Candlestick Chart Patterns
Candlestick charts
contain theopening, high, low, and closing prices of a given period of time, just as a bar
chart does, but they also contain something more—a window into the emotions of
the participants involved.
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Types of Candlestic Chart Patterns
1. Candlestick Reversal Patterns:– Those that suggest a reversal of the current price direction.
2. Continuation Candlestick Patterns:-Those that suggest a continuation of the current price direction.
3. Indecision Candlestick Patterns:- Those that indicate indecision on the part of market participants.
Now in this post we will come to know about candlestick reversal chart pattern.
Candlestick Reversal Patterns
Candlestick patterns provide useful indications that a stock, currency, or
index has peaked or bottomed. Reversal candlestick patterns reveal the ‘‘pressure
points’’ that cause participants to turn from bear to bull, or vice versa.
index has peaked or bottomed. Reversal candlestick patterns reveal the ‘‘pressure
points’’ that cause participants to turn from bear to bull, or vice versa.
Types of Reversal Candlestick Chart Pattern:-
Hammer Pattern
The hammer is a bullish reversal candlestick pattern. It is a single-candle pattern,
consisting of a small real body that rests on top of a long wick. As a rule of thumb,
the hammer’s lower wick should be at least twice as long as its body. There should
be no upper wick on top of the body, although a small upper wick is considered
acceptable. The color shading of the real body is unimportant; it can be either Red or Green.
consisting of a small real body that rests on top of a long wick. As a rule of thumb,
the hammer’s lower wick should be at least twice as long as its body. There should
be no upper wick on top of the body, although a small upper wick is considered
acceptable. The color shading of the real body is unimportant; it can be either Red or Green.
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When analyzing the hammer pattern, the most important factors are its location
and the intensity of the move that preceded its formation. A hammer that forms
after a sharp, sustained bearish move is best suited to usher in a bullish reversal.
Conversely, a hammer that follows a weak downward move is not expected to
generate a sharp move higher.
and the intensity of the move that preceded its formation. A hammer that forms
after a sharp, sustained bearish move is best suited to usher in a bullish reversal.
Conversely, a hammer that follows a weak downward move is not expected to
generate a sharp move higher.
Shooting Star Pattern
Every bullish candlestick pattern has a mirror-image bearish version. If the
hammer indicates a bullish reversal when it appears in a downtrend, then it must
have a counterpart that signals a bearish reversal when it appears in an uptrend. That
candlestick pattern is called a ‘‘shooting star.’’
hammer indicates a bullish reversal when it appears in a downtrend, then it must
have a counterpart that signals a bearish reversal when it appears in an uptrend. That
candlestick pattern is called a ‘‘shooting star.’’
A shooting star is simply the bearish version of the hammer pattern. It consists of
a long wick on top of a small real body. The shading of the real body is considered
insignificant.
a long wick on top of a small real body. The shading of the real body is considered
insignificant.
Hanging Man Pattern
The hanging man consists of a small real body
located on top of a long wick. There should be little or no wick on top of the real
body, and the color shade of the body is considered unimportant.
located on top of a long wick. There should be little or no wick on top of the real
body, and the color shade of the body is considered unimportant.
The hanging man pattern is considered a sign of trouble for the bulls. The uptrend
remains intact, but the appearance of a strong bearish contingent, which has the
ability to push the price to the bottom of the wick, means that the bulls could soon
encounter significant resistance.
remains intact, but the appearance of a strong bearish contingent, which has the
ability to push the price to the bottom of the wick, means that the bulls could soon
encounter significant resistance.
Inverted Hammer Pattern
The inverted
hammer is the bullish counterpart of the hanging man pattern. An inverted hammer
looks exactly like a shooting star; the only difference is its location. While a shooting
star is significant when it appears in an uptrend, an inverted hammer is considered
meaningful when it occurs in a downtrend.
hammer is the bullish counterpart of the hanging man pattern. An inverted hammer
looks exactly like a shooting star; the only difference is its location. While a shooting
star is significant when it appears in an uptrend, an inverted hammer is considered
meaningful when it occurs in a downtrend.
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Bullish Engulfing Pattern
Bullish engulfing is a two-candle bullish reversal pattern. It consists of a red candle
followed by a green candle that opens below the low of the red candle. The green candle should have both a lower low and a higher high than the red candle that
preceded it. It completely ‘‘engulfs’’ the previous candle, negating the price action
of that candle.
followed by a green candle that opens below the low of the red candle. The green candle should have both a lower low and a higher high than the red candle that
preceded it. It completely ‘‘engulfs’’ the previous candle, negating the price action
of that candle.
