Candlestick patterns are used to predict the future direction of price movement. Discover some of the most common candlestick patterns and how you can use them to identify trading opportunities.Every candlestick tells us a story of "TUG OF WAR" between Buyer and Sellers.
What is a candlestick ?
Candlestick charts are one of the most important components of technical analysis, this article focuses on daily charts.
It is the the pictorial representation of the price of action in that session. Candlesticks are the smiles that market throw at us to communicate, "Behind The Scenes Of Action".
Every candlestick tells a story.
Candlestick Body
Types of candlesticks
Spinning top candlestick body type
Meaning - Indicision 50-50
Body - Small
Type - Any Bullish or Bearish
Interpretation - Reversal.
The pattern indicates indicision in the market, this candlestick is a Reversal Candlestick.The spinning top candlestick pattern has a short body centred between wicks of equal length. The pattern indicates
indecision in the market, resulting in no meaningful change in price: the bulls sent the price higher, while the bears pushed it low again. Spinning tops are often interpreted as a period of consolidation, or rest, following a significant uptrend or downtrend.
Now suppose 4 or 5 candles are bearish candlesticks and after that would have Bullish Or Bearish Spinning Top Candlesticks come later, So suppose Sellers have become quiet. They sold as much as they wanted to develop.Now they are going to do "Wait & Watch". Then candle becomes "Reversal Candle". Now it becomes "Reversal Capability".
Marubozu candlestick body type
Meaning - Dominance
Body - Long and almost no shadow
Type - Any Bullish or Bearish
Interpretation - Reversal or Continuation of trend
Bullish Marubozu -
Suppose candle becomes Bullish Marubozu, So you understand that in last session Buyers dominates completely and Seller becomes quiet. It means Sellers came up huge amount of numbers but Buyers also came up that same number.
It means market becomes fully Bullish means fully Positive. It has no chance that some one will sell. Market become so much Bullish that no one can think about to sell. lots of Dominance.
Bearish Marubozu -
Now suppose 4 or 5 candles are bearish
candlesticks and after that would have Bearish Marubozu
Candlesticks come later, So suppose Sellers have become quiet. They sold
as much as they wanted to develop. It means Buyer becomes active and Sellers becomes quiet. it means it becomes "Reversal Trend".
OR
If candle becomes UPTREND and after that would have candle becomes bullish it means "CONTINUATION OF TREND"
If candle becomes UPTREND and after that would have candle becomes Bearish it means "REVERSAL OF TREND".
Dozi candlestick body type
Meaning - Trend coming to end
Body - Long Shadow, No Body
OR
Suppose 4 or 5 candles are bullish candlesticks and after that would have Dozi Candlesticks come later, it means market will become Bearish.
Hammer candlestick body type
Meaning - Bullish Trend Reversal
Body - Small body, long tail
Now suppose 4 or 5 candles are bearish
candlesticks and after that would have Hammer
Candlesticks come later, so now you understand that it becomes "Bullish Trend Reversal".
The hammer candlestick pattern is formed of a short body with a long lower wick, and is found at the bottom of a downward trend.
Inverted hammer candlestick body type-
The hammer candlestick pattern is formed of a short body with a long lower wick, and is found at the bottom of a downward trend.
Inverted hammer candlestick body type-
A similarly bullish pattern is the inverted hammer. The only difference
being that the upper wick is long, while the lower wick is short.The inverse hammer suggests that buyers will soon have control of the market.
Shooting Star candlestick body type -
The shooting star is the same shape as the inverted hammer, but is formed in an uptrend: it has a small lower body, and a long upper wick.
Bullish Engulfing candlestick body type -
The bullish engulfing pattern is formed of two candlesticks. The first candle is a short red body that is completely engulfed by a larger green candle.
Piercing line candlestick body type-
The piercing line is also a two-stick pattern, made up of a long red candle, followed by a long green candle.
