Basic Japanese Candlestick Patterns (Doji Doji candles suggest…
Basic Japanese Candlestick Patterns
During a downtrend, this means there aren’t many sellers and a possible reversal
During an uptrend, this means there aren’t many buyers left and a possible reversal
This is a very bullish candle as it shows that buyers were in control the entire session
It usually becomes the first part of a bullish continuation or a bullish reversal pattern.
This is a very bearish candle as it shows that sellers controlled the price action the entire session. It usually implies bearish continuation or bearish reversal.
Doji candles suggest indecision or a struggle for turf positioning between buyers and sellers.
When a Doji forms on your chart, pay special attention to the preceding candlesticks.
If a Doji forms after a series of candlesticks with long hollow bodies (like White Marubozus), the Doji signals that the buyers are becoming exhausted and weakening.
If a Doji forms after a series of candlesticks with long filled bodies (like Black Marubozus), the Doji signals that sellers are becoming exhausted and weak.
In order for price to continue falling, more sellers are needed but sellers are all tapped out! Buyers are foaming in the mouth for a chance to get in cheap.
While the decline is sputtering due to lack of new sellers, further buying strength is required to confirm any reversal.
Look for a white candlestick to close above the long black candlestick’s open.
Single Candlestick Patterns
Hammer and Hanging Man
When price is falling, hammers signal that the bottom is near and price will start rising again.
More bullish confirmation is needed before it’s safe to pull the trigger.
A typical example of confirmation would be to wait for a white candlestick to close above the open to the right side of the hammer.
Recognition Criteria for Hammer:
The long shadow is about two or three times of the real body.
Little or no upper shadow.
The real body is at the lower end of the trading range.
The color of the real body is not important.
The hammer is a bullish reversal pattern that forms during a downtrend. It is named because the market is hammering out a bottom.
The hanging man is a bearish reversal pattern that can also mark a top or strong resistance level.
When price is rising, the formation of a hanging man indicates that sellers are beginning to outnumber buyers.
Recognition Criteria Hanging Man
A long lower shadow which is about two or three times of the real body.
Little or no upper shadow.
The real body is at the upper end of the trading range.
The color of the body is not important, though a black body is more bearish than a white body.
Inverted Hammer and Shooting Star
An inverted hammer is a bullish reversal candlestick.
The inverted hammer occurs when price has been falling suggests the possibility of a reversal. Its long upper shadow shows that buyers tried to bid the price higher.
However, sellers saw what the buyers were doing, said “Oh heck no!” and attempted to push the price back down.
A shooting star is a bearish reversal candlestick.
The shooting star is a bearish reversal pattern that looks identical to the inverted hammer but occurs when price has been rising.
Its shape indicates that the price opened at its low, rallied, but pulled back to the bottom.
Dual Candlestick Patterns
The bullish engulfing pattern is a two candlestick pattern that signals a strong up move may be coming.
This second candle “engulfs” the bearish candle. This means buyers are flexing their muscles and that there could be a strong up move after a recent downtrend or a period of consolidation.
It happens when a bearish candle is immediately followed by a larger bullish candle.
On the other hand, the bearish engulfing pattern is the opposite of the bullish pattern.
This type of candlestick pattern occurs when the bullish candle is immediately followed by a bearish candle that completely “engulfs” it.
Tweezer Bottoms and Tops
The tweezers are dual candlestick reversal patterns.
This type of candlestick pattern are usually be spotted after an extended uptrend or downtrend,
indicating that a reversal will soon occur.
Notice how the candlestick formation looks just like a pair of tweezers!
The most effective Tweezers have the following characteristics:
The first candlestick is the same as the overall trend. If price is moving up, then the first candle should be bullish.
The second candlestick is opposite the overall trend. If price is moving up, then the second candle should be bearish.
The shadows of the candlesticks should be of equal length.
Tweezer Tops should have the same highs, while Tweezer Bottoms should have the same lows.
Triple Candlestick Patterns
Evening and Morning Stars
The morning star and the evening star are triple candlestick patterns that you can usually find at the end of a trend.
They are reversal patterns that can be recognized through three characteristics.
The first candlestick is a bullish candle, which is part of a recent uptrend.
The second candle has a small body, indicating that there could be some indecision in the market.
This candle can be either bullish or bearish.
The third candlestick acts as a confirmation that a reversal is in place, as the candle closes beyond the midpoint of the first candle.
Three White Soldiers and Black Crows
The three white soldiers pattern is formed when three long bullish candles follow a DOWNTREND, signaling a reversal has occurred.
This type of triple candlestick pattern is considered as one of the most potent in-yo-face bullish signals, especially when it occurs after an extended downtrend and a short period of consolidation.
For the pattern to be considered valid, the second candlestick should be bigger than the previous candle’s body.
Also, the second candlestick should close near its high, leaving a small or non-existent upper wick.
For the three white soldiers pattern to be completed, the last candlestick should be at least the same size as the second candle and have a small or no shadow.
Three Inside Up and Down
The three inside up candlestick formation is a trend-reversal pattern that is found at the bottom of a DOWNTREND.
The first candle should be found at the bottom of a downtrend
and is characterized by a long bearish candlestick.
The second candle should at least make it up all the way up
to the midpoint of the first candle.
The third candlestick needs to close above the first candle’s high to confirm that buyers
have overpowered the strength of the downtrend.