strong bearish candle. It then opens higher unexpectedly in the next session and continued to trade at high levels. Short traders should be cautious at this stage and, preferably, cover their outstanding short positions. On the third session, prices opened further high, aided by short covering, but eventually drifted lower to close at the same level as that of the first candle. Traders and investors should note this level as the support level.
How to identify a bullish stick sandwich
The bullish stick sandwich usually occurs in a prevailing downtrend and a bearish candlestick appears on the first session followed by a bullish candlestick. The third candlestick is yet another bearish one but both the first and the third bearish candlesticks close at the same level, indicating that a support level has been formed. The candles on the two sides must have larger trading ranges than the candle in the middle and hence should be longer in shape than the middle candle. In other words, the middle candle must be engulfed by the two candles.
It is a rare occurrence on the charts where two candles sandwich another candle.
How to trade a bullish stick sandwich
Traders and investors are advised to note the support price level indicated by the first and the third bearish candles and prices need to cross higher from that level to confirm the pattern. They should also trade by placing strict stop loss limits, ideally below the low of the bullish stick sandwich pattern. The profit target is typically three times the size of the pattern.
Bearish Stick Sandwich Candlestick Pattern
What is a bearish stick sandwich pattern?
Bearish stick sandwich candlestick pattern usually forms during an uptrend and may be inferred as a sign of trend reversal. However, if a bearish stick sandwich pattern forms within a downtrend, it means the selling pressure is still dominant and could be interpreted as a trend continuation pattern.
It is a rare candlestick pattern in which two candles sandwich another candle. The middle candle must be shorter and is engulfed by the first and the third candles.
How to identify a bearish stick sandwich
A bearish stick sandwich pattern is a three-candle formation with the first candle being a bullish one that ends close to its session high. The second candle is a bearish one which opens with a gap down and closes lower than the opening level of the first candle. Finally, the third candle is a bullish one that covers the body of the second candle and closes at the same level as the first candle.
One of the key conditions for the formation of a bearish stick sandwich is a preceding bullish rally in the market, because of which, a strong bullish candle is formed on the first day.
However, the resistance level formed by the close of the first and the third candles were duly noted by the bears in the market who then initiate fresh short positions. The strength of the bears ultimately pushes the prices down and a new bearish candle is formed on the fourth session.
How to trade a bearish stick sandwich
Traders should ideally wait for the low of the third candle to break before entering into any short positions. They can put stop loss limit at the resistance level and reduce it slowly as the price declines further. Traders and investors with existing long positions should consider closing or unwinding them at this point.
Bullish Tri-Star Candlestick Pattern
What is a bullish tri star pattern
A bullish tri star pattern is a three-candle formation in which all the candles are doji candles and occurs in a downtrend. It is considered a bullish trend reversal pattern. The doji candle in the middle is placed below the first and the third doji candles in a bullish tri-star candlestick pattern.
How to identify a bullish tri star
A bullish tri star pattern must occur in a downtrend and all the three candles should be doji candles. Some traders and investors in the market feel the prices have been falling for a while and expect a pullback any time. So, the first doji candle is formed, signalling a certain level of indecisiveness in the market or may be a pause in the aggressive selling pressure that was hitherto seen.
A similar sentiment of uncertainty spills over onto the next trading session and the second candle opens with a gap down. This means that despite the semblance of indecisiveness in the market, characterised by the doji candles, the underlying sentiment in the market remains predominantly bearish.
However, the third candle opens with a gap up but is still a doji candle. Therefore, although formation of yet another doji candle indicates that the phase of uncertainty still prevails in the market, the fact that it gapped up from the previous candle shows that the sellers are losing control and buyers are slowly making a comeback. Hence, this pattern signals that the bearish trend is coming to an end.
How to trade a bullish tri star
While the most common trading strategy in a bullish trend reversal pattern like the bullish tri star pattern is to go long, seasoned traders would also look at other technical indicators such as volume, volatility, overall market sentiments etc before placing any fresh bets.
Besides, the pattern has not one but two gaps in it and that is significant. Traders should observe if the gaps are larger than the usual range to be convinced about the pattern for trading.
Bearish Tri-Star Candlestick Pattern
What is a bearish tri star pattern?
A bearish tri star is a three-line bearish trend reversal pattern in which all the candles are doji candles. However, the market context, in which the pattern appears, is crucial. The doji candle in the middle is placed above the first and the third candles. However, the pattern requires confirmation from the subsequent candles to see if the crucial support lines are breached.
How to identify a bearish tri star
A bearish tri star pattern occurs in a bullish trend and all the three candles must be doji candles. Despite the market sentiment being overwhelmingly bullish, a section of traders feels the prices have been rising for quite a while and a correction or a pullback may be imminent. So, the first doji candle of the pattern is formed, signifying either a pause in the rally or a phase of indecision about the future direction of prices.
