๐ Candlestick Patterns: A Traderโs Guide
Candlestick patterns are one of the most important tools in technical analysis, helping traders predict market movements. These patterns are divided into three categories: Bullish, Bearish, and Neutral.
This guide will explain the significance of different candlestick patterns and how traders use them to make informed decisions.
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๐ฏ๏ธ Understanding Candlesticks
A candlestick consists of:
- Body โ The area between the open and close prices.
- Wick (Shadow) โ The thin lines extending above and below the body, representing the high and low prices.
- Colors โ A green (bullish) candle means the closing price is higher than the opening price, while a red (bearish) candle means the closing price is lower than the opening price.
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๐ Bullish Candlestick Patterns (Indicating Price Increase)
Single Candlestick Patterns
1๏ธโฃ Hammer โ A small body with a long lower wick, signaling a potential bullish reversal.
2๏ธโฃ Inverted Hammer โ Similar to the hammer but with a long upper wick, indicating reversal.
3๏ธโฃ Dragonfly Doji โ A doji with a long lower wick, suggesting strong buying pressure.
4๏ธโฃ Bullish Spinning Top โ A small body with long wicks, showing indecision but potential upward movement.
Double-Candle Patterns
5๏ธโฃ Bullish Kicker โ A strong green candle that gaps up from a red candle, showing strong bullish sentiment.
6๏ธโฃ Bullish Engulfing โ A large green candle completely engulfs a smaller red candle, signaling a reversal.
7๏ธโฃ Piercing Line โ A red candle is followed by a green candle that closes above the midpoint of the previous candle.
8๏ธโฃ Bullish Harami โ A small green candle forms within the body of a previous red candle, showing hesitation before a reversal.
9๏ธโฃ Tweezer Bottom โ Two candles with almost the same low price, indicating a support level.
Multiple-Candle Patterns
๐ Morning Doji Star โ A red candle, followed by a doji, and then a large green candle, signaling a strong reversal.
1๏ธโฃ1๏ธโฃ Three White Soldiers โ Three consecutive green candles, showing strong bullish momentum.
1๏ธโฃ2๏ธโฃ Bullish Engulfing Sandwich โ A red candle between two green candles, confirming bullish movement.
1๏ธโฃ3๏ธโฃ Morning Star โ A red candle, followed by a small candle, and then a large green candle, signaling reversal.
1๏ธโฃ4๏ธโฃ Rising Three Method โ A strong green candle, followed by small red candles, and another green candle, indicating a continuation of the uptrend.
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๐ Bearish Candlestick Patterns (Indicating Price Decrease)
Single Candlestick Patterns
1๏ธโฃ Hanging Man โ A small body with a long lower wick at the top of an uptrend, signaling reversal.
2๏ธโฃ Shooting Star โ A small body with a long upper wick, indicating a bearish reversal.
3๏ธโฃ Gravestone Doji โ A doji with a long upper wick, showing strong selling pressure.
4๏ธโฃ Bearish Spinning Top โ A small body with long wicks, signaling indecision but potential downward movement.
Double-Candle Patterns
5๏ธโฃ Bearish Engulfing โ A large red candle completely engulfs a smaller green candle, indicating a reversal.
6๏ธโฃ Bearish Kicker โ A strong red candle that gaps down from a green candle, showing strong bearish sentiment.
7๏ธโฃ Dark Cloud Cover โ A red candle that opens above the previous green candle but closes below its midpoint.
8๏ธโฃ Bearish Harami โ A small red candle forms within the body of a previous green candle, showing hesitation before a downturn.
9๏ธโฃ Tweezer Top โ Two candles with almost the same high price, indicating resistance.
Multiple-Candle Patterns
๐ Falling Three Method โ A strong red candle, followed by small green candles, and another red candle, confirming a downtrend.
1๏ธโฃ1๏ธโฃ Bearish Engulfing Sandwich โ A green candle between two red candles, confirming bearish momentum.
1๏ธโฃ2๏ธโฃ Three Black Crows โ Three consecutive red candles, signaling strong selling pressure.
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