Bullish engulfing is also known as an ‘‘outside’’ candle pattern. It is only considered
significant when it appears in a downtrend.
significant when it appears in a downtrend.
Bearish Engulfing Pattern
Bearish engulfing is a two-candle bearish reversal pattern. It consists of a green candle followed by a red candle. The red candle should gap higher to open above
the high of the green candle. It should also have both a higher high and a lower
low than the candle that preceded it.
the high of the green candle. It should also have both a higher high and a lower
low than the candle that preceded it.
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In other words, the red candle completely
‘‘engulfs’’ the green candle.
Just as with bullish engulfing, this is known as an ‘‘outside’’ candle pattern.
Bearish engulfing is only considered significant when it appears in an uptrend.
‘‘engulfs’’ the green candle.
Just as with bullish engulfing, this is known as an ‘‘outside’’ candle pattern.
Bearish engulfing is only considered significant when it appears in an uptrend.
Piercing Line Pattern
The piercing line pattern is a two-candle bullish reversal pattern. It consists of a
red candle followed by a green candle. The piercing line pattern is only considered
significant when it appears in a downtrend.
red candle followed by a green candle. The piercing line pattern is only considered
significant when it appears in a downtrend.
The green candle should open below the low of the previous candle, just like
bullish engulfing. It should also close above the midpoint of the body of the candle that preceded it, but not above its high. In other words, it doesn’t completely
‘‘engulf’’ the previous candle.
bullish engulfing. It should also close above the midpoint of the body of the candle that preceded it, but not above its high. In other words, it doesn’t completely
‘‘engulf’’ the previous candle.
Dark Cloud Cover Pattern
The dark cloud cover pattern is a two-candle bearish reversal pattern. It consists
of a green candle followed by a red candle. The red candle should open above
the high of the green candle that preceded it. The dark cloud cover pattern is only
considered significant when it appears in an uptrend.
of a green candle followed by a red candle. The red candle should open above
the high of the green candle that preceded it. The dark cloud cover pattern is only
considered significant when it appears in an uptrend.
The second candle of the pattern should close below the midpoint of the body
of the candle that preceded it. Because it fails to close beneath the low of the first
candle, it doesn’t completely engulf the previous candle.
of the candle that preceded it. Because it fails to close beneath the low of the first
candle, it doesn’t completely engulf the previous candle.
A dark cloud cover pattern is essentially the same as a shooting star with a green body. The main difference is that the activity contained in the shooting star, a single
candle pattern, is spread out over two candles.
candle pattern, is spread out over two candles.
Morning Star Chart Pattern
The morning star is a reversal pattern that is effective in a downtrend. It consists
of three candles. It begins with a long bearish candle, followed by a small-bodied
candle, which is in turn followed by a long bullish candle.
of three candles. It begins with a long bearish candle, followed by a small-bodied
candle, which is in turn followed by a long bullish candle.
The second candle should close beneath the low of the first candle in the pattern.
The small body of the second candle represents indecision at a major turning point.
If the second candle is a ‘‘doji’’ – a small candle in which the opening and closing
prices are virtually the same – the pattern is referred to as a morning doji star.
The small body of the second candle represents indecision at a major turning point.
If the second candle is a ‘‘doji’’ – a small candle in which the opening and closing
prices are virtually the same – the pattern is referred to as a morning doji star.
The third candle of the morning star pattern should close above the midpoint of
the first candle. When this happens, the three candles together simulate the piercing
line pattern.
The morning star pattern is considered more effective if the third candle closes
above the high of the first candle. When this occurs, the effect of the pattern is
similar to a bullish engulfing pattern.
the first candle. When this happens, the three candles together simulate the piercing
line pattern.
The morning star pattern is considered more effective if the third candle closes
above the high of the first candle. When this occurs, the effect of the pattern is
similar to a bullish engulfing pattern.
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Evening Star Chart Pattern
The evening star is a reversal pattern that is effective in an uptrend. It consists
of three candles. It begins with a long bullish candle, followed by a small-bodied
candle, which is in turn followed by a long bearish candle.
The second candle should close above the high of the first candle in the pattern.
of three candles. It begins with a long bullish candle, followed by a small-bodied
candle, which is in turn followed by a long bearish candle.
