Understand Top 15 Candlestick Patterns for Day Trading
BEST CANDLESTICK PATTERNS FOR DAY-TRADING
When you will start to learn forex trading techniques and analysis, you will find out about candlestick patterns. I am assuming you all know about Candles. If not read our post “What is Bears, Bulls & Candles? Forex Fundamentals.” So, lets start about the Candlestick Patterns.
You will find several candlestick patterns when you research online. We have collected them all for you in one page.
- Doji Pattern
- Hammer Pattern
- Inverted Hammer Pattern
- Marubozu Pattern
- Shooting Star
- Engulfing Pattern
- Harami Pattern
- Piercing Pattern
- Dark Cloud Cover Pattern
- Rising Three Method
- Evening Star
- Three Inside Up Pattern
- Three Inside Down
- Three Black Crows
- Three White Soldiers
A Doji is formed when the opening price and the closing price are equal.
The Hammer candlestick formation is viewed as a bullish reversal candlestick pattern that mainly occurs at the bottom of downtrends.
Inverted Hammer Pattern
The Inverted Hammer candlestick formation occurs mainly at the bottom of downtrends and can act as 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.
The word Marubozu means “bald head” or “shaved head” in Japanese, and this is reflected in the candlestick’s lack of wicks.
The single candle involved in the signal should have a long real body. There must not be an upper or a lower wick.
A shooting star is a bearish candle with a long upper shadow, little or no lower shadow and a small real body near the day’s low.
It comes after an uptrend. Said differently, a shooting star is a type of
candlestick formation that results when a security’s price, at some point during the day, advances well above the opening price but closes lower than the opening price.
A bullish engulfing candlestick formation represents that bulls are in full control of bears.
As the pattern below shows, the white body (bulls) covers completely the red-bodied candle (bears).
And Bearish Engulfing Pattern is just the opposite
The Harami (meaning “pregnant” in Japanese) Candlestick Pattern is considered a reversal pattern. The pattern consists of two Candlesticks.
=> Larger Bullish or Bearish Candle (Day 1)
=> Smaller Bullish or Bearish Candle (Day 2)
The Piercing Pattern is viewed as a bullish candlestick reversal pattern, similar to the Bullish Engulfing Pattern (see: Bullish Engulfing Pattern). There are two components of a Piercing Pattern formation:
-Bearish Candle (Day 1)
-Bullish Candle(Day 2)
Dark Cloud Cover Pattern
A Dark Cloud Cover Pattern occurs when a bearish candle on Day 2 closes below the middle of Day 1’s candle.
Rising Three Method
The Rising Three Methods is a bullish candlestick pattern that is used to predict the continuation of the current uptrend. This pattern forms when the candlesticks meet the following characteristics:
- The first bar of the pattern is a long white (or green) candlestick within a defined uptrend.
- A series of three consecutive descending small-bodied black (or red) candlesticks that trade above the low of the first candlestick.
- A long white candlestick creates a new high, which suggests the bulls are back in control of the market’s direction.
The Evening Star Pattern is viewed as a bearish reversal pattern, that usually occurs at the top of an uptrend. The pattern consists of three candlesticks:
>> Large Bullish Candle (Day 1)
>>Small Bullish or Bearish Candle (Day 2)
>>Large Bearish Candle (Day 3)
The Morning Star Pattern is viewed as a bullish reversal pattern, usually occurring at the bottom of a downtrend. The pattern consists of three candlesticks:
>> Large Bearish Candle (Day 1)
>> Small Bullish or Bearish Candle (Day 2)
>> Large Bullish Candle (Day 3)
Three Inside Up
The three inside up is a bullish reversal pattern with the following characteristics:
- The market is in a downtrend.
- The first candle is a black candle with a large real body.
- The second candle is a white candle with a small real body that opens and closes within the real body of the first candle.
- The third candle is a white candle that closes above the close of the second candle.
Three Inside Down
The three inside down is a bearish reversal pattern with the following characteristics:
- The market is in a downtrend.
- The first candle is a white candle with a large real body.
- The second candle is a black candle with a small real body that opens and closes within the real body of the first candle.
- The third candle is a black candle that closes below the close of the second candle.
Three Black Crows
Three black crows is a bearish candlestick pattern that is used to predict the reversal of the current uptrend. This pattern consists of three consecutive long-bodied candlesticks that have opened within the real body of the previous candle and closed lower than the previous candle.
The White Soldiers
Three white soldiers is a bullish candlestick pattern that predicts the reversal of a downtrend. The pattern consists of three consecutive long-bodied candlesticks that open within the previous candle’s real body and a close that exceeds the previous candle’s high.
We hope that we were able to give a basic idea about the Candlestick Patterns. For further information or assistance feel free to knock TFS Admin anytime.