Is it profitable to memorize all candlestick patterns?
Not necessarily. Candlesticks (or candlestick charts) are popular because of their online popularity, but they are not a panacea for profitability. Traders are often smart and conceited, believing that they can crack the 'wealth code' by studying technology.
However, there is a saying in the market: believe in candlesticks and you will live forever.
Rich market information is hidden in the candlesticks, and if you can understand this information, you will have the opportunity to succeed in trading. However, different people have different interpretations of candlesticks.
When candlestick patterns are difficult to judge, some traders rely on technical indicators to enhance their confidence in their operations. Others choose to trade 'naked K', relying on their market sense to achieve profits.
To help traders better understand candlesticks and improve their trading skills, we have compiled 34 common candlestick patterns in the market, hoping to provide you with practical references for your trading.
Table of Contents
1. What is Candlestick Patterns?
2. How to Read Candlestick Information?
3. Single Candlestick Patterns
3.1. Doji
3.2. Hammer
3.3. Hanging Man
3.4. Shooting Star
3.5. Inverted Hammer
3.6. Gravestone Doji
4. Double Candlestick Patterns
4.1. Bullish Engulfing
4.2. Bearish Engulfing
4.3. Piercing Line
4.4. Dark Cloud Cover
4.5. Bullish Harami
4.6. Bearish Harami
4.7. Tweezer Bottom
4.8 Tweezer Top
5. Triple Candlestick Patterns
5.1. Morning Star
5.2. Evening Star
5.3. Three White Soldiers
5.4. Three Black Crows
5.5. Bullish Three Inside Up
5.6. Bearish Three Inside Down
6. Continuation Patterns
6.1. Rising Three Methods
6.2. Rising Three Methods
6.3. Bullish Flag
6.4. Bearish Flag
6.5. Bullish Pennant
6.6. Bearish Pennant
6.7. Bullish Rectangle
6.8. Bearish Rectangle
6.9. Bullish Wedge
6.10. Bearish Wedge
6.11. Bullish Cup and Handle
6.12. Bearish Cup and Handle
6.13. Bullish Rounding Bottom
6.14. Bearish Rounding Top
7. Summary
What is Candlestick Pattern
Candlestick patterns (candlestick patterns) are a chart tool used to visually represent price fluctuations. It shows the opening price, closing price, highest price, and lowest price of a stock or financial asset within a specific time period. Each candlestick consists of a body and a shadow line, where the body represents the price change between the opening and closing, and the shadow line reflects the highest and lowest prices during this time.
By observing these patterns, traders can find opportunities to buy or sell. For example, based on specific candlestick (or combination) patterns, traders can judge whether the market trend is rising or falling, and then decide when to enter or exit the market.
Candlesticks not only provide important information about market trends, but also help traders identify support and resistance levels, identify reversal signals, and understand overall market sentiment. Candlesticks are especially useful when the market is highly volatile and traditional analysis methods are not intuitive enough. By mastering candlestick patterns and their meanings, traders can develop trading strategies with greater confidence and gain an advantage in the market.
How to Read Candlestick Information?
Candlestick charts are a powerful tool for analyzing market trends. Their intuitive presentation makes it easier for traders to understand price changes and make buying and selling decisions accordingly.
Each candlestick represents a specific time period, such as a day or an hour, and contains four key prices: opening price, closing price, highest price, and lowest price.
If the opening price is lower than the closing price, the candlestick is usually green or white (opposite in the Chinese market), indicating a price increase.
If the opening price is higher than the closing price, the candlestick is usually red or black (opposite in the Chinese market), indicating a price decrease.
The body part of the candlestick represents the price change from opening to closing, and the shadow line shows the highest and lowest prices during that period. The longer the shadow line, the greater the price fluctuation.
To understand candlestick charts, you must not only understand these basic components, but also learn common patterns, such as the Doji, Hammer, and Spinning Top. These patterns can reveal possible trend changes in the market. Used in conjunction with other technical analysis tools, candlesticks can help traders make more accurate decisions and seize opportunities in trading.
