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Candlestick Patterns

Introduction

"Candlestick pattern is a movement in prices of script shown graphically on the candlestick chart. By looking at this movement of prices over time period for particular script (candlestick pattern), anyone can predict the movement of the market. There are different 42 types of recognised candlestick patterns. But only few of them are well known."

Bullish piercing

Bullish piercing pattern consist of two candles. One is downward candle and another is upward candle. Here downward candle is of red colour while upward candle is of green colour. In bullish piercing pattern upward candle opens below the previous candles and closes at the middle of the previous downward candle. Bullish piercing pattern can occur at any time like at the beginning of trend or at the end of the trend or during the trend. Bullish piercing candle shows the end of downtrend. It can be used for both purpose trade entry or trade exit.

Bullish Engulf

Bullish Engulf pattern consist of two candlestick, one is smaller bearish candle and another is large bullish candle. Usually we can see bullish engulf pattern at the end of the down trend.

The bearish candle real body of Day 1 is usually contained within the real body of the bullish candle of Day 2. In bullish engulf pattern market starts with gap down on day 2, bullish candle pushes prices higher and fill the gap down from the morning’s opening and take the prices higher than the previous day’s open.

Hammer

The Hammer candlestick formation is a significant bullish reversal candlestick pattern that mainly occurs at the bottom of downtrends. Hammer pattern gets shape when open, high and close prices are nearly equal to same. It is bullish reversal candlestick pattern and usually occurs at the end of downtrend.

When the high price and close prices are same, bullish hammer candle takes a shape. It is a stronger pattern because bulls can push the prices higher than the operating prices. Bullish hammer candle is made up of small body part at top and large wick which is two times longer than small body part of the candlestick. Hammer candle stick pattern can give signal to traders that down trend will be over and that short position will be recovered soon.

Morning Star

Morning star usually occurs at the end of the down trend. It consist of three candles, one is large bearish candle second is bullish or bearish candle or third is large bullish candle. In morning star pattern first candle is bearish candle which makes a new loss. Second candle opens with gap down and candle stick on day 2 is quite small and can be bullish or bearish. On day 3, candle open up with gap up and it is a bullish green coloured candle. This will eliminate the loss of day 1. The first part of a Morning Star reversal pattern is a large bearish red candle. On the first day, bears are definitely in charge, usually making new lows.

Bearish Piercing

Bearish piercing pattern indicates the end of up trend and fall of price. Bearish piercing pattern is made up of two candles one has green body and small wick at both ends. The candle for second day is red bodied candle and opens up higher than previous day candle. However it falls and ends up at the middle of the previous candle.

This pattern takes place after a long up trend in the market and indicates the end of the up trend. One important note for this pattern is, second day candle ends up at or below the middle of the previous candle. If it isn’t, this may be minor changes in prices. This half way point is an important point to recognize this pattern.

Bearish Engulf

Bearish engulf pattern is bearish reversal pattern and usually occur at the top of the up trend. Bearish engulf pattern consist of two candle sticks one is small bullish green coloured and other one is large bearish red coloured candle. Whole body part of bullish candle is contained by the large bearish candle. In bearish engulf pattern, second day’s candle opens with gap up and takes prices down below the previous candle.

Inverted Hammer

The Inverted Hammer candlestick formation occurs mainly at the bottom of downtrends and is a warning of a potential reversal upward. It is important to note that the Inverted pattern is a warning of potential price change, not a signal, in and of itself, to buy.

Inverted candle pattern occurs when open low close prices are nearly equal to same. In inverted hammer candle stick pattern there is long wick which is two times larger than the actual body part of the candle.

Inverted hammer pattern occurs at the end down trend. This pattern indicates potential reversal upward and price changes. When low and open are same bullish inverted hammer pattern is formed and when low and close bearish pattern is formed.

Evening Star

Evening star pattern occurs at the top of an up trend. It consist of three candles one is large bullish, second is small bullish or bearish and third is large bearish candle. First candle is large bullish green, second candle opens with gap up and do not take prices too higher. On second day candle is small and may be bullish or bearish. Generally the bearish candle on day 2 is stronger sign of an impending reversal. On day 3, candle starts with gap down. This candle on day three is red coloured bearish candle. Third candle will press price downward often eliminating gains seen on first day.

Hanging Man

The hanging man candle stick pattern is just like hammer formation. Patterns occur mainly at the top of the up trend and it indicates the potential reversal down trend. Hanging man pattern is same as hammer pattern this pattern occurs when open low close are roughly the same price. There is a long wick which is two times longer than body part.

When the high and open prices are same, a bearish hanging man pattern is formed and when the high and close prices are same bullish hanging man pattern is formed. Hanging man pattern is what gives traders an idea about whether or not prices will go higher or lower.

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