The second candle opens with a gap up which shows the underlying sentiment in the market still remains bullish. However, the candle on the third session opens with a gap down which indicates that the force of the buyers is beginning to wane and sellers are attempting to make an emphatic comeback in market. This could
mean the end of the bullish trend in the market and a beginning of a new bearish movement going forward. The candle formed on the fourth session can confirm the pattern if it is a bearish candle or opens with a gap down or lower close.
How to trade a bearish tri star
The common trading strategy in a bearish tri star pattern is to go short but seasoned traders would also look at other technical parameters like volume, overall market sentiments, etc to determine the strength or future momentum of the pattern. The stop loss limit for the bearish tri-star pattern may be placed at the high of the pattern which may be considered as the key resistance level.
Upside Tasuki Gap Candlestick Pattern
What is an upside tasuki gap pattern?
An upside tasuki gap pattern is a three-bar candlestick formation that signals a continuation of the current uptrend. It is one of the many gap formations that occur during the course of an uptrend and can occur any time during the bullish trend.
The pattern signals that the overall sentiment in the market is positive and expect the upbeat trend to continue in the market. True to their expectations, the first candle in the pattern that is formed is a bullish candle and with a long body. The euphoria spills over onto the next session when the second candle also happens to be a bullish one and opens with a gap up.
However, two long bullish candles opening with a gap have now led to some traders worrying that the market may have been overbought and a pullback may be in the offing.
Hence, the formation of the bearish candle on the third session but subsequent buying pressure turned the third candle into temporary pullback as prices continued to rise and the bullish phase continued.
How to identify an upside tasuki
As mentioned earlier, it is a three-bar candlestick formation with the first candle being a bullish one and the second one is bullish too but opens with a gap up from the previous candle. Here, it shows the strength of the uptrend by opening with a gap up.
The third candle is a bearish one and partially closes the gap between the previous two candles, indicating a pause or a period of consolidation in the uptrend as the bears try to pull the price lower. The bears, however, fail to close the gap between the two candles, thereby indicating the uptrend is likely to continue. Traders also refer to this candlestick pattern as the bullish tasuki gap pattern.
How to trade an upside tasuki
Traders can confirm the occurrence of an upside tasuki gap pattern by analysing the volume and other technical data points like trend lines, moving averages, bands etc and also watch the subsequent candle formations before initiating any fresh trade positions. Some market participants often use other gap patterns in conjunction with the upside tasuki gap to confirm the bullish trend in the market.
Downside Tasuki Gap Candlestick Pattern
What is a downside tasuki gap pattern?
A downside tasuki gap is a three-candle pattern that occurs in a downtrend and signals the potential continuation of the ongoing downtrend. As it occurs in an already bearish market, the first candle formed is a bearish candle. The second candle is a bearish one too and opens with a gap down.
With the market going down so aggressively over the last few sessions, some traders see fresh buying opportunity at this stage and fuel a pullback, leading to the formation of a bullish candle on the third session. However, the buyers failed to push the prices beyond the gap zone as the sellers put a cap at the resistance level.
It emphasises that the bears are in control and opening with price gaps further amplifies the downward strength. Some traders think the downside tasuki gap gives a signal of a pullback but is ultimately a trend continuation pattern.
How to identify a downside tasuki gap
A downside tasuki gap is formed when a bearish candle is followed by another bearish candle with a gap down, but the third candle is a bullish one which closes within the gap of the first two candles.
This candlestick pattern is also known as a bearish tasuki gap pattern.
How to trade a downside tasuki gap
As it is assumed from the pattern that the downward trend would continue, some traders take short positions near the close of the bullish candle while others prefer to wait for the price to fall further before entering the trade. This confirms the price is falling and the downtrend is likely to continue. The gap between the candles is crucial for this pattern and the gap between the first and the second candles should be at least half the size of the average range for the pattern to be validated.
The downside tasuki gap is not a common pattern and hence provides limited trading opportunities. It may be used in conjunction with other gap patterns on the charts for trading.
Morning Star Candlestick Pattern
What is a morning star pattern?
A morning star is a three-bar candlestick pattern that is interpreted as a bullish sign. It is formed following a downtrend and indicates the beginning of an uptrend. In other words, a sign of a trend reversal.
How to identify a morning star
A morning star pattern consists of a tall bearish candle, a bullish or bearish candle with a smaller body and long wicks or shadows and a third bullish candle. It evolves over three trading sessions. The middle candle essentially captures the indecisive sentiments of the market while the third candle confirms the reversal of the trend towards higher up. Traders should note that the middle candle can be bullish or bearish because it shows the buyers and sellers are trying to balance out over the course of the session. Overall, the pattern reveals that the momentum of the downtrend is waning, and a large bullish move paves the foundation of a future uptrend in the market.
