All candlesticks pattern – Most Powerful technical analysis approach

Candlestick patterns are a powerful tool in the world of technical analysis, aiding traders in predicting future price movements and identifying potential trading opportunities. In this article, we will delve into the intricacies of candlestick patterns, exploring their significance and how they can be employed to inform trading decisions.

Understanding All Candlesticks Pattern

A candlestick is a visual representation of an asset’s price movement over a specific period. Among the various elements of technical analysis, candlestick charts stand out for their ability to convey price information swiftly, often derived from just a handful of price bars. Focusing on daily charts, each candlestick encapsulates a single day’s trading and comprises three key features:

  • The Body: The body of the candlestick represents the range between its opening and closing prices.
  • The Wick (Shadow): The wick extends above and below the body, indicating the intraday high and low.
  • The Color: The color of the body reveals the market movement direction; a green (or white) body signifies a price increase, while a red (or black) body indicates a price decrease.

Over time, these individual candlesticks form patterns that traders can use to identify crucial support and resistance levels. A plethora of candlestick patterns exist, each offering unique insights into market dynamics, buying and selling pressures, and potential continuation or reversal signals.

Unveiling Bullish Patterns

Bullish patterns emerge following a downtrend and signal a potential reversal in price movement. These patterns are valuable indicators for traders considering opening long positions to capitalize on upward trends.

Hammer

The hammer candlestick pattern manifests as a short body with a substantial lower wick, usually found at the bottom of a downward trend. Despite selling pressures during the day, a strong buying force drives the price back up. While the body color can vary, a green hammer suggests a more robust bull market compared to a red one.

Hammer min 1
All candlesticks pattern

Inverted Hammer

The inverse hammer is a similar bullish pattern, featuring a long upper wick and a short lower wick. This pattern denotes initial buying pressure followed by a less potent selling pressure that fails to drive prices significantly lower. The inverse hammer indicates that buyers are poised to gain control of the market.

Candlestick patterns
Candlestick patterns

Bullish Engulfing

Comprising two candlesticks, the bullish engulfing pattern showcases a short red body entirely engulfed by a larger green candle. Despite opening lower on the second day, bullish momentum propels prices upward, highlighting a clear win for buyers.

Candlestick patterns
Candlestick patterns

Piercing Line

The piercing line pattern also involves two candlesticks, where a long red candle is succeeded by an elongated green one. The notable gap between the closing price of the first candlestick and the opening price of the green candlestick signifies strong buying pressure. The price is pushed above or to the midpoint of the prior day.

Morning Star

A three-stick pattern, the morning star is a beacon of hope in a dreary market downtrend. Featuring a short-bodied candle flanked by a long red and a long green one, the ‘star’ lacks overlap with longer bodies due to market gaps on both opening and closing. This pattern suggests waning selling pressure and the dawn of a bull market.

Candlestick patterns
Candlestick patterns

Three White Soldiers

Spanning three days, the three white soldiers’ pattern comprises consecutive long green (or white) candles with minor wicks. Each candle opens and closes at progressively higher levels than the previous day, indicating a strong bullish signal following a downtrend.

Candlestick patterns
Candlestick patterns

Identifying Bearish Patterns

Bearish candlestick patterns surface after an uptrend, marking potential resistance points. These patterns often prompt traders to exit long positions and consider short positions as prices decline.

Hanging Man

Equivalent to the bullish hammer, but in a bearish context, the hanging man forms at the uptrend’s conclusion. A significant sell-off during the day is countered by buyers pushing prices higher. The pronounced sell-off signifies weakening bullish control.

Candlestick patterns
Hanging Man Chart Pattern min

Shooting Star

Similar in shape to the inverse hammer, the shooting star is formed during an uptrend. It features a small lower body and an extended upper wick. While opening slightly higher and rallying to an intra-day peak, the price closes slightly above the opening price, resembling a falling star.

Candlestick patterns
Candlestick patterns

Bearish Engulfing

This bearish pattern occurs at the uptrend’s termination, where the small green body of the first candlestick is engulfed by a subsequent long red one. It signifies a peak or slowdown in price movement, foretelling an impending market downturn.

Candlestick patterns
Candlestick patterns

Also Read: Bollinger Band and RSI Strategy

Evening Star

Mirroring the bullish morning star, the evening star comprises a short candle sandwiched between a long green candle and a large red one. Indicative of an uptrend reversal, the pattern gains strength when the third candle erases the first candle’s gains.

Candlestick patterns
Candlestick patterns

Three Black Crows

Marked by three consecutive long red candles with minimal or absent wicks, the three black crows pattern manifests as each session opens at a price similar to the previous day’s, followed by a steady decline. This signals the commencement of a bearish downtrend.

Candlestick patterns
Candlestick patterns

Dark Cloud Cover

Featuring a red candlestick opening above the prior green body and closing below its midpoint, the dark cloud cover denotes a bearish reversal. It indicates the bears’ dominance, leading to a sharp price decline.

Candlestick patterns
Candlestick patterns

Also Read: 10 day moving average strategy

Continuing Patterns: Doji

When a candlestick pattern fails to signal a market direction change, it becomes a continuation pattern, often reflecting market indecision or neutral price movement.

Doji

A doji forms when an asset’s open and close prices are nearly identical, creating a cross-like appearance. The pattern suggests a struggle between buyers and sellers, resulting in no net gain for either side. While a standalone doji conveys neutrality, it finds relevance in reversal patterns such as the bullish morning star and bearish evening star.

Candlestick patterns
Candlestick patterns

Predicting Trends: Three-Methods Patterns

Three-method formation patterns forecast the continuation of existing trends, whether bullish or bearish.

Falling Three Methods

The bearish ‘falling three methods’ pattern consists of a long red body, followed by three short green bodies contained within the bearish range. This suggests that bullish momentum is insufficient to reverse the trend.

Rising Three Methods

In contrast, the bullish ‘rising three methods’ pattern entails three short reds enclosed within two long greens. This pattern signals that buyers retain control despite minor selling pressures.

Candlestick patterns

Conclusion

Candlestick patterns are an essential tool for traders seeking insights into market dynamics and potential price movements. These patterns, whether bullish, bearish, or continuation, offer a visual language that traders can use to make informed decisions. Understanding these patterns equips traders with the knowledge needed to navigate the complex world of financial markets.

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