Candlestick patterns are the best way to predict the future direction of the price of any particular stock/Indices or any trading Instrument. Discover 11 of the most common candlestick patterns and how you can use them to identify trading opportunities.
Candlesticks are a way of communicating information about how price is moving.
A candlestick is a way of displaying information about an asset’s price movement. Candlestick charts are one of the most popular components of technical analysis, enabling traders to interpret price information quickly and from just a few price bars.
There are Four main points in a candle, Which are as follows:-
Doji
This candle has zero or almost zero range between its open and close.
Rather than implying potential reversal or the clear dominance of either bears
or bulls, these candles suggest indecision or balance between the two forces.
Neither buyers nor sellers are fully in control. A doji that occurs in the context
of a strong trend implies the weakening of the dominant force that resulted in
that trend. A “long-legged doji” has long wicks in both directions, implying strong,
balanced pressure from both buyers and sellers
The “dragonfly” and “gravestone” doji imply, respectively, that sellers and buyers controlled the
market for most of the trading period, but then the opposite group managed to push the price back to the
open before the close. While tradition and long-legged dojis are reflective of indecision and stalling,
gravestones and dragonflies are generally clearer, stronger indicators that a force is stepping in to push
the market in the direction of the wick and away from the body
A “hammer” is a candlestick with a small body (a small range from open to
close), a long wick protruding below the body, and little to no wick above.
In this respect it is very similar to a dragonfly doji; the primary difference
is that a dragonfly doji will have essentially nobody, meaning the open and
close prices are equal.
When a hammer appears at the bottom of a downtrend, its long wick implies
an unsuccessful effort by bears to push the price down, and a corresponding
effort by bulls to step in and push prices back up quickly before the period
closed.
The “hanging man” is the name given to a candle that is identical in shape
to the hammer; the difference is that while hammers occur in downtrends,
the hanging man pattern occurs in uptrends. In this case, the wick extends
down, contrary to the uptrend, and suggests the emergence of bearish
demand capable of pushing the price down. It is often the first sign that
the uptrend is exhausting, and bears are stepping in to create a reversal.
For the reversal signal to be confirmed, the consequent bearish bar should
reach the “neckline” established by the opening of the bullish bar on the
other side of the hanging man.
This candlestick is simply the inversion of the hanging man: it has a small
body and a long wick protruding above it, with little to no wick below.
The “shooting star” occurs at the height of an uptrend; its long wick implies
that resistance to further bullish movement has been encountered above the
close, and a bearish reversal may be imminent. In this case, a strong black
candle or a price at the level of the previous bar’s open can act as confirmation
or an entry point
Often, shooting stars are further characterized by a gap
between the previous bar’s close and the relatively higher opening of
the shooting star.
In this pattern, the real body of a bearish candle
(the range from open to close) is encompassed by the
body of a consequent bullish candle. This indicates an
increase in activity from both bears and bulls,
and a shift in overall market sentiment towards
bullishness
Like with all the patterns we’ve discussed thus far, this pattern should be viewed in consideration of the trend at the time: if a bullish engulfing pattern appears in a downtrend, it can suggest a shift in price trend and the onset of buying demand becoming the prevailing force that will ultimately push prices higher in the context of the timeframe
being viewed.
This pattern is the converse of a bullish engulfing
pattern, wherein the body of a bullish candle is
encompassed by the body of a consequent bullish candle.
This indicates an increase in activity from both
bears and bulls, and a shift of market sentiment towards
bearishness
As we have observed with other patterns, the context of the trend is critical; a bearish engulfing pattern is most indicative of the onset of a bearish price moves when it appears in the midst of an uptrend.
A kicker signal, also known as a professional gap, occurs when
the following conditions are met:
The kicker on the trading chart Will look like this:
This is a 3-candle bullish pattern that implies a
reversal at the bottom of a bearish trend. The three
soldiers are bullish candlesticks that open within
the body of the previous candlestick and close near
the high of the day.
This applies to all
three candles; they should all be strong
bullish candles, with small wicks and a close near
the top. These high closes imply a strong reversal
from bearish to bullish market sentiment.
This 3-candle pattern is the opposite of
“Three White Soldiers;” it signals the reversal
away from bullish control at the top of
an uptrend. It consists of three successive
bearish bars that open within the preceding
bar’s body and close below its close.
Three black Crows usually Convert an uptrend into a downtrend
These two-candlestick reversal patterns appear as either the tops or bottoms of trends in which two
consecutive candlesticks share either a high or low but represent movements in the opposite market
directions. In the case of a tweezer top, the first bullish candlestick occurs in an uptrend and closes
near the same level as its high, which then becomes the high of the second candlestick, which moves
bearishly downwards throughout the day
In technical analysis, there is no such thing as a “sure bet.” The nature of trading securities is that the
possibility of profit comes hand in hand with the possibility of risk. With this uncertainty in mind,
the successful application of technical analysis depends on entering the market at the moment when
there are as many indicators of an advantageous outcome as possible. This is the concept of
“confluence,” the idea that the best market moves are those that are supported by multiple
converging factors or indicators that all testify to the advantageous conditions of the trade.
