Do you want to trade in share market like a pro? Are you confused at what rate you enter and exit from a stock? Then read this post where I am going to show you the basic but really useful Candlestick chart patterns. However, these chart patterns are only useful when you understand their activity and trade accordingly.
You can combine Candlestick chart patterns with other technical analysis tools to get more out of it. Candlestick chart patterns are one of the technical tools used by professional which makes them more useful than traditional open-high, low-close bars (OHLC). Furthermore, you can predict price direction once it builds patterns. Its color coding also adds depth to this colorful technical analysis tool.
There are many candlestick patterns but only a few are actually worth knowing. Here are 10 useful Candlestick chart patterns you should know before diving into the stock market.
Candlestick Chart Patterns – Bullish patterns and bearish patterns
Bullish Candlestick Chart Patterns
You will find Bullish Engulfing Candlestick chart patterns at the bottom of a downtrend and near support zone of a stock. It normally takes two days for the Engulfing pattern formed and is made up of two Candlestick.
On day one, a smaller bearish red candlestick is formed where open price is higher than the previous closing price.
And on day two, a larger bullish green candlestick is formed where open price is lower than the closing price of day one.
Bullish Engulfing Candlestick Pattern is a very common trend reversal pattern and it is highly rewarding for you. Bigger the engulfing candlestick then more significant and clear is the pattern. Larger candlestick tells you where the market is heading and also you will know about the stock market sentiments.
You can further confirm this pattern using any other technical analysis indicators like RSI, MACD, and much more. It helps you to quickly pick up the trend change or the buy signal. Bullish Engulfing pattern further strengthens if you find the higher volume on the third day with a gap up opening suggesting trend reversal.
A bullish Hammer pattern is made up of just one candle and you will find at the bottom or near support zone. It looks like a hammer, as it has a long lower stick and a short body at the top of the candlestick with little or no upper stick.
Whenever you see the hammer form in a downtrend then you can expect a potential reversal in the market. You must also look for a long lower stick and an increase in volume which further confirms the trend reversal.
You will find a Bullish Harami Pattern at the bottom of a downtrend or near a significant support. It is also made up of two Candlestick and takes two days for this pattern to form. On day one long bearish red candlestick is formed and on the second day, a small bullish green candlestick is formed.
It is very important that the open price of the day two candlestick is higher than the close price of day one candlestick. Furthermore, the close price of the day two candlestick is lower than the open price of day one candlestick. Bullish Harami pattern is considered to be a trend reversal pattern, suggesting you the buy signal and indicating Bull is taking over the market.
The size and location of the bullish candlestick formed on day two also tell you about the magnitude of this pattern. The bigger bearish candle of day one and a small bullish candle of day two represents strong trend reversal. It further confirms strong trend reversal if both the candle formed near each other and lies in the mid or near the top side of the bearish candle.
It is very important for you to reconfirm the pattern by integrating with other technical indicators. Strong volume with a gap up opening also suggests strong buy signal.
The Bullish Piercing Line Chart Pattern is yet another bullish candlestick reversal chart pattern. It is formed at the downtrend and consist of two Candlestick and also takes two days for this pattern to form.
On day one, candlestick is bearish in nature and on day two a bullish candlestick is formed which covers half the body of the bearish candle formed on day one. This kind of pattern will be formed if the open price of day two candlestick is lower than the close of day one candlestick. Also, if you find the close price of the day two candlestick close above the half of the body of the day one candlestick.
Piercing Chart Pattern is an indication that the bears are losing its control and bulls are taking over it. However, you need to wait for the third day, for this pattern to confirm. Even gap up opening with volume assures you the trend has reversed.
The market is in a downtrend and a strong black candlestick further confirms you. When you start trading on the next day it opens lower with a gap down, and the trading is in a small range.
Doji forms whenever you see the closing price is near the opening price. It is probably the most popular candlestick chart patterns.
The stock opens higher and move sideways and closes almost near the opening price. Doji trigger reversals in the opposite direction and you can trade accordingly.
Bearish Candlestick Chart Patterns
Bearish Candlestick chart patterns are exactly the opposite of the bullish patterns. You will find these patterns come after a rally and signify a possible reversal just like the bullish patterns.
Keep an eye on this post as I continue to update it while adding information which adds value to your trading strategies. You can comment us to know more and don’t forget to share it with your friends.
Published on: Jul 11, 2017