How to trade a morning star
Morning star pattern can be used as a sign for a trend reversal from bearish to bullish, especially if it is backed up by adequate volume of trade. High volume accompanied by the third candle should be seen as a confirmation of the bullish trend reversal pattern and traders should initiate long positions to ride the uptrend until there are indications of another trend reversal.
Morning star patterns become more important from the trading perspective if they are backed up by other technical indicators that suggest similar reversal of the trend in the market.
Unlike many other candlestick patterns, risk averse traders as well as traders with greater risk appetite can trade using the morning star pattern if it is backed up by the above-mentioned data points. The lowest low in the morning star pattern should be considered as the stop loss limit while trading the pattern.
Evening Star Candlestick Pattern
What is an evening star pattern?
An evening star is a three-candle pattern used by technical analysts to figure out a bearish reversal trend or signal. Spotting a trend reversal correctly is crucial in financial markets as it enables traders and investors to enter or exit at attractive levels at the start of a possible trend reversal.
The evening star candlestick pattern signals the slowing down of the upward momentum before a bearish move creates the foundation for a new downtrend. The evening star pattern evolves over three trading sessions and should serve as a red flag for existing long traders who should book profits upon the appearance of the pattern.
How to identify an evening star
To identify an evening star candlestick pattern, one must also observe the previous price action and where the pattern appears within the overall trend.
The first candle is a large bullish candle that indicates buying pressure and an extension of the bullish trend. Traders should only be looking to go long at this stage since there is no sign of a trend reversal.
The second candle is a doji, which means a session of indecisiveness or perhaps a fatigue from the previous uptrend. The third bearish candle provides the first sign of a bearish trend reversal amid selling pressure.
How to trade an evening star
Traders should trade an evening star pattern with strict stop loss and could place bets after the formation of the pattern is complete. Sell orders or short positions may be initiated at the opening of the next bearish candle following the completion of the evening star pattern. Stop loss limit may be placed above the recent swing high.
It is crucial to observe lower highs and lower lows once the evening star pattern is formed and as mentioned above, strict stop loss must be maintained to cover the risks of any failed bets while trading the pattern.
Morning Doji Star Candlestick Pattern
What is a morning doji star pattern?
A morning doji star is a bullish trend reversal candlestick pattern. It is similar to a morning star pattern with the key difference being that the middle candle in the morning doji star pattern is a doji that has no significant wicks or shadows. It shows the market indecision more clearly than the morning star pattern. Traders often look for such signs of indecisiveness as selling pressure subsides and the market trades flat.
This flat stage in the market paves the way for a bullish move as buyers find value or good bargain at this level and negate any selling pressure. The formation of a bullish candle in the next session confirms the bullish move.
How to identify a morning doji star
A morning doji star consists of a long bearish candle that forms in a downtrend and is followed by a doji that has opened with a gap down. The middle candle can be a bullish or a bearish candle but what matters the most here is the market is somewhat undecided about its further direction.
The third candle is a long bullish candle that confirms the reversal of the trend and can be the beginning of a new uptrend. The latter is the first time that real buying pressure is revealed in the pattern.
How to trade a morning doji star
A morning doji star can be used as an entry trigger for traders looking to initiate long positions, especially if it appears following a downtrend in the market. Once the reversal of the trend is confirmed in the market, traders may see higher highs and higher lows in the market, which has turned bullish. Despite the latter, it is advisable to trade with stop loss limits placed at strategic price points to protect the investment in case of any failed bets or when the markets move in the other direction.
Evening Doji Star Candlestick Pattern
What is an evening doji star pattern?
An evening doji star is a strong bearish reversal candlestick pattern that evolves over three trading sessions. It consists of a long bullish candle followed by a doji that has opened with a gap up. As the doji candle signifies indecision in the market, it also serves as a red flag for traders to halt their buying and wait for further cues. Then, a third bearish candle closes within the body of the first candle to confirm the reversal. If there is a gap down on the third session, then it is a clear signal that the trend in the market is going to reverse.
It is usually formed at the end of an uptrend and can provide well defined entry and exit points.
How to identify an evening doji star
An evening doji star is a complex three candle pattern. The first candle is bullish in nature, the second is indecisive and the third is bearish in nature. The characteristics of the candle are more important in this pattern than the shadows or wicks of the candles.
