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The Complete Candlestick pattern is a must-know for traders when they want to make a trade. Whether trading stocks, forex, or other instruments, we need to understand this complete candlestick pattern.
For that, see the following article to learn about it. You can also follow GIC's Instagram to get a morning brief about forex every day!
Table of Contents
Candlestick Bullish Reversal Pattern
While it can be unreliable at times, learning how to identify the top bullish patterns that can signal a reversal is still a very important skill for any crypto trader. Let's review some of the most viewed and learn what they mean.
Bullish Hammer
A bullish hammer is a single candlestick formation that appears at the bottom of a bearish trend and indicates that market sentiment is about to change.
This candlestick pattern is characterized by a small real body (the difference between the opening and closing prices) and a long lower shadow, creating an inverted hammer shape.
On the one hand, the bullish hammer candlestick pattern is part of the Doji candlestick family that usually signals a reversal in price action.
However, while Doji candlestick patterns usually indicate indecision in the market, bullish hammer candlesticks provide stronger signals for trend reversals due to increased buying pressure at the end of a downtrend.
Morning Star
The morning star is a candlestick pattern consisting of three candlesticks. The morning star forms after a downtrend and signals the beginning of an upward price movement.
This is a signal of a reversal of the previous price trend. Traders should analyze the formation of the morning star and then look for confirmation that the reversal is confirmed using technical indicators.
Three White Soldiers
The Three White Soldiers is an upward reversal pattern that occurs in a strong downtrend and signals a change in direction.
The formation consists of three consecutive bullish candles, with each candle closing higher than the previous candle.
Since it consists of three candles, this pattern almost single-handedly confirms that a reversal is happening right now, as there is considerable bullish force behind the creation of this pattern.
As seen in the illustration below, the Three White Soldiers emerged after a strong downtrend that usually ended with the printing of a new short-term low.
Bullish Engulfing Candle
When a security closes at a price higher than its opening price, the body of the candle is green, or hollow left, and is called a green candle or hollow candle.
On the other hand, when the closing price is lower than the opening price, the candle is red, or black, and is called a red or black candle.
Red candlesticks indicate a bearish trend in the price and represent a bearish phase in the market.
Sometimes, a red candle is followed by a green candle, so the opening price on the second day is lower than the closing price on the first day, and the closing price on the second day is higher than the opening price on the first day.
Graphically, the green candle is seen engulfing the red candle. This is a bullish engulfing candlestick pattern on this complete candlestick pattern.
Piercing Line
The Piercing Line is a bullish reversal pattern that can be found at the end of a downtrend. This candlestick pattern is used as an indicator to enter a long position or exit a sell position.
This kind of pattern is formed when bulls and bears, both struggle to gain control over the price.
The Piercing Line consists of two candles. The first candle should be a red candle that has a large real body and the second candle should be green and should also be below the low of the previous candle.
The second candlestick should close above the actual midbody of the first candlestick.
Pola Candlestick Bearish Reversal
A Bearish Reversal candlestick pattern can be formed with one or more candles; Most require bearish confirmation.
The actual reversal indicates that selling pressure exceeds buying pressure for a day or more, but it is still unclear whether continued selling or lack of buyers will continue to push prices lower.
Without confirmation, many of these patterns will be considered neutral and only show the best potential resistance levels.
A bearish confirmation means a further follow-up to the decline, such as a gap down, a long black candlestick or a drop in high volume.
Since the complete candlestick pattern is short-term and is usually effective for 1-2 weeks, a bearish confirmation will come in 1-3 days.
Bearish Harami
Bearish harami is a signal of a trend change of two potentially bearish candlesticks if it occurs after an uptrend. According to Nison (1991, p. 80), the harami pattern is not a significant reversal pattern like the engulfing or hammer pattern.
The harami pattern consists of a large candle followed by a small candle whose original body is between the original body of the first day large candle.
During an uptrend, the real body of the first day is bullish and the small real body of the second day is bearish; However, the second day's real body can also be bullish.
Nison (1994, p. 88) explains that after an uptrend when the second day's small candle towards the top of the first day's real body, this is referred to as the harami high price.
The related pattern is a three-in-down pattern found at the top.
Three inside down is a confirmed harami bearish pattern where the first day is a bullish candlestick followed by a small bearish candlestick with a price range inside the real body of the first day.
An additional day, the third day is a bearish candle that opens inside or below the actual body of the second day and then closes below the low of the first day's bullish candle.
Some traders only require a third day close below the second day close.
