CANDLE STICK PATTERNS
Candlesticks are a popular tool used in technical analysis to analyze stock price movements. Candlestick charts display price movements as a series of candle-shaped bars, with each bar representing a specific period of time (such as one day).
A candlestick is composed of a rectangular body and two lines or wicks that extend from the top and bottom of the body. The body represents the opening and closing prices of the stock for that period, while the wicks represent the range of prices that the stock traded within during that period.
The color of the body of the candlestick is determined by whether the stock's price closed higher or lower than its opening price. If the closing price is higher, the body is usually green or white. If the closing price is lower, the body is usually red or black.
Candlesticks are used by traders to identify patterns and trends in stock prices and to make informed trading decisions based on those patterns. Some common candlestick patterns include Single Patterns, Double Patterns, and Multi Patterns. By analyzing these patterns, traders can make predictions about the direction of the stock price and adjust their trading strategies accordingly.
Single Candlestick Patterns are formed by a single candlestick and can be used to provide insights into the market sentiment or to confirm a trend continuation or reversal. Here are some of the most common types of single candlestick patterns:
1. Marubozu: A candlestick with no wicks and a long body. It indicates that the stock price opened at the low or high of the day and closed at the high or low of the day, suggesting a strong trend in either direction.
2. Doji: A candlestick with a small body and no or very short wicks. It indicates that the opening and closing prices of the stock were very close to each other, which suggests indecision in the market.
3. Hammer: A candlestick with a small body and a long lower wick. It indicates that the stock price fell significantly during the trading period, but buyers came in and pushed the price back up, suggesting a possible reversal in the trend.
4. Shooting Star: A candlestick with a small body and a long upper wick. It indicates that the stock price rose significantly during the trading period, but sellers came in and pushed the price back down, suggesting a possible reversal in the trend.
5. Spinning Top: A candlestick with a small body and long upper and lower wicks. It indicates indecision in the market and suggests that the trend may be losing momentum.
These single candlestick patterns can provide valuable information about the market sentiment and can be used to make informed trading decisions. However, it's important to note that these patterns should be used in combination with other indicators and tools to confirm their signals and avoid false signals.
Double Candlestick Patterns are formed by two candlesticks and can be used to provide insights into the market sentiment or to confirm a trend continuation or reversal. Here are some of the most common types of double candlestick patterns:
1. Bullish Engulfing Pattern: This pattern consists of a small red candlestick followed by a larger green candlestick that completely engulfs the previous candlestick. It indicates that the buyers have taken control of the market and that a potential trend reversal to the upside is possible.
2. Bearish Engulfing Pattern: This pattern consists of a small green candlestick followed by a larger red candlestick that completely engulfs the previous candlestick. It indicates that the sellers have taken control of the market and that a potential trend reversal to the downside is possible.
3. Bullish Harami Pattern: This pattern consists of a large red candlestick followed by a small green candlestick that is completely engulfed within the body of the previous candlestick. It indicates that the sellers are losing momentum and that a potential trend reversal to the upside is possible.
4. Bearish Harami Pattern: This pattern consists of a large green candlestick followed by a small red candlestick that is completely engulfed within the body of the previous candlestick. It indicates that the buyers are losing momentum and that a potential trend reversal to the downside is possible.
5. Piercing Pattern: This pattern consists of a large red candlestick followed by a green candlestick that opens below the previous day's low but closes above the previous day's midpoint. It indicates that the buyers are stepping in and that a potential trend reversal to the upside is possible.
6. Dark Cloud Cover Pattern: This pattern consists of a large green candlestick followed by a red candlestick that opens above the previous day's high but closes below the previous day's midpoint. It indicates that the sellers are stepping in and that a potential trend reversal to the downside is possible.
These double candlestick patterns can provide valuable information about the market sentiment and can be used to make informed trading decisions. However, it's important to note that these patterns should be used in combination with other indicators and tools to confirm their signals and avoid false signals.
Multi-Candlestick Patterns are formed by three or more candlesticks and can provide even stronger insights into the market sentiment or trend continuation or reversal. Here are some of the most common types of multi-candlestick patterns:
1. Morning Star: This pattern consists of a long red candlestick followed by a small candlestick that gaps down, and then a long green candlestick. It indicates a potential trend reversal to the upside and that the bears are losing momentum.
2. Evening Star: This pattern consists of a long green candlestick followed by a small candlestick that gaps up, and then a long red candlestick. It indicates a potential trend reversal to the downside and that the bulls are losing momentum.
These multi-candlestick patterns are considered to be more reliable and can provide stronger trading signals. However, traders should still use other indicators and tools to confirm the signals and avoid false signals.