How to trade an evening doji star
Traders can enter at the opening of the next candle after the formation of an evening doji star is complete. Conservative traders may wait for the price to fall further to get a bearish confirmation. However, the latter could be counterproductive in a fast-moving market as conservative traders could end up entering at a much later stage. Fresh sell orders or short positions may be initiated at the opening of the next bearish candle after the formation of the evening doji star is complete. Such trades should be executed with a strict stop loss in place in order to protect the investment in case the bets prove wrong, or prices move in the other direction.
The pattern is most reliable for trade if it is backed up by adequate trading volume and other technical indicators such as key resistance level.
Three White Soldiers Candlestick Pattern
What is the three bullish soldiers pattern?
The three bullish soldiers pattern is a trend reversal towards the bullish trend. This means the downtrend is probably over and we are entering into a new phase of an uptrend. It typically requires three longish candlesticks with the base of the second and the third candle starting near the bodies of the first and second candles, respectively. Moreover, the top of each candle should be higher than the previous ones.
How to identify a three bullish soldiers
Ideally, it should start with a gap up from the support base of a downtrend and form three long-body candles with smaller wicks, especially the lower wick. A smaller or non-existent upper wick would indicate the bulls managed to keep the price near the higher point during the period.
In other words, the opening price or the top of the candle should be higher than the previous ones and should look like a staircase upwards that would confirm a bullish trend.
There should not be any big gap between the candles as that may indicate indecision among investors. Moreover, the size of each candle would indicate the strength of the bull rally. A larger body would signal a strong move upwards or a steady buying pressure.
How to trade in a three bullish soldiers
Traders and investors may initiate long positions at this point as the bears are losing control. However, if the size of the third candle is visibly smaller than the first and the second ones, then it means the bulls are not in full control and may indicate weakness or cast doubts on the sustainability of the bull rally.
Three Black Crows Candlestick Pattern
What is the three black crows pattern?
The three bearish soldiers pattern is a trend reversal towards the bearish side which means the uptrend is probably over and we have entered a new phase of a downtrend. The pattern requires three data points across a certain timeframe to indicate a momentum that the price will change its course. It typically starts at the peak of an uptrend.
It is usually a solid three day move downwards starting with a gap down and then strong bodies of the candlesticks are formed with smaller wicks, especially the upper wick.
How to identify three black crows
The opening price of each candle should be lower than the opening price of the previous candle and the closing price of each candle ought to be lower than the closing price of the previous one to give a valid bearish signal. The candles should look like a staircase with each candle forming near the body of the previous candle and close lower than the previous one.
Candles that are excessively long may indicate that the bears have overstretched themselves and the bulls can take advantage of the former’s depleted momentum. Bulls tend to buy at support levels while short traders take positions at resistance levels.
How to trade three black crows
If all the candles have large bodies of roughly the same size, then it confirms the strength of the bearish move that relinquishes no space for the bulls. It also means there is lot of supply in the market and investors may initiate short positions too. It is a shift from the buyers to the sellers.
Although it is ideally the opposite of bullish soldiers, the fear that comes from the reversal of a bullish trend often makes the downtrend more aggressive. However, one must look out for an overextended body of the candlestick as that can mean an oversold market, especially if there is no wick.
Three Stars in the North Candlestick Pattern
What is three stars in the north pattern?
The three stars in the north pattern appears in an uptrend although confirmation is required from the candles that are formed subsequent to the pattern. The first candle is a long bullish one with a long upper wick or shadow which gives the impression that it is a continuation of the ongoing bullish trend in the market. The fact that the sentiment spills over into the next session is evident from the formation of the second bullish candle, albeit shorter than the first candle in the pattern. The high of the second candle is lower than the high of the first candle. This signals the weakening of the bullish strength in the market. Thereafter, the third candle is a bullish Marubozu which means it is high and low are almost equal to its open and close respectively.
It means the bulls are losing their momentum and the bears are looking for opportunity to enter the market.
How to identify a three stars in the north
In a three stars in the north pattern, the first candle is a long bullish one with a long upper wick and no lower wick. The second candle is again bullish but shorter than the previous one and it is high is below the high of the first candle.
The third candle is a short bullish one and a Marubozu. It is close is within the trading range of the previous candle.
How to trade a three stars in the north
In order to trade the three stars in the north pattern judiciously, traders and investors should wait for the formation of the next candle after this pattern for confirmation. Traders could use this pattern to exit from any outstanding long positions and possibly initiate short positions, preferably upon the appearance of the confirmation candle.
Three Stars in the South Candlestick Pattern
What is three stars in the south pattern?
The three stars in the south pattern is a bullish trend reversal pattern that appears after a decline. The understanding behind the pattern is that bears are slowly losing their grip as the candles progressively become shorter in size. It also means that the bulls are beginning to rally eventually for reversing the prevailing trend in the market.
