빵kor.Best Candlestick Patterns for Traders – Trading Guide

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Source Of Article:

https://www.investopedia.com/articles/active-trading/062315/using-bullish-candlestick-patterns-buy-stocks.asp

https://www.ig.com/us/trading-strateghttps://www.ig.com/us/trading-strategies/16-candlestick-patterns-every-trader-should-know-180615ies/16-candlestick-patterns-every-trader-should-know-180615

Candlestick patterns are a strong tool to forecast the trend of price fluctuation. We are going to explain the Best Candlestick Patterns for Traders to enable them to identify and opt for the best trading opportunities.

Brief Introduction

Candlestick is a technique to showcase the price of a commodity. These candlesticks are an integrated part of the technical analysis through which traders can grab the price information and interpret them to take benefit out of best trading opportunities.

Primarily, we are focusing on the daily chart and every candlestick addresses the single day’s trading. Basically, there are three features to keep in mind. These features include:

  1. The Body; Represents open-to-close range
  2. The wick; Shows the high and low ranges for the same day
  3. The Color; this feature represents the market’s trends with color-coding. Green or white color is to show positive trends means the price is on increase. On the other hand, red or black color represents the price decrease.

Moreover, with the help of these candlestick patterns, traders can gauge the support and resistance levels. Different candlestick patterns deliver vital information like opportunity within the market, continuation trends, market indecision, and sell-buy balance.

So, if you are a beginner and bracing up for entry into the trading world, learning with candlestick patterns would help you in a miraculous way to create a positive difference.

This is how you should read a single candlestick

The single candlestick represents the price data of the specific stock for a single day. Data includes the four important portions of information as mentioned herein below,

·       The opening price

·       The closing price

·       The High Price

·       The Low Price

The central rectangle of the candlestick is called the real body. The color of this rectangle tells whether the opening price or closing price was higher. Black color conveys the opening price was higher than the closing price for the specific period. This means it is bearish and represents selling pressure. Contrarily, a hollow or white candlestick is a sign of the opening price was lower than the closing price. This shows a bullish pattern and there is buying pressure. However, lines on both ends of the candlestick are termed as shadows. These shadows are to represent the complete range of price action for a specific single day. The lower shadow depicts the lowest price for a single day and the upper shadow reflects the highest price for the same day.

Bullish Candlestick Patterns

Patterns are developed over a long period of time, usually from one to four weeks. But these patterns are very helpful in viewing and predicting the future price of a stock. Moreover, over a period of time, these daily candlesticks converted into easily recognizable patterns with self-explanatory names like three white soldiers, hammer, morning star, an abandoned baby, and dark cloud cover, etc. We are going to explain these recognizable patterns. But before proceeding further, please keep these two vital principles in your mind.

  1. All bullish patterns form within a downward. If it is forming upward, it is a continuation pattern, not a bullish pattern.
  2. Most of the bullish reversal patterns need bullish confirmation. It means they must be followed by an upside price move. This pattern can come as a long hollow candlestick or a gap up. Moreover, this is associated with high trading volume. You would have three days for confirmation.

However, there are some other tools to confirm the bullish reversal patterns with the help of traditional technical analysis. For example, momentum, oscillators, trend lines, or volume indicators are some of the tools to confirm the buying pressure of bullish patterns. There are plenty of candlestick patterns to identify the opportunity to buy. But we will keep our focus on six bullish candlestick patterns that cause the strongest reversal signal.

1.    The Hammer

The hammer is a rapidly changing reversal pattern, indicating that the stock is moving closer to the bottom. The candle body is short with a long shadow which is the price of sellers who lower prices during the trading session, then only face strong buying pressure to end the session at a high close. Before we jump into rapid reversal, we need to take a closer look at the next few days to confirm this trend. The reversal must also be confirmed by an increase in trade volume.

2.    The Inverted Hammer

The inverted hammer also forms a downward shape and indicates a possible trend reversal or support. This is similar to the hammer of the long upper shadow, which indicates the buying pressure after the opening price, followed by considerable selling pressure, which was not enough to bring the price below its initial price. Again, speed confirmation is needed, and it can come in the form of a long hollow candlestick or gossip, with huge commercial volume.

3.    The Bullish Engulfing

The bullish engulfing pattern is made up of two candles. The first candle is a small red body completely wrapped in a larger green candle.

Although the second day opens less than before, the bullish market has pushed up prices, resulting in a clear win for buyers.

4.    The Piercing Line

Like the engulfing pattern, the perforation line is a two-candle bullish reversal, which is also found in the downtrends. The first black long candle is followed by a white candle that blooms shorter than the previous one. Shortly afterward, the buying pressure pushes half or more of the price (preferably two-thirds way) into the real body of the black candle.

