๐ Key Reversal Candlestick Patterns Every Trader Should Know
Candlestick patterns are powerful tools used by traders to predict potential reversals in market trends. Among them, four of the most widely recognized patterns are the Hammer, Shooting Star, Bullish Engulfing, and Bearish Engulfing. Each of these provides crucial insight into market sentiment and potential price direction.
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๐จ 1. Hammer Candle (Bullish Reversal)
Appearance: Small body at the top with a long lower shadow (wick). Little to no upper shadow.
Indicates: A potential reversal from a downtrend to an uptrend.
Psychology: Sellers pushed prices lower during the session, but strong buying pressure brought it back near the open, signaling buying interest.
๐ข Bullish Signal when confirmed by volume or a green candle on the next day.
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๐ 2. Shooting Star (Bearish Reversal)
Appearance: Small body at the bottom with a long upper shadow. Little to no lower shadow.
Indicates: A potential reversal from an uptrend to a downtrend.
Psychology: Buyers tried to push prices higher, but sellers gained control and forced the close near the open.
๐ด Bearish Signal when it forms after a strong uptrend.
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๐ 3. Bullish Engulfing (Bullish Reversal)
Appearance: A small red (bearish) candle followed by a large green (bullish) candle that completely engulfs the previous one.
Indicates: A strong reversal from a downtrend to an uptrend.
Psychology: Bears dominated initially, but bulls took over and closed above the previous high, signaling renewed buying strength.
๐ข Best used at the bottom of a downtrend for a stronger signal.
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๐ 4. Bearish Engulfing (Bearish Reversal)
Appearance: A small green (bullish) candle followed by a large red (bearish) candle that engulfs the previous one.
Indicates: A reversal from an uptrend to a downtrend.
Psychology: Buyers lost control as sellers stepped in strongly, overwhelming the previous bullish sentiment.
๐ด Best used after a strong rally or at resistance levels.
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