The three candles form a pattern which shows the sellers are tired and fatigued while the buyers are looking for opportunity to make an entry into the market. The rally of the buyers can only happen if the prices move higher from their current levels.
How to identify a three stars in the south
A three stars in the south pattern occurs in a downtrend. The first candle is a bearish one with a long body, a long lower wick but no upper wick. The second candle is also bearish but with a shorter body and a higher low than the previous one. Finally, the third candle is a bearish one too but with a shorter body with no wicks and closes with the trading range of the previous candle.
How to trade a three stars in the south
Traders could use the three stars in the south pattern to exit all outstanding short positions and consider entering fresh long positions although waiting for the formation of a subsequent confirmation candle is advisable along with confirmation in other chart patterns. The confirmation would be the price inching higher from here. On the contrary, if prices start to decline after the formation of the three stars in the south pattern, then it should be considered as a bearish continuation pattern rather than a bullish trend reversal.
This pattern, by itself, does not produce big moves and does not have profit targets. Hence, it is advisable for traders and investors to use other patterns on the charts to compliment this pattern for profitable trades.
Three Inside Up Candlestick Pattern
What is a three inside up pattern
The three inside up candlestick pattern is a bullish reversal pattern made by three candlesticks. It occurs in a downtrend and indicates that the price move downwards may be coming to an end and a price move upwards may begin from here.
How to identify a three inside up
The first condition for a three inside up three candle formation is a prevailing downtrend. The first candle is a bearish one with a long body. At this stage, it seems more like a continuation of the downtrend since the long body of the candle occurred due to a big selloff and raised the confidence of the sellers.
The second candle is a bullish one that opens and closes within the body of the first candle. This should serve as a red flag for short sellers. The third candle is again a bullish one that closes above the close of the previous candle.
How to trade a three inside up
Although with the first candle posting new lows may have increased the confidence of the sellers, the second bullish candle within the trading range of the previous candle should be seen as a red flag for sellers. Short sellers ought to exit at this point, failing which, they may get trapped with the formation of a third bullish candle with a large body.
One the other hand, the third candle should be seen as an opportunity for bulls to enter the market again. Traders may trade the pattern using stop loss limits placed at the low of one of the candles, the choice of which may depend on the risk appetite of the respective traders or investors.
The pattern Is for short term analysis and may not always provide significant prognosis in terms of price movements. Therefore, traders should consider using this pattern in the context of an overall broader market trend and may look for this pattern in the overall trend to ascertain a pullback in prices.
Three Inside Down Candlestick Pattern
What is a three inside down pattern?
The three inside down pattern is a bearish trend reversal pattern and shows the price rise is ending and the trend is reversal to affect a fall in prices.
How to identify a three inside down
The three inside down pattern typically occurs in an uptrend and the first candle formed is a bullish one with a large body. It looks like a continuation of the bullish rally at this stage with prices posting new highs.
The second candle is a bearish one whose size is contained within the body of the first candle. This development causes concern among the buyers, some of whom start selling their long positions.
The third candle is a bearish one that closes below the close of the previous close. More buyers start selling their outstanding long positions at this stage while short sellers moved in to take advantage of the fall in prices. These developments together influence reversal in the trend convincingly.
How to trade a three inside down
As the first candle opens higher, it seemed like the uptrend is continuing. However, the second candle being bearish and trading within the range of the previous candle triggers concern among bulls who begin to square off their long positions.
The third candle completes the bearish reversal where more long positions are squared off and short sellers may take advantage of the fall to enter the market.
For traders willing to trade the three inside down candlestick pattern, trades should ideally be protected by placing stop loss limits above the high of any of the candles in the pattern. Here, the choice of the candle would depend on the risk-taking ability of the respective traders or investors. As the pattern does not have any inherent profit targets, traders should use other methods like a predetermined risk to reward ratio or other technical indicators to ascertain profitable exits from the trade.
Three Outside Up Candlestick Pattern
What is a three outside up pattern?
The three outside up is a bullish three candle formation that occurs in a downtrend or at a possible support. The strength of this pattern is emphasised and directly proportional to the size of the engulfing candlestick.
The first candle indicates the beginning of the end of the prevailing trend as the second candle covers or engulfs the first candle. The formation of the third candle further accelerates the reversal.
How to identify a three outside up
In a three outside up candlestick pattern, the first candle is a bearish one which seemed like a continuation of the bearish trend at this stage with strong selling pressure. As the latter raised the confidence of the bears, the second candle opens lower too but eventually reversed to move up beyond the opening price and, in fact, engulfed the first candle. This development should serve as a warning signal for sellers to either book profits or tighten up their stop loss limits since a reversal of trends seemed imminent.