5.    The Morning Star

As the name suggests, the Morning Star is a symbol of hope and a new beginning in a downtrend. This pattern consists of three candles: a small body candle (called a doji or spinning top) between a long, long black candle and a successful long white candle. The real color of a short candle can be either black or white, and there is no overlap between them. This shows that the selling pressure that was there the day before is now diminishing. The third white candle fades from the black candle body and represents a new pressure and rapid reversal for buyers, especially if the high volume is confirmed.

6.    Three White Soldiers

Three white soldiers are sampled in three days. This includes smaller, taller green (or white) candles, which opens and closes more slowly than the previous day.

This is a sign of a very strong uptrend after the downturn and a steady improvement in buying pressure.

Continuation Candlestick Patterns

A continuation pattern is a pattern which does not convey any information about the change in marketed direction. So, traders may use these patterns to identify the rest time. These patterns depict market indecision pr neutral price movement in the market.

1.    Doji

When the market is open and at almost the same price, the candlestick is like a cross or a plus sign – traders should look for a short non-existent body with wicks of different lengths.

The pattern of this dodge is a struggle between buyers and sellers without any benefit from either side. There is only one dodgy neutral signal, but it can be found in reverse patterns such as the bullish morning star and the evening star.

2.    Spinning Top

Above spinning, the candlestick pattern consists of a small body, the length of which is in the middle of the wicks. This pattern indicates market bias, which does not result in a significant change in price: the bulls sent the price higher, while the bears lowered it again. Spinning tops are often interpreted as a period of stability or rest, following a major upgrade or downtrend.

The pulse itself is a relatively benign signal but can be interpreted as a sign of things to come because it shows that the current market pressure is losing control.

3.    Falling three methods

Three-dimensional formatting patterns are used to know the continuation of the current trend; it could be bearish or bullish.

The style of bearish is called the “three ways of falling”. It consists of a long red body, followed by three small green bodies, and another red body. Green candles are all within the body of a bearish. This shows traders that bulls do not have the power to reverse the trend.

4.    Rising three methods

The opposite of the bullish pattern, which is called the “three-way growing” candle pattern. It includes three short reds with two long green sandwiches. This pattern shows traders that, despite some selling pressure, buyers are still in control of the market.

Bearish Candlestick Patterns

Contrarily to Bullish Candlestick patterns, Bearish candlestick patterns are formed with the uptrend. Moreover, over positivity of the traders compel them to prefer their short position over their long positions to take the benefit out of the falling rate. The descriptive Bearish Candlestick Patterns are as follows,

1.    Hanging man

The hanged man is like a hammer, having the same shape but is formed at the end of the uptrend. It shows that there were significant sales during the day, but buyers were able to push the price again. Big sellers are often seen as a sign that bulls are losing control of the market

2.    Shooting Star

The shooting star is similar to the inverted hammer for bullish patterns, but it is formed in a higher form: the lower part is shorter, and the upper part is longer.

In general, the market opening and intra-day highs, before closing at a price just above the open, will be a little likes a falling star on the ground.

3.    Bearish Engulfing

The pattern of bearish engulfing is at an advanced end. The first candle has a small green body resulting in a long red candle.

It indicates the rise or fall of price movements and the market is in a downward trend. The lower second candle depicts a more important trend.

4.    Evening star

The evening star is a pattern of three candles equal to the morning star. It is made of a short candle sandwich between a long green candle and a large red candle.

This reveals a reversal of the uptrend, and it is strong when the third candle erases the benefits of the first one.

5.    Three Black Crows

The candlesticks pattern of the three black crows consists of three consecutive long red candles with short or no absence. Each session opens at the same price as the previous day, but selling pressures push the price lower and lower with each passing day.

Traders interpreted this style of interpretation as the beginning of a downturn, as sellers outperformed buyers in three consecutive trading days.

6.    Dark Cloud Cover

The black cloud cover indicates the reversal of the candlestick pattern – the black cloud over the previous day’s hopes. It consists of two candles: a red candle that opens above the back green body, and closes below its midpoint.

This indicates that the bears have taken over the power of the session, and the price has risen sharply. If the pieces of candles are short, it shows that the city center was very decisive.

Putting them All Together

The Chart as shown below is depicting the three bullish patterns as we discussed above; The Inverted Hammer, the piercing Line, and the Hammer.

Below given chart shows the Three White Soldiers pattern. You can easily witness how reversal in a downtrend is confirmed with the rapid increase in the volume of trading.

Our Verdict

Investors should use the candlestick charts along with other technical analysis tools. Doubtlessly, these patterns provide an extra coat on the fundamental analysis to solidify the trading decisions. So, traders should always confirm reversal by the respective price action before taking a trade decision.

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