The second candle should close above the high of the first candle in the pattern.
The small body of the second candle represents indecision at a major turning point. If the second candle is a doji star, the pattern is referred to as an evening
doji star.
The third candle of the evening star pattern should close below the midpoint of
the first candle. When this happens, the three candles together simulate the dark
cloud cover pattern.
doji star.
The third candle of the evening star pattern should close below the midpoint of
the first candle. When this happens, the three candles together simulate the dark
cloud cover pattern.
The evening star pattern is considered more effective if the
third candle closes below the low of the first candle. In this case, the pattern would
be similar to a bearish engulfing pattern.
third candle closes below the low of the first candle. In this case, the pattern would
be similar to a bearish engulfing pattern.
Bullish Abandoned Baby Chart Pattern
A bullish abandoned baby pattern is similar to a morning star with a few exceptions. The price should gap from the first candle to the second, and again from the second candle to the third. The wicks or shadows of the second candle should not overlap any portion of the first or third candles.
Bearish Abandoned Baby Chart Pattern
A bearish abandoned baby pattern is similar to an evening star with a few exceptions.
The price should gap from the first candle to the second, and again from the second
candle to the third. The wicks or shadows of the second candle should not overlap
any portion of the first or third candles.
The price should gap from the first candle to the second, and again from the second
candle to the third. The wicks or shadows of the second candle should not overlap
any portion of the first or third candles.
Three White Soldiers Chart Pattern
This is a bullish reversal pattern that appears in a downtrend. After a series of
bearish candles, three consecutive long bullish candles form. Each of the three
bullish candles opens above the previous candle’s low, usually in the middle of the
previous candle’s range, and closes above the previous candle’s high. This indicates
that the trend has changed and the bulls have now assumed control.
bearish candles, three consecutive long bullish candles form. Each of the three
bullish candles opens above the previous candle’s low, usually in the middle of the
previous candle’s range, and closes above the previous candle’s high. This indicates
that the trend has changed and the bulls have now assumed control.
Three Black Crows Chart Pattern
This is a bearish reversal pattern that appears in an uptrend. After a series of bullish
candles, three consecutive long bearish candles form.
candles, three consecutive long bearish candles form.
Each of the three bearish candles opens below the previous candle’s high and closes beneath the previous
candle’s low. This indicates that the trend has changed and the bears have now
gained control.
candle’s low. This indicates that the trend has changed and the bears have now
gained control.
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Bullish Harami Pattern
The bullish harami is a two-candle reversal pattern that appears in a downtrend.
The first candle is a long bearish candle. This is followed by a small-bodied candle
that gaps higher into the mid-range of the first candle. The second candle fits easily
within the range of the first candle.
The first candle is a long bearish candle. This is followed by a small-bodied candle
that gaps higher into the mid-range of the first candle. The second candle fits easily
within the range of the first candle.
Bearish Harami Pattern
The bearish harami is a two-candle reversal pattern that appears in an uptrend. The
first candle is a long bullish candle. This is followed by a small-bodied candle that
gaps lower into the mid-range of the first candle. The second candle fits easily within
the range of the first candle.
first candle is a long bullish candle. This is followed by a small-bodied candle that
gaps lower into the mid-range of the first candle. The second candle fits easily within
the range of the first candle.
If you were in a position, and the price gapped mildly in the opposite direction
but failed to follow through, you probably wouldn’t feel compelled to exit your
position. However, even though the pattern doesn’t elicit a dramatic response, it
could still be the catalyst for a change in trend.
but failed to follow through, you probably wouldn’t feel compelled to exit your
position. However, even though the pattern doesn’t elicit a dramatic response, it
could still be the catalyst for a change in trend.
Bullish Belt Hold Pattern
The bullish belt hold is a single candle reversal pattern. It is similar to a hammer;
both appear in a downtrend, and both signal a trend reversal. Here is the main
difference: In the hammer pattern, the price travels lower, and then reverses, while
the candle is open.
The bullish belt hold pattern is different in that it gaps sharply lower and then
reverses. The same activity that takes place in a hammer has occurred.
both appear in a downtrend, and both signal a trend reversal. Here is the main
difference: In the hammer pattern, the price travels lower, and then reverses, while
the candle is open.
The bullish belt hold pattern is different in that it gaps sharply lower and then
reverses. The same activity that takes place in a hammer has occurred.