As the second candle continued to move higher, it raised the confidence of the bulls and so, the third candle formed, is yet another bullish candle that closes higher than the second candle. Formation of a fourth candle with an even higher high finally confirms the pattern.
How to trade a three outside up
Traders can take long positions once the price breaks above the fourth candle with a stop loss below the fourth candle. Traders with contrarian views can go short if the price falls below the fourth candle with a stop loss above the fourth candle.
Nonetheless, as the pattern is usually applicable for short term trade signals, traders would do well to also look at the trends in the broader market and pair them up with other technical indicators to determine their ideal profit levels and stop loss limits.
Three Outside Down Candlestick Pattern
What is a three outside down pattern?
The three outside down candlestick pattern occurs in a bullish market trend and requires the three candles to form in a particular sequence to signify the current market trend had lost its momentum and could be heading for a reversal.
How to identify a three outside down
In order to enable a three outside down candlestick pattern to form, the prevailing market momentum must be upwards. The first candle of the pattern is bullish, which seemed like a continuation of the bullish trend at this stage, thereby raising the confidence of the bulls in the market.
The second candle opens higher too but quickly reversed its direction and drifted beyond its opening tick to create a bearish candle that engulfed the first candle. The second bearish candle essentially acts as a harbinger of the strength of the trend reversal. This development should be considered as a warning signal to bulls for either booking profits from their outstanding trades or tighten their stop loss range. It also raised the confidence of the bears and set off selling pressure in the market which ultimately leads to the formation of the third candle being bearish and closing lower than the second candle.
How to trade a three outside down
Unlike many other technical indicators, a three outside down pattern does not require waiting for a trend confirmation as the third candle in itself is a confirmation sign. Once the third candle is formed, which incidentally is a bearish one, confirms the trend reversal, traders may initiate trade accordingly.
Nonetheless, traders would do well to still look at the overall trends in the broader markets and also other technical indicators to further confirm the strength and reliability of the three outside down candlestick pattern. For instance, existence of higher trading volumes associated with the second and third candles would further strengthen the reliability of the pattern.
Bullish Three Line Strike Candlestick Pattern
What is a bullish three line strike pattern?
A bullish three line strike is a four-candle bullish continuation pattern. It typically occurs in a bullish trend.
How to identify a bullish three line strike pattern?
Emerging from an ongoing bullish trend in the market, a bullish three line strike pattern consists of four candles, of which, the first three are bullish, thereby endorsing the fact that market participants still believe in ascendancy in prices.
However, with the market having risen for quite a while, some market participants start to believe that the market has entered into an overbought territory and a pullback, or a correction is imminent. So, some traders and investors start to sell off their holdings in anticipation of a pullback in prices. This changes the sentiment in the market from bullish to bearish and is evident from the formation of the fourth candle which is a bearish one and closes below the pattern.
Therefore, some of the key elements of a bullish three line strike pattern are the formation of three consecutive candles whose close are higher than the close of their previous sessions, three consecutive candles whose lows are higher than the lows of their previous sessions and four consecutive trading sessions where the high is higher than the high of their previous sessions. The fourth candle is a powerful one heading down as it completely disrupted the prevailing sentiment of the market.
How to trade a bullish three line strike pattern
Trading the bullish three line strike pattern should be in conjunction with other technical data points such a volume, market breath etc and not in isolation. Market breadth or market sentiment indicators get their data from various securities being traded in the market and hence give a much broader view.
of the price actions in the market. As with trading volumes, price actions supported by higher trading volumes are considered to be more significant and so do the sizes of the price ranges.
Bearish Three Line Strike Candlestick Pattern
What is a bearish three line strike pattern?
A bearish three line strike is a bearish continuation candlestick pattern although some technical analysts feel the pattern behaves more like a bullish reversal pattern.
How to identify a bearish three line strike
In a bearish three line strike pattern, the first three candles are bearish and form lower closes. The fourth candle is a long bullish one and covers or engulfs all the previous candles. In fact, some of the key elements of a bearish three line strike pattern are three consecutive candles whose opening levels are higher than the closing levels of their previous candles. The formation of the fourth candle is highly crucial for this pattern as it will have the highest high and the lowest low among all the candles in the pattern. The nature of the fourth candle is also different from the other three candles and hence is considered as an indicator of an impending reversal of the trend in the market.
How to trade a bearish three line strike
Traders can use a bearish three line strike pattern in conjunction with other technical indicators before entering any trade along with keeping a strict stop loss level. Some of the other technical filters that may be used to trade the pattern include volatility, volume of trade, among others. Volatility filters are versatile since it is inherent in any market that moves. The volume of trade is other technical filter that correlates well with volatility since it gives a better idea about the significance of the market moves and the role of big players in those moves.
