A candlestick pattern is a visual representation of price movement over a specific time period. The "body" of the candle represents the open and close prices, while the "wicks" or "shadows" show the high and low prices. The color of the body indicates whether the price closed higher or lower than it opened.
Bullish Candlestick Patterns 🟢
A bullish candlestick pattern indicates that buyers are taking control and the price is likely to move up. These patterns often form after a downtrend and signal a potential reversal. The body of a single bullish candle is typically green or white, signifying that the closing price was higher than the opening price.
Some key bullish patterns include:
* Hammer: A single candle with a small body at the top and a long lower wick, indicating that sellers tried to push the price down, but buyers stepped in to bring it back up.
* Bullish Engulfing: A two-candle pattern where a small bearish (red) candle is completely engulfed by a larger bullish (green) candle, showing a strong shift in buying momentum.
* Morning Star: A three-candle pattern that starts with a long bearish candle, followed by a small-bodied candle (the "star"), and then a long bullish candle, signaling a reversal from a downtrend to an uptrend.
Bearish Candlestick Patterns 🔴
A bearish candlestick pattern suggests that sellers are gaining control and the price is likely to fall. These patterns often appear after an uptrend and signal a potential reversal. The body of a single bearish candle is typically red or black, as the closing price was lower than the opening price.
Some key bearish patterns include:
* Shooting Star: The opposite of a hammer, this single candle has a small body at the bottom and a long upper wick, indicating that buyers tried to push the price up, but sellers took over and drove it back down.
* Bearish Engulfing: A two-candle pattern where a small bullish (green) candle is completely engulfed by a larger bearish (red) candle, showing a strong shift in selling momentum.
* Evening Star: A three-candle pattern that begins with a long bullish candle, followed by a small-bodied candle (the "star"), and concludes with a long bearish candle, indicating a reversal from an uptrend to a downtrend.
How to "Calculate" Patterns
Candlestick patterns are not based on mathematical calculations in the traditional sense, but rather on the visual relationship between a candle's open, high, low, and close prices and how they relate to preceding candles. Identifying these patterns is about recognizing specific shapes and formations on a chart, not performing a calculation. For example, to identify a Piercing Line pattern, you would look for a long red candle followed by a green candle that opens below the low of the first candle but closes more than halfway up the body of the first candle. This is a visual and geometric analysis, not an arithmetic one.
Here are some of the 14 most common candlestick patterns for trading:
* Bullish Patterns: Hammer, Inverted Hammer, Bullish Engulfing, Morning Star, Piercing Line, Three White Soldiers, Tweezer Bottoms, and Bullish Harami.
* Bearish Patterns: Hanging Man, Shooting Star, Bearish Engulfing, Evening Star, Dark Cloud Cover, and Three Black Crows.
A new way of using candlesticks is shown in this video, which explains the "Candlestick Math" approach. Candlestick Math - A New Way Of Using Candlesticks.
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