THE MOST POWERFUL CANDLESTICK PATTERNS
Candlestick Patterns. You probably think that financial analysis is complicated but it actually comes down to two simple things.
Reading charts and reading the news.
There are many types of charts but Japanese candlestick or simply candlestick are the most popular ones.
Each candle gives you detailed information about the price movement within a specified time interval.
In fact, Japanese candlesticks are the best way to visualize the ups and downs of a price so that you can spot potential opportunities to BUY or SELL.
The body indicates the range between the open and close prices for a specific time frame.
And the shadows represent the highest and lowest
price levels reached for the set interval. Japanese candlestick charts are easy to read.
A red candle shows that the price is going down, and a green one represents an increasing price.
If you are looking at a 15-minute chart and each candle represents a 15-minute time interval.
We see a green candle when the open price is lower than the close price. If the price closes lower than it opened, then the candle is red.
What kind of signals does candlestick Patterns provide?
It is no surprise that the candlestick charts are so popular.
They are excellent for spotting market turning points.
By looking at the chart patterns that candles create.
you can often guess if a certain market is about to continue in its current direction or reverse it.
Patterns that show that the market could change direction are called reversal patterns. They could be bearish:
ones that indicate the change from an uptrend to a downtrend and should be perceived as a signal to SELL.
or bullish – these show that a price that has been decreasing is likely to start going up and we should BUY.
Popular candlestick patterns that encourage you to BUY.
The bullish engulfing consists of a red candle, followed by a bigger green one, which fully engulfs the red candle.
The pattern is an indication of a market turning point. In simple words, it is likely that the market may start going up and you can BUY.
The indication is even stronger if the green candlestick engulfs two or three red candles.
The name of this candle is pretty much self-explanatory.
You will recognize the hammer by its short body, lower shadow
that is about two or three times the length of the body, and a shorter upper shadow or no shadow at all.
The hammer is usually a clear indication of a declining price reversing its direction and starting to go up.
So you can start BUYing! But just to be safe, you could always wait for additional confirmation.
Such confirmation is a green candle closing above the open of the hammer for the example above picture.
Morning Doji Star
This pattern appears when there are a slight market movement and consists of three candles: a red one, followed by a Doji, followed
by a green candle closing beyond the middle of the first candle.
If the green candle is longer than the red one, the signal is even more reliable. Spotting the morning doji star is a signal to BUY.
Some chart patterns that mean you can SELL.
This pattern is the opposite of Bullish engulfing. A green candle is completely
engulfed by a following red candle.
When you spot it, you can SELL as the sellers on the market have possibly managed to overpower the buyers and the price direction could reverse.
Dark Cloud Cover
The dark cloud cover appears before the price drops down. A long green candle is followed by a red one that opens at a
new high and closes below the middle of the green candle.
Keep in mind that when trading currencies a second candle opening at new high is rare
so the red candle usually opens at the close level of the green one.
Once you see this pattern you can go ahead and SELL or you can wait for another, smaller red candle
to form and confirm the dark cloud cover.
The shooting star is a red candlestick with a small body, long upper shadow, and a short lower one.
When it appears at the end of an uptrend, it shows you that you can SELL
since the price, which has been rising up to that point, may start falling instead.
Reading Japanese candlestick charts is not rocket science.
Just make sure to observe your charts carefully, and you will soon learn to spot patterns as they form.