Prior to entering a trade based on a bearish three line strike pattern, traders and investors should have a sound risk management strategy in place such as strict stop loss limits and predefined profit targets using other technical indicators in conjunction with this candlestick pattern. Even after formation of the pattern, traders should wait for the perfect entry points in order to ensure capital preservation.
Bullish Breakaway Candlestick Pattern
What is a bullish breakaway pattern?
A bullish breakaway pattern is bullish trend reversal pattern that typically forms at the end of a bearish trend.
How to identify a bullish breakaway
A bullish breakaway pattern consists of five bars or candlesticks. The first candle is long and bearish while the following three are small but bearish too. Among the latter, the second candle must open with a gap with respect to the first candle. The last candle then breaks above the highs of the previous candlesticks, thereby creating a bullish breakaway pattern. The latter is more potent or positive if it opens with a gap.
The psychology that works with the bullish breakaway candlestick pattern is the appearance of the first long bearish candle indicates the downtrend in the market, but the subsequent three short bearish candles indicate that the bears are losing their grip on the market. Finally, the appearance of the last bullish candle show that bulls are back and with enough power to push through the bearish gains achieved over the last few trading sessions. Market participants now hope the bulls will maintain their power over the next trading session and the market trend will turn from bearish to bullish. However, traders and investors should wait for confirmation from the formation of the next candle before trading on the pattern.
How to trade a bullish breakaway
Traders should follow the overall direction of the market in addition to the bullish breakaway pattern to enter trades.
Another way to trade a bullish breakaway pattern is looking at the volumes. If the volume of the last bullish candle is higher than those of the previous candles, then it is safe to assume that buyers are entering the market with force and the upswing in price may be sustainable. Fresh long positions may be taken at this point.
Bearish Breakaway Candlestick Pattern
What is a bearish breakaway?
A bearish breakaway pattern is a formation in a rising market when the price begins to pull back gradually towards the lower side or break away from the general trend prevailing in the market. Some traders also interpret it as a topping out or overbought market.
How to identify a bearish breakaway
A bearish breakaway pattern can be identified through the formation of five candlesticks wherein the first one is always bullish and the last one is always bearish. The middle candlestick can either be bullish or bearish.
The first inner bar or candle should close above the first bar or candle to indicate a strong momentum on the upper side. The last bar or candle is bearish and should close below the base line of the first inner bar.
In fact, the last day of the pattern has a breakdown and closes below the previous three days although the gap created on the first day remains unfilled. The latter, along with a bearish trend is a clear indication of sign of reversal.
The momentum of the price rise wanes off visibly and there are signs of a reversal of the trend. The entire breakaway cycle may even last for up to five trading sessions.
How to trade a bearish breakaway
The bearish breakaway pattern is usually seen as a sell signal although timing the exact trend reversal is quite difficult. The safer way is to trade in the direction of an already established downtrend in the market.
It is also advisable to trade with a stop loss along with a gradual increase in the positions. That way, the losses incurred will be much less than had the full positions been initiated at one go.
Overall, traders willing to stay invested for at least a week may trade the bearish breakaway pattern. The last close should be the confirmation level and the last high should be the resistance level for trading the bearish breakaway pattern.
Rising Three Methods Candlestick Pattern
What is a rising three method pattern?
A rising three method candlestick pattern is a bullish trend continuation pattern that appears in an uptrend. It is a five-candle formation in which the first and the fifth candles are bullish while the three candles between them may be bearish, thereby indicating that the market may have had a pullback but remains strong enough to move further up.
How to identify a rising three method
A rising three method is a five-bar candlestick formation in which the first and the fifth candles are bullish or positive while the second, third and fourth candles are small and bearish. The latter are all confined within the body of the first bullish candle and indicative of a consolidation before the resumption of the upward rally in the market, when looked at the overall pattern.
The strong fifth candle, which incidentally is the decisive candle of the pattern in terms of trend indicator, shows that the sellers lacked sufficient strength to reverse the trend and the buyers have regained control of the price actions in the market. The last candle breached the high and close of the first candle, thereby suggesting the bulls are firmly in control of the price direction.
How to trade a rising three method
Traders who are regularly active in the market may look to add to their long positions upon appearance of the rising three method candlestick pattern, especially upon the formation of the fifth candle. They should also be prepared to exit if the fifth candle failed to complete the pattern. Although the rising three method tentatively gives a buy signal on its own, it is still advisable for traders to look for other technical parameters to ensure there are no false signals. One such technical indicator is the volume of trade. Although price charts tell us about the price movements, the accompanying trade volumes give clues about the convictions with which the market undertook those movements.
