Technical Analysis

Basic candlestick patterns

The most efficient candlestick patterns


A candlestick chart has taken many traders to a new level of understanding the market. You can use it to see a false breakout of the level or determine the strength of bulls or bears. Graphical analysis based on candlestick patterns is a technique with thousands of followers. This strategy helped many traders make much profit.

Below you will find information about the main candlestick patterns and the ways to use them.

 

Reversal

These kinds of patterns indicate a trend reversal

A pin bar is the most popular pattern. You can identify it by a long shadow and a small body. It often occurs after a long-term trend.

https://lh6.googleusercontent.com/gEapP1gcZS047BW6hBFGIz9NM6TIXfBZLapOMmzHHPzTdaRTpsJ0T3ef5vlq_lMkb2SHIQNfQkmXs7QnGLzp_Jb0q8YQP4l1GlLaESAhO6nV-XzvrRDjipaRRTggg9RrOgPFdp_P

https://lh3.googleusercontent.com/ms49vsy_66Y1-yV1dGiBiZ9b3EA5Od2WmCG1GJb4Auo47-PDKZSwJYrRXmlS6P8NkNqOpHj-psFPAwib5sqBsXmXvBhvdO-pl0tkf3k18n5PeoQuevSVkFwCgrlCz3VWPRSA4SF5

A dark cloud cover is a pattern that consists of two candlesticks. The first one indicates growth. The second one opens with a small gap up, but it necessarily closes lower than the previous closing price.

https://lh5.googleusercontent.com/4mh--GKQ4H3KkFkDvm8Ev6a12eMvEQarn_uE8azKysbm_dlmWGuX25tOlMPbZiojRR_79EnSWA0XDgUNTxU-KIWQdDuaKDgmAVwWWsBHJZGbVq0LMvmpct5waNCs2v4jMds4__eS

A piercing pattern occurs when the second candlestick opens below the closing price of the previous (red) candlestick. The second candlestick must close above the first one.

https://lh3.googleusercontent.com/TMHaHUfoBquXAAGD0XsQxQlA0OUF-dIZcFNVX22DDj_AbsBUpre02gB8Bh0Ly__plpqsNp1lO82964bYEQNacPZ1oniyzYOSXlu5qUdMaLwrPaIFPitcQ-b70P3KhaP0tuzha_FG

A bullish engulfing occurs when a green-bodied candlestick follows one or some red-bodied ones, and its body covers completely at least two candlesticks from the period before.

https://lh4.googleusercontent.com/bfR-jqJd38OrcrDRiraW22_rBz8eIvMOnTysOtv47NnFEdNmgv1lCHa5zMygKJg_Tw43f4VdGLb12V-fZ-VV6d23HxI8-9vOVF9BJiKLxs42pJA-fSS6o4lc9_DVaPvZ1eBxx9Nv

A bearish engulfing occurs when several green candlesticks are followed by a red one, and the body of the read one covers at least two candlesticks from the period before.

https://lh5.googleusercontent.com/7nEG8XOPbBlZsr2O-KMMtwDbtnvtaWWCwLLmORlnlySvXNoLOiSQNgQMomMerS2uXWh-5e4LYntiMkellLWF6TbVow1LZBFfyQw6H2oKyQB4v4aoL4tePiA58_p36mbh7-J-Zx4j

 

How to trade candlestick patterns?

In the Fixed Time mode, you should wait until the pattern has been fully formed. Then you should open a trade in the first seconds of a new candlestick. The expiry time should equal to 2-3 following candlesticks.

Remember the main thing about trading candlesticks: the higher the timeframe, the higher the reliability of a signal.

Forex traders can wait until the pattern has been confirmed by another candlestick that follows the direction of the signal. Set the Stop Loss level outside the pattern’s range.

 

Doji means uncertainty

There is another candlestick, which can be seen as an uncertainty signal. It’s called “Doji” and this is what it looks like:

https://lh3.googleusercontent.com/1r8Twh3HkaATBICcaehclfWC73VIsVPUQUqgueTwRURXsF7ndegH1xnT3l5AC-XdM-_QkgFmLMclsvrWWYvoYyBMf-nJoVdiMuqPQj7yHKAAz3Ag1Q9GdxrSwIyt56r1-o5xSMtW  

Bodies of such candlesticks can be larger, and their shadows may be shorter or longer. Practice shows that the occurrence of such candlesticks may indicate the following:

1. It is time you closed the position if you opened any.

2. You can choose another asset for trading.

 

Additional recommendations

We recommend that you use the candlestick patterns, which appear at support and resistance levels.

Trade reversal candlestick patterns in overbought or oversold zones, which you can define using the RSI and Stochastic indicators.

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