Single Candlestick Patterns
In stock market trading, single candlestick patterns are one of the important concepts that must be mastered. Single candlestick patterns are chart patterns that consist of only one candlestick. In general, these patterns can be used to predict future price movements and volatility intensity.
There are four main types of single candlestick patterns, each of which provides important information about market direction and momentum:
Bullish Engulfing Pattern: This pattern appears after a bearish candlestick followed by a larger bullish candlestick, indicating that buyers dominate.
Bearish Engulfing Pattern: This is the opposite of the bullish engulfing pattern, appearing after a bullish candlestick followed by a larger bearish candlestick, indicating that sellers dominate.
Hammer Pattern: This pattern appears after an extremely long lower shadow line, followed by a candlestick with a small body and almost no upper shadow line, indicating strong buying pressure, suggesting that the price may rise in the short term.
Shooting Star Pattern: This pattern appears after an extremely long upper shadow line, followed by a candlestick with a small body and almost no lower shadow line, indicating strong selling pressure, suggesting that the price may fall in the short term.
These patterns are just a small part of the many patterns in technical analysis. While they help to judge potential price movements, it is important to remember that these patterns are not a guarantee of price movements. Traders must pay close attention to current market conditions and adjust their strategies accordingly.
1. Doji
The Doji is a candlestick pattern that forms when the opening and closing prices are the same or very close, indicating that the market is in a state of hesitation and may imply the potential for a trend reversal.
The Doji is usually considered a signal of a balance between bulls and bears, so the direction of the market is unclear. Dojis can also be used to confirm existing trends and usually appear after a longer trend or as part of a long-term trend. In addition, Dojis may also indicate the end of a trend or the beginning of a new trend.
As with any chart pattern, confirmation from other indicators such as volume, momentum indicators, or trend lines is needed before making trading decisions. With reasonable analysis, the Doji can be a powerful tool for traders.
2. Hammer
The hammer is a candlestick pattern with a small body and a long lower shadow line, indicating that in a downward trend, buyers step in and push prices back up.
The hammer is considered a bullish reversal pattern. Its appearance shows that the bulls' control over the price is weakening and that buyers are driving the market rebound. It may also indicate the possibility of a market bottom or a trend reversal. Traders should look for confirmation signals before taking any action. Confirmation signals may come from other indicators, such as volume or moving averages. If the pattern is confirmed, traders can enter a long position when the market rebounds.
The hammer usually consists of one candlestick and requires confirmation from other indicators to take action. It is important to remember that a single indicator is not sufficient to rely on completely. Traders should combine multiple analysis tools to make decisions.
If the hammer is confirmed, traders should also pay attention to the size and shape of the candlestick. A large candlestick with a wide and long lower shadow line may indicate strong buying pressure at that price level or suggest a potential bottom of the market.
3. Hanging Man
The Hanging Man is the reversal pattern of the Hammer. It has a small body and a long lower shadow line, but it appears after an upward trend and may suggest that the trend will reverse to a downward trend. When a Hanging Man appears, investors should pay attention to market risks.
Technical analysts often use the Hanging Man to identify potential trend reversals, helping investors decide whether they should enter or exit a trade. The key is to be alert to the market, as no one can predict the direction of prices with 100% certainty.
The Hanging Man has a long lower shadow line, no (or very short) upper shadow line, and a small body located at the upper end of the trading range. The Hanging Man is very similar to the Hammer.
The difference is that it appears in an upward trend, generally indicating that the upward trend is about to end.
The shadow line of the Hanging Man candlestick is also usually twice as long as the body.
4. Shooting Star
Shooting Star is a candlestick pattern with a small body and a long upper shadow line, which appears after an upward trend and may suggest a trend reversal to a downward trend. The reason for the formation of this pattern is that the opening price and closing price are close, but the highest price exceeds the price level of the previous period.
The Shooting Star indicates that traders were willing to pay a higher price at the beginning of the period, but then encountered strong selling pressure. Therefore, this bearish signal may mean that the upward trend is no longer supported and a downward trend may be starting.