The main
difference is that with the bullish belt hold pattern, the price opens sharply lower,
instead of moving lower after the open.
The opening price of the bullish belt hold is also the low of the session. As with
the wick of a hammer, the longer the size of the bullish belt hold’s body, the more
significant the reversal is considered to be.
difference is that with the bullish belt hold pattern, the price opens sharply lower,
instead of moving lower after the open.
The opening price of the bullish belt hold is also the low of the session. As with
the wick of a hammer, the longer the size of the bullish belt hold’s body, the more
significant the reversal is considered to be.
Bearish Belt Hold Pattern
The bearish belt hold is a single-candle reversal pattern. It is similar to a shooting
star pattern; both appear in an uptrend, and both signal a trend reversal. Here is the main difference: In the shooting star pattern, the price travels higher, and then
reverses, while the candle is open.
The belt hold pattern is different in that it gaps sharply higher and then reverses.
star pattern; both appear in an uptrend, and both signal a trend reversal. Here is the main difference: In the shooting star pattern, the price travels higher, and then
reverses, while the candle is open.
The belt hold pattern is different in that it gaps sharply higher and then reverses.
The same activity that takes place in a shooting star has occurred. The main difference
is that in the bearish belt hold pattern, the price opens sharply higher, instead of
moving higher after the open.
is that in the bearish belt hold pattern, the price opens sharply higher, instead of
moving higher after the open.
The opening price of the bearish belt hold is also the high of the session. As with
the wick of a shooting star, the longer the size of the bearish belt hold’s body, the
more significant the reversal is considered to be.
the wick of a shooting star, the longer the size of the bearish belt hold’s body, the
more significant the reversal is considered to be.
Bullish Counterattack Lines Pattern
This is a two-candle reversal pattern that occurs in a downtrend. The first candle of
the pattern is bearish, and moves in the direction of the trend. The second candle
begins with a gap lower, but the price manages to fight its way higher, and eventually
closes at the same price as the previous candle’s close.
the pattern is bearish, and moves in the direction of the trend. The second candle
begins with a gap lower, but the price manages to fight its way higher, and eventually
closes at the same price as the previous candle’s close.
Because it consists of a bearish candle followed by a bullish candle, and the
two candles have similar closing prices, this pattern is also referred to as ‘‘bullish
meeting lines.’’
two candles have similar closing prices, this pattern is also referred to as ‘‘bullish
meeting lines.’’
Bearish Counterattack Lines Pattern
This is a two-candle reversal pattern that occurs in an uptrend. The first candle of
the pattern is bullish and moves in the direction of the trend.
the pattern is bullish and moves in the direction of the trend.
The second candle begins with a gap higher, but the price fades lower and eventually closes at the same
price as the previous candle’s close. In this case, the candlestick pattern was followed by a steep downtrend.
price as the previous candle’s close. In this case, the candlestick pattern was followed by a steep downtrend.
Note
that the bearish counterattack lines formed during the second peak of a double top
pattern.
Because it consists of a bullish candle followed by a bearish candle, and because
the two candles have similar closing prices, this pattern is also referred to as ‘‘bearish
meeting lines.’’
that the bearish counterattack lines formed during the second peak of a double top
pattern.
Because it consists of a bullish candle followed by a bearish candle, and because
the two candles have similar closing prices, this pattern is also referred to as ‘‘bearish
meeting lines.’’
Bullish Tweezer Bottom
This is a two-candle reversal pattern that appears in a downtrend. First, a bearish
candle forms, closing at or near the low of the session. The second candle tests the
previous candle’s low again before moving higher. By successfully testing the same
area twice, the price has encountered buying pressure, making the path of least
resistance higher.
candle forms, closing at or near the low of the session. The second candle tests the
previous candle’s low again before moving higher. By successfully testing the same
area twice, the price has encountered buying pressure, making the path of least
resistance higher.
Bearish Tweezer Top
This is a two-candle reversal pattern that appears in an uptrend. First, a bullish
candle forms, closing at or near the high of the session. The second candle tests the
previous candle’s high again before pulling back. By successfully testing the same
area twice, the price has encountered selling pressure, making the path of least
resistance lower.
candle forms, closing at or near the high of the session. The second candle tests the
previous candle’s high again before pulling back. By successfully testing the same
area twice, the price has encountered selling pressure, making the path of least
resistance lower.
Note:- Next post is “Continuation Candlestick Patterns”
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