Falling Three Methods Candlestick Pattern
What is a falling three method pattern?
A falling three method is a candlestick pattern that signals the continuation of a trend rather than a trend reversal. It is a bearish pattern and signifies a temporary interruption of the broader trend.
How to identify a falling three method
Despite its name as the falling three method, the pattern actually consists of five candlesticks. Before the formation of the falling three method, there should be a number of bearish candlesticks to signify a downward price movement. The pattern signals a temporary hiatus in the downtrend as bears lack the impetus to push prices further down. This leads to either short covering or testing the market by the bulls.
The first candle of the pattern is a long bearish candle followed by three short bullish candles whose bodies should be contained within the body of the first candle. The three candles are then followed by another long bearish candle to complete the overall bearish picture. The series of small bullish candles is interpreted as a period of consolidation before the downtrend resumes again.
In other words, the failure of the bulls to push prices higher raises the confidence of the bears who come back with force to influence the continuation of the downtrend in the market.
How to trade a falling three method
Since the falling three method is a predominantly bearish candlesticks pattern, traders and investors are enticed to go short or add to their existing short positions. However, going short would be a fool proof trading strategy in this case only when the volume accompanying the three short bullish candles are lesser than the volumes of the bearish candles. Moreover, before going short, traders should also use other technical indicators to ensure the overall pattern is not sitting on a key support level. As part of adequate risk management, traders may put stop loss limits above the fifth candle to protect their investments in case prices move in the other direction than anticipated.
Tower Top Candlestick Pattern
What is a tower top pattern?
A tower top is a trend reversal pattern that occurs at high price levels although confirmation is required by the candles that are formed after the completion of the pattern. Its formation is usually preceded by several bullish candles. As the pattern is considered to be a trend reversal pattern, it reflects the exhaustion of the buyers before the sellers gain control of the price actions and the trends in the market.
How to identify a tower top
A tower top pattern typically occurs in an uptrend with the first candle being bullish and with a long body. The subsequent candles are in ‘sideways’ phase and are like spinning top candlestick pattern, indicating indecisiveness in the market. The last candle is a bearish one with a long body, indicating the beginning of the reversal of the trend. The bodies of the two candles on either side of the pattern are almost equal in sizes.
In other words, the rise of the market slows down from the formation of the second candle onwards and the highs begin to fall gradually. The tower top pattern is complete with the appearance of a long bearish candle. The pattern’s candlesticks look like tall towers and so it is called tower top pattern. The bullish candle on the left and the bearish candle on the right make the two sides of the tower and the smaller candles in the middle make the roof of the tower.
It is important to note here that if the bearish candles are not long enough, then the tower top pattern may be invalidated.
How to trade a tower top
Traders should ideally wait for the formation of the next candles subsequent to the completion of the pattern for confirmation of the trend reversal. Once the trend reversal is confirmed, traders may initiate fresh short positions or sell off their existing long holdings.
Tower Bottom Candlestick Pattern
What is a tower bottom pattern?
A tower bottom pattern is a bullish trend reversal candlestick pattern that occurs at the bottom of a downtrend and takes several trading sessions to develop. The pattern’s formation is preceded by several bearish candles. As it is considered to be one of the trend reversal candlestick patterns, it reflects the exhaustion of the sellers before the buyers make a comeback to gain control of the market.
In other words, the fall of the market slows down from the formation of the second candle onwards and the lows of each subsequent candles begin to rise gradually. The tower bottom pattern is complete with the formation of a long bullish candle, which signifies the reversal of price actions and the trend in the market.
How to identify a tower bottom
The first candle in a tower bottom pattern is a bearish one with a long body. The next few candles are in ‘sideways’ phase and are more like spinning top candlestick patterns, signifying indecision in the market. Finally, the last candle is a bullish one with a long body and is considered as the start of the trend reversal.
The bearish candle on the left side and the bullish candle on the right side together make the two sides of the tower while the smaller candles in the middle make the floor of the tower. The bodies of the two candles on the either side are almost similar in size albeit different in nature.
How to trade a tower bottom
Although it is not necessary to have two large bullish candles to validate the trend reversal pattern but if the bullish candles are not long enough, the pattern is invalidated. Traders and investors should wait for the formation of the next candle after the completion of the tower bottom pattern in order to confirm the reversal of the trend in the market. Once that confirmation is obtained, traders may enter into fresh long trades or cover their outstanding short positions to limit their potential losses.
There are a great number of Candlestick Patterns that have been identified, some work better than others, and some are only applicable in certain market climates. Distinguishing these factors and recognising the psychological power that candlestick patterns have is what makes a great trader.
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