Investors should take action after confirming this bearish trend, as the shooting star is sometimes just a short pause in a strong upward trend. If the shooting star appears near a resistance level, it may also indicate a potential reversal.
5. Inverted Hammer
The inverted hammer is similar to the hammer, but it appears after a downward trend. It has a small body and a long upper shadow line, indicating that buyers are starting to step in and push the price up. However, by the end of the trading session, sellers pushed the price back down.
The inverted hammer can be seen as a signal that buyers are interested and may soon start a new upward trend.
6. Gravestone Doji
Gravestone Doji has a long upper shadow line and no lower shadow line, indicating that the price opened and closed at the same level. It appears after an upward trend and may suggest a trend reversal to a downward trend.
However, it may also indicate a temporary hesitation between buyers and sellers. Traders should enter the market after confirming the trend.
Gravestone Doji can be used in conjunction with other technical analysis indicators, such as support levels, resistance levels, and moving averages, to help identify potential trading opportunities.
Double Candlestick Patterns
Double Candlestick Patterns are a chart pattern used by technical traders to identify potential trading opportunities. It consists of two candlesticks, one representing the opening and closing prices of a period, and the other representing the highest and lowest prices of the same period. The shape of the candlestick indicates that the price of an asset may rise or fall in the near future.
Through careful analysis, traders can use this information to decide whether they should enter or exit a trade. Double Candlestick Patterns are suitable for any trading strategy and time frame. However, when using Double Candlestick Patterns, traders need to properly manage risks, as any trade is accompanied by certain risks.
7. Bullish Engulfing
When a bullish engulfing pattern appears, a small bearish candlestick is followed by a larger bullish candlestick that completely engulfs the former. This may indicate that the trend may reverse to an upward trend.
If the pattern appears in a downtrend, it is considered a bullish signal, indicating that buyers have taken over the market and are driving prices higher.
Traders should enter the market after confirming the trend reversal and set a stop-loss order below the lowest point of the engulfing candlestick to prevent losses.
If traders want further confirmation of the reversal, they can observe bullish activity such as higher highs and higher lows in the following days.
This pattern is very important for traders and usually indicates that prices will rise significantly.
8. Bearish Engulfing
The bearish engulfing pattern is the opposite of the bullish engulfing pattern. A bearish engulfing pattern is formed when a small bullish candlestick is followed by a larger bearish candlestick that completely engulfs the former. This may indicate that the trend may reverse to a downward trend.
This pattern may be a signal that the current upward trend is weakening, indicating that selling pressure is increasing. To confirm the bearish engulfing pattern, traders should wait for the price to close below the lower boundary of the second candlestick. It is very important to take action before this signal is confirmed.
9. Piercing Line
The Piercing Line pattern appears after a bearish candlestick, followed by a bullish candlestick. The bullish candlestick opens below the previous day's low and closes above the previous day's midpoint. This may indicate that the trend may reverse to an upward trend.
This pattern is often considered a bullish signal, indicating buying pressure in the market and possibly the beginning of an upward trend. The Piercing Line pattern usually appears at the bottom of a downward trend, suggesting that buyers have taken over the market and are driving prices back up. However, it should be noted that this may only be a short-term trend, not a major reversal.
After the piercing line pattern appears, traders should observe higher highs to confirm that a new uptrend is forming. A stop-loss order can be set at the previous day's low to prevent losses if the pattern does not develop as expected. After verifying the appearance of the pattern and confirming that buying pressure has increased in the market, a long position with a compact stop-loss can be taken.
10. Dark Cloud Cover
The Dark Cloud Cover pattern is the opposite of the Piercing Line pattern. A Dark Cloud Cover pattern is formed when a bullish candlestick is followed by a bearish candlestick, and the bearish candlestick opens higher than the previous day's high but closes below the previous day's midpoint.
This may indicate that the trend may reverse to a downward trend. In this case, traders should pay attention to changes in market sentiment and take corresponding actions. The Dark Cloud Cover pattern is considered more reliable after a long uptrend or when it appears at a resistance level, as this indicates increased selling pressure.