Dark Cloud Cover
Dark Cloud Cover is a bearish reversal candlestick pattern that forms at the end of an uptrend and indicates weakness in an uptrend.
This candlestick pattern is made up of two candles, the first is a bullish candle and the second is a bearish candle.
When the price rises, this pattern becomes important for a reversal to the downside. Below is an example of a Dark Cloud Cover on Sun Pharmaceutical Industries Ltd's daily chart.
Evening Star
The Evening Star is a candlestick pattern used by traders to analyze when an uptrend will reverse into a downtrend.
This candlestick pattern consists of three candles: a large bullish candle, a small-bodied candle, and a bearish candle. The Evening Star pattern appears at the top of the uptrend and indicates that the uptrend will reverse into a downtrend.
Below is an example of the Evening Star pattern formed on the Nifty 50 chart below:
Shooting Star
Shooting Star is a type of candlestick pattern that forms when the price of a security opens, rises significantly, but then closes near the opening price.
The distance between the highest price of the day and the opening price should be more than twice as large as the body of the Shooting Star.
This occurs at the end of an uptrend and signals a bearish reversal. Below is an example of a shooting star candlestick pattern on Nifty's daily chart.
We can see how the Shooting Star formed after a strong uptrend and signaled a bearish reversal.
Hanging Man
The hanging man is a bearish reversal candlestick pattern that has a long lower shadow with a small real body.
Appearing at the end of an uptrend, this bearish candlestick pattern indicates weakness in the ongoing price movement and indicates that the bulls have pushed the price up, but they are unable to push further.
It has a small real body that shows a small gap between the opening and closing prices. The lower shadow should be twice the length of its body and there should be no upper shadow.
This pattern helps traders to set up their long positions and enter short positions. Below is an example of the Hanging Man formation on the Nifty 50 Daily chart below:
Three Black Crows
The Three Black Crows pattern is a multi-candlestick pattern that is used to predict a reversal of the direction of the downtrend from an uptrend.
It is formed when sellers exert bearish strength and make the price fall for three consecutive days.
Traders can take short positions once a bearish candlestick pattern has formed.
Traders should take the help of volume and technical indicators to confirm the formation of this candlestick pattern.
Below is an example of a daily chart of Phillips Carbon Black Ltd. that the Three Black Crows Candlestick pattern:
Instead of forming in 10-50 candles like the classic pattern, candlestick patterns form in 1-5 candles. This applies to reversals and Continuation.
The Continuation candlestick pattern is a signal that the short-term trend over the previous few candles will continue in the current direction.
Continuation candlestick patterns are usually characterized by sideways movements after strong directional movements. They represent a break in a trend where buyers in an uptrend or sellers in a downtrend take a breath.
However, this is not always the case because some Continuation patterns (such as gaps) are a sign that the trend is accelerating.
Doji
The Doji candlestick, or Doji star, is characterized by the shape of a 'cross'. This happens when a forex pair opens and closes at the same rate leaving a small or non-existent body, while showing the upper and lower wicks of the same length.
Generally, the Doji represents indecision in the market but can also be an indication of a slowdown in momentum from an existing trend.
On the chart of Mayur Uniquoters Ltd below, we can see that at the end of the uptrend, a Doji is formed, which indicates that the ongoing trend has become certain.
The doji is then followed by a Dark Cloud Cover candlestick pattern confirming that a reversal is about to occur, as shown below:
Spinning Top
A spinning top candlestick is a pattern with a short body between the upper and lower long axes. Spinning top describes a scenario where neither the seller nor the buyer makes a profit.
This results in the same opening and closing price units. The formation of a spinning top candlestick helps determine the likelihood of a price reversal especially if it occurs after a price drop. Due to small variations in market trends, candlesticks are referred to as advanced patterns.
The formation of candlesticks indicates a level of indecision between buyers and sellers, which depicts a price reversal, thus creating a neutral pattern.
At the close of the candle, the spinning top can be bearish or bullish. However, candlestick patterns are mostly found in uptrends, downtrends, and sideways movements, which indicate a potential reversal.
A bullish trend increases the price further, while a bearish trend decreases the price until the overall price closes where it opens.
Looking at the image below, we have a daily chart of GBP/USD.
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also read : Types of Candlestick Patterns in Forex and How to Read Them |
Above is information about candlestick patterns. Keep updating other latest information through the GIC journal which will be announced every day. You can also trade on the GICTrade app with its latest feature, the ECN account, enjoy the advantages of the latest features with the lowest spreads starting from 0!
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