Candlestick Chart Guide: 14 Candlestick Patterns Explained

The thin vertical lines above and below the real body is knowns as the wicks or shadows which represents the high and low prices of the trading session. The above candlestick patterns are only some of the more widely known and considered by investors to be of high predictive power. There are also some less popular candlestick patterns which may have different names for investors’ reference.

The Bearish Harami is a multiple candlestick pattern formed after the uptrend indicating bearish reversal. The Three Inside Down is multiple candlestick pattern which is formed after an uptrend indicating bearish reversal. The Three Black Crows is multiple candlestick pattern which is formed after an uptrend indicating bearish reversal.

What are Candlestick Patterns?

The length of the lower wick is 2-3 times of the body, and sometimes a shorter upper wick will appear. The hanging man is often seen as an indication that the buyers have lost their strength and the bull market will reverse. Bullish patterns are a type of candlestick pattern where the closing price for the period of a stock was higher than the opening price. This creates buying pressure for the investor due to potential continued price appreciation.

While there are plenty of candlestick patterns, we’ll list the most popular and reliable ones, starting with bullish patterns, which show up after a downtrend and anticipate an upward reversal. Cryptocurrency traders usually open long positions when these patterns appear. It is formed of a long red body, followed by three small green bodies, and another red body – the green candles are all contained within the range of the bearish bodies. It shows traders that the bulls do not have enough strength to reverse the trend.

Candlestick Components

The Harami candlestick is identified by two candles, the first of which being larger than the other “pregnant,” similarly to the engulfing line, except opposite. This tells me that there isn’t any strong by conviction behind this, this candlestick moves. Because now you realize that the price only closes marginally higher relative to range. The lowest price point within the day the price traded is called the lows.

• The candlestick chart is different from the bar chart, but the two do share some similarities as they both display the same amount of price data.
• On the next day, the high of the second day’s bearish candle’s high indicates a resistance level.
• Candlestick patterns are used to predict the future direction of price movement.
• While there are some ways to predict markets, technical analysis is not always a perfect indication of performance.
• This suggests that the bears were in complete control of the market and that selling pressure remained strong throughout the session.
• The hanging man is formed by a green or red candlestick with a short body and a long lower shadow.

Candlesticks are so named because the rectangular shape and lines on either end resemble a candle with wicks. Each candlestick usually represents one day’s worth of price data about a stock. Over time, the candlesticks group into recognizable patterns that investors can use to make buying and selling decisions. Daily candlesticks are the https://g-markets.net/ most effective way to view a candlestick chart, as they capture a full day of market info and price action. A hammer suggests that a down move is ending (hammering out a bottom). Note the long lower tail, which indicates that sellers made another attempt lower, but were rebuffed and the price erased most or all of the losses on the day.

Doji

The more often a time frame is used by investors, the more valuable the predictive role in the chart pattern, which means that the established trading strategy may be more stable. The time frame chosen is highly related to the buying and selling strategy or trading style of investors. The shortest unit is measured in “seconds” and the longest unit is measured in “months”.

Also, the green candlestick has to open lower than the previous candlestick’s close and close higher than the previous candlestick’s high. The bullish engulfing pattern indicates that buyers have taken control, and the price will likely go up. The length and positioning of the shadows provide key indications of market behavior.

How to Memorize Candlestick Patterns Quickly?

During its trading period, the price starts to decline significantly and the red candlestick closes below the midpoint of the first candlestick’s body. The three white soldiers pattern is a bullish reversal pattern consisting of three green candlesticks with small shadows. This pattern is more reliable when it forms in a downtrend that has been developing for a longer period of time. In a bullish engulfing pattern, the first candlestick is red, and the second one is green. The body of the green candlestick is much larger than the body of the red candlestick, with very little to no overlapping shadows.

It indicates a buying pressure, followed by a selling pressure that was not strong enough to drive the market price down. The inverse hammer suggests that buyers will soon have control of the market. In this course, Candlestick Made Easy traders will understand various candlestick patterns and how to use them in trading. It consists of two candlestick charts, the first candlestick being a tall bearish candle and second being a small bullish candle which should be in the range of the first candlestick. In theory, each candle can represent any time period, usually days or hours.

When the Tweezer Top candlestick pattern is formed the prior trend is an uptrend. A bullish candlestick is formed which looks like the continuation of the ongoing uptrend. This candlestick chart has a long bearish body with no upper or lower shadows which 16 candlestick patterns shows that the bears are exerting selling pressure and the markets may turn bearish. The pattern is ended with a long red candle that closes above the high of the pattern, which means the market will go up in the future and the rally will continue.

• The candlestick pattern is made of two long candlesticks in the direction of the trend i.e uptrend  in this case.
• The candlestick pattern looks like a cross with very small real body and long shadows.
• Candlesticks help traders to gauge the emotions behind an asset’s price movements, believing that specific patterns indicate where the asset’s price might be headed.
• Careful note of key indecision candles should be taken, because either the bulls or the bears will win out eventually.
• Explore the range of markets you can trade – and learn how they work – with IG Academy’s free ’introducing the financial markets’ course.

The candlestick pattern with long upper and lower wicks and short body is called a spinning top and is more commonly encountered in market consolidation. The candle body, whether red or green, is not very important but represents that neither side has an obvious advantage, and the future trend is unclear. If a spinning stop is formed in an uptrend, it means that the positive momentum is slowing down and the sellers may push the price down. On the other hand, if a spinning head is formed during a downtrend, it means that the bears are losing power, and there is a greater chance of a market rebound. Candlesticks are great forward-looking indicators, but confirmation by subsequent candles is often essential to identifying a specific pattern and making a trade based on it.