Traders can use the Dark Cloud Cover pattern in conjunction with other indicators (such as support and resistance levels, oscillators, or moving averages) to confirm potential trend reversals. It should be noted that the Dark Cloud Cover pattern alone is not sufficient to make trading decisions and should be used in conjunction with other market analysis tools.
11. Bullish Harami
The bullish harami pattern appears after a large bearish candle, followed by a small bullish candle, the body of which is completely contained within the body of the previous day's candle. This pattern may indicate that the trend may reverse to an upward trend. It should be noted that the bullish harami does not always guarantee a trend reversal and should be analyzed in conjunction with other market indicators.
Traders should also be aware of possible false breakouts, where the price breaks out of the range established by the first and second candlesticks and then returns to within the range.
12. Bearish Harami
The bearish harami pattern is the opposite of the bullish harami. It appears after a large bullish candle, followed by a small bearish candle, the body of which is completely contained within the body of the previous day's candle. This pattern indicates that the trend may reverse to a downward trend. Traders should pay close attention to potential bearish haramis and take action accordingly. It should be noted that the bearish harami may fail and it does not always indicate that the trend will reverse. Therefore, traders should be cautious when trading this pattern.
In addition, other indicators such as volume, moving averages, and oscillators should be combined to confirm the reversal. By integrating these factors, traders can better evaluate their trading strategies and increase their probability of success. The bearish harami is generally considered a reliable signal that prices may move lower.
13. Tweezer Bottoms
The tweezer bottom pattern appears when two or more candlesticks have the same lowest price, which indicates that buyers have stepped into the market at this level. This pattern suggests that the trend may reverse to an upward trend. The tweezer bottom can be used to identify potential entry points for long trades. Traders should look for confirmation signals from other technical indicators before trading.
In addition, traders should set a stop loss at the lowest price of the tweezer bottom candlestick in case the trade does not go as expected. While the tweezer bottom is a potential signal of a trend reversal, it should be noted that it is not always reliable and must be used in conjunction with other technical indicators.
As with any trading strategy, traders should employ risk management techniques to protect their capital. In addition, traders can use the tweezer bottom pattern for short or long trades. For example, if the market is in a downward trend, using the tweezer bottom pattern to make a short trade can be used to seize opportunities in the existing trend.
14. Tweezer Tops
The tweezer top pattern is the opposite of the tweezer bottom. It appears when two or more candlesticks have the same highest price, which indicates that sellers have stepped into the market at this level. This pattern may indicate that the trend may reverse to a downward trend. Traders should observe whether a bearish candlestick is formed after the tweezer top to confirm a potential trend reversal.
Once a bearish candlestick is identified, traders should enter a short position when the market opens and set a stop loss slightly above the tweezer top. It is also important to monitor the volume, as an increase in volume often indicates a greater intensity of the trend reversal.
Tweezer tops can also serve as an indication of potential resistance levels. If the market reverses multiple times at the same level, it can be seen as a strong resistance area, which may become a 'ceiling' for further price increases. In this case, traders should observe bearish candlesticks and be prepared to enter short positions if the resistance level is not broken.
Triple Candlestick Patterns
Triple Candlestick Patterns is a technical analysis method used to identify the formation or reversal signals of price trends. A three-candle pattern can be identified when three consecutive candlesticks form progressively rising or falling highs and lows. Depending on the type of pattern, this may indicate that the underlying trend is reversing or continuing.
This analysis is based on the assumption that prices present predictable patterns and can be used to anticipate price movements. However, as with all technical analysis methods, action must be taken after confirmation with other indicators. Triple Candlestick Patterns is an effective tool to help traders capture emerging trends or signals in the market.
15. Morning Star
A Morning Star is a bullish pattern that forms when a long bearish candle is followed by a small-bodied candle that gaps down, which is then followed by a long bullish candle that gaps up. This pattern may indicate that the trend may reverse to an upward trend. The long bearish candle reflects the investment behavior of the bears, while the small-bodied candle is seen as a signal of a pause in selling pressure.