There is usually a significant gap down between the first candlestick’s closing price, and the green candlestick’s opening. It indicates a strong buying pressure, as the price is pushed up to or above the mid-price of the previous day.
Morning Star candlestick body type-
Shooting Star candlestick body type -
The shooting star is the same shape as the inverted hammer, but is formed in an uptrend: it has a small lower body, and a long upper wick.
Bullish Engulfing candlestick body type -
The bullish engulfing pattern is formed of two candlesticks. The first candle is a short red body that is completely engulfed by a larger green candle.
Piercing line candlestick body type-
The piercing line is also a two-stick pattern, made up of a long red candle, followed by a long green candle.
There is usually a significant gap down between the first candlestick’s closing price, and the green candlestick’s opening. It indicates a strong buying pressure, as the price is pushed up to or above the mid-price of the previous day.
Morning Star candlestick body type-
The morning star candlestick pattern is considered a sign of hope in a
bleak market downtrend. It is a three-stick pattern: one short-bodied
candle between a long red and a long green. Traditionally, the ‘star’
will have no overlap with the longer bodies, as the market gaps both on
open and close.
It signals that the selling pressure of the first day is subsiding, and a bull market is on the horizon.
Bearish Engulfing candlestick body type-
A bearish engulfing pattern occurs at the end of an uptrend. The first candle has a small green body that is engulfed by a subsequent long red candle.
It indicates the reversal of an uptrend, and is particularly strong when the third candlestick erases the gains of the first candle.
Traders interpret this pattern as the start of a bearish downtrend, as the sellers have overtaken the buyers during three successive trading days.
The dark cloud cover candlestick pattern indicates a bearish reversal – a black cloud over the previous day’s optimism. It comprises two candlesticks: a red candlestick which opens above the previous green body, and closes below its midpoint.
It signals that the bears have taken over the session, pushing the price sharply lower. If the wicks of the candles are short it suggests that the downtrend was extremely decisive.
The bearish pattern is called the ‘falling three methods’. It is formed of a long red body, followed by three small green bodies, and another red body – the green candles are all contained within the range of the bearish bodies. It shows traders that the bulls do not have enough strength to reverse the trend.
It signals that the selling pressure of the first day is subsiding, and a bull market is on the horizon.
Bearish Engulfing candlestick body type-
A bearish engulfing pattern occurs at the end of an uptrend. The first candle has a small green body that is engulfed by a subsequent long red candle.
Hanging man
The hanging man is the bearish equivalent of a hammer; it has the same shape but forms at the end of an uptrend. It indicates that there was a significant sell-off during the day, but that buyers were able to push the price up again. The large sell-off is often seen as an indication that the bulls are losing control of the market.
Evening star
The evening star is a three-candlestick pattern that is the equivalent of the bullish morning star. It is formed of a short candle sandwiched between a long green candle and a large red candlestick.
It indicates the reversal of an uptrend, and is particularly strong when the third candlestick erases the gains of the first candle.
Three black crows
The three black crows candlestick pattern comprises of three consecutive long red candles with short or non-existent wicks. Each session opens at a similar price to the previous day, but selling pressures push the price lower and lower with each close.
Traders interpret this pattern as the start of a bearish downtrend, as the sellers have overtaken the buyers during three successive trading days.
Dark cloud cover
The dark cloud cover candlestick pattern indicates a bearish reversal – a black cloud over the previous day’s optimism. It comprises two candlesticks: a red candlestick which opens above the previous green body, and closes below its midpoint.
It signals that the bears have taken over the session, pushing the price sharply lower. If the wicks of the candles are short it suggests that the downtrend was extremely decisive.
Falling three methods
Three-method formation patterns are used to predict the continuation of a current trend, be it bearish or bullish.
The bearish pattern is called the ‘falling three methods’. It is formed of a long red body, followed by three small green bodies, and another red body – the green candles are all contained within the range of the bearish bodies. It shows traders that the bulls do not have enough strength to reverse the trend.
Rising three methods
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