Candlesticks they look simple but super powerful and if you learn the logic behind them you become better trader.
Did you know that the stock market is based on emotions as it consist of large number peoples. And this emotions are responsible for movements of the market. As people do similar behavior in dealing with similar situations, we can understand overall movement of the market. For understanding the emotions of the market it is necessary to learn about candlestick pattern.
In this post you will learn about 10 important candlestick patterns that can be used in your trading .
What is a candlestick ?
A candlestick shows the price movement in fixed time period by showing open, high, low and close price. It has body and wicks. The central body connect the opening and closing of the price. Upper wick indicates the high and lower wicks indicates the low.
A green candle is Bullish, it represents buying and the close will be higher than open(price increases). A red candle is bearish candle, it represent selling and close will be lower than open(price decreases).
Now we understood how a candlestick look like and depending on different bodies and wicks candles have there are different candlestick types. So next we understand 10 important candlestick patterns and how they represent the sentiment in the market.
Single candlestick patterns
PATTERN NUMBER ONE: MARUBOZU CANDLESTICK PATTERN
Marubozu is candlestick with no upper or lower wicks and it indicates a strong trend.
Bullish Marubozu is a clean buying candle, started moving up from the opening level and closed the highest level.
Bearish Marubozu is a clean selling candle, started moving down from the opening level and closed at the lowest level.
PATTERN NUMBER TWO : SPNNING TOP CANDLESTICK PATTERN
Spinning top candlesticks have real small body and almost equal upper and lower body. It indicates indecision, consolidation or even a trend reversal. Here colour of the body does not matter as it is small.
Spinning top in uptrend: It indicates decrease of buyer, Possible selling from top
Spinning top in Downtrend: It indicates the decrease in sellers, Possible buying from bottom or consolidation.
PATTERN NUMBER THREE : DOJI CANDLESTICK PATTERN
Doji candlestick patterns are very similar to Spinning top, but it has no real body. Here open price is equal to closing price and upper and lower wicks might be different length. It indicates extreme indecision and trend reversal.
PATTERN NUMBER FOUR : HAMMER CANDLESTICK PATTERN
Hammer candlestick pattern formed at the bottom of downward rally and it indicates trend reversal to bullish Has small upper real body and long lower wick. The length of lower wick should be around twice of the length of the real body and the colour of the body does not really matter.
PATTERN NUMBER FIVE : SHOOTING STAR CANDLESTICK PATTERN
Shooting star is a candlestick pattern with small lower body and long upper wick, Longer the wick more the bearishness. Here colour does not matter but more reliable if it is a red candle. It indicates ending of bullishness at the top of the rally.
Multiple candlestick patterns
PATTERN NUMBER SIX : HARAMI CANDLESTICK PATTERN
Harami pattern is a two candle pattern indicating trend pause and trend reversal.
Bearish Harami Pattern appears at the top of an uptrend and first candle is bullish candle and second candle is a bearish candle opening lower than close of the first candle and closes higher than open of the first candle.
Bullish Harami Pattern appears at the bottom of the downtrend and first candle is a bearish candle and second candle is bullish candle opening higher than first candle close and close with lower than open of the first candle.
PATTERN NUMBER SEVEN : ENGULFING CANDLESTICK PATTERN
Engulfing pattern is two candle pattern indicating trend reversal. Here second candle need to be completely engulf the first candle.
Bearish engulfing pattern: It appears at the top of an uptrend, first candle is a bullish candle and second candle is bearish candle long enough to cover and close bellow first candle.
Bullish engulfing pattern: It appears at the bottom of a downtrend, first candle is a bearish candle and second candle is bullish candle long enough to cover and close above first candle.
PATTERN NUMBER EIGHT: GAP-BASED CANDLESTICK PATTERN
Gap up-opening and Gap-down opening occur in the market overnight.
Gap-up opening is bullish and it indicates that buyers are confident to buy at higher price than yesterday’s close.
Gap-down opening is bearish and it indicates that sellers are confident to sell at lower price than yesterday’s close.
PATTERN NUMBER NINE : MORNING STAR CANDLESTICK PATTERN
Morning star pattern appears at the bottom of the downtrend. It has three candles and candle one is red candle and candle two gap-down candle as a doji and candle three is gap-up and green closing above the first candle.
PATTERN NUMBER TEN : EVENING STAR CANDLESTICK PATTERN
Evening star pattern appears at the top of an up trend. It has three candles and first candle is green candle and second candle is a gap-up candle as a doji and third candle is gap-down and red closing bellow first candle.
CONCLUSION:
In this article we discussed about 10 most powerful candlestick patterns. Next time when you see the charts try to understand this patterns.
By knowing this patterns will help you understand how the market psychology works and using these candle patterns along with other technical tools can help you take better trades in the market.
I hope it will help you, let me know if you have any question in the comment section below . For more such contents check out our website.
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