Finally, the long bullish candle indicates increased buying pressure and that bulls have taken over the market. Traders should confirm potential reversals by monitoring volume and related technical indicators. If the Morning Star appears in an uptrend, it may indicate a trend reversal to a downtrend; conversely, if it appears in a downtrend, it may be interpreted as a signal of an upward reversal.
16. Evening Star
The Evening Star is the opposite of the Morning Star and is a bearish pattern. It forms when a long bullish candle is followed by a small-bodied candle that gaps up, which is then followed by a long bearish candle that gaps down. This pattern may indicate that the trend may reverse to a downward trend. Traders should note that the Evening Star pattern is only meaningful when it appears at the top of the market, not at the bottom.
If the price falls after the Evening Star, it may indicate that a bearish trend is forming; conversely, if the price continues to rise after the Evening Star, it may indicate that the bullish trend continues. Traders should be cautious when trading the Evening Star pattern, as false signals may occur if the price does not confirm the reversal. In addition, traders should remember that a single indicator or signal cannot accurately predict future price movements.
17. Three White Soldiers
Three White Soldiers is a bullish pattern that forms when three consecutive bullish candles have progressively higher opening and closing prices. This pattern indicates a strong upward trend. The pattern is often used to indicate that the market has ended a downward trend and may turn upward.
To form the Three White Soldiers pattern, all three candlesticks must open within the body of the previous candlestick and show increasing upward strength. Each candlestick should close higher than the opening price of the previous candlestick.
18. Three Black Crows
The Three Black Crows pattern is the opposite of the Three White Soldiers and is a bearish pattern. It forms when three consecutive bearish candles have progressively lower opening and closing prices. This pattern indicates a strong downward trend and suggests that market participants expect prices to continue their current trend.
The Three Black Crows pattern is particularly powerful when it appears after a significant uptrend or a long period of consolidation. As with all technical analysis tools, traders should combine other indicators to confirm any bearish signals.
19. Bullish Three Inside Up
The bullish three inside up pattern appears after a long bearish candle, followed by a small bullish candle that is completely contained within the body of the previous day, and finally a long bullish candle that closes above the previous day's high. This pattern may indicate that the trend may reverse to an upward trend.
This pattern should be used in conjunction with other technical indicators to confirm the trend direction. When trading this pattern, traders should also consider fundamental analysis and risk management principles.
Steps to trade the Bullish Three Inside Up pattern:
1. Identify the pattern on the chart. This pattern usually appears after a long downtrend and may indicate that bulls are entering the market.
2. Look for confirmation signals from other technical indicators, such as moving average crossovers or breakouts of resistance levels.
3. Place a buy order at the breakout of the highest point of the pattern and set a stop loss below the lowest point. If executed properly, this strategy can be profitable in a market with strong bullish momentum.
20. Bearish Three Inside Down
The bearish three inside down is the opposite of the bullish three inside up. It appears after a long bullish candle, followed by a small bearish candle that is completely contained within the previous day's body, and then a long bearish candle that closes below the previous day's low. This pattern may indicate that the trend may reverse to a downward trend.
Traders often pay attention to this pattern to help make decisions. When encountering this pattern, one should be aware of its bearish implications and consider establishing a short position. However, it should be noted that the bearish three inside down does not guarantee that the price will fall, it only indicates that a reversal may have occurred and increases the likelihood of further downside.
Continuation Patterns
Continuation patterns are technical analysis tools used to determine the future direction of the market. They are based on observing price action over a period of time and using this data to predict the continuation or reversal of a trend.
Continuation patterns can be used to determine entry points for buying or selling and provide an indication of the strength of the current trend, helping traders judge how long the trend may last. By analyzing continuation patterns, traders can anticipate market movements in advance and make better trading decisions.
Summary
Now that we have discussed all 34 candlestick patterns in the market, it is important to remember that these patterns should be used in conjunction with other technical analysis tools and should not be relied upon solely to make trading decisions, in order to increase the chances of making a profit.
Overall, learning how to interpret and understand candlestick patterns is an essential skill for traders and investors. By understanding these candlestick patterns and learning to use them in conjunction with other technical analysis tools, traders can improve their ability to identify potential opportunities in the market.
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