Candlestick Patterns
Candlestick patterns are used in technical analysis.
They are only found on the candlestick chart,
and are formed by one or more candlesticks. Below are the eight patterns that I use when trading. Please note that these patterns cannot be used alone in deciding whether to enter a trade – the trend (bullish or bearish) must agree with the pattern.
Bullish candlestick patterns
*A bullish candlestick pattern is only true if it appears in the dip of a bull trend.*Mallet:
Has a long wick which is at least 2/3 the length of the body of the candle. The long wick is beneath the short body. This means that the price has come down, reached its lowest point, and gone back up during the hour. A hammer is only a buy signal when it appears in the dip of a bullish trend.Double Bottom:
Consists of two or more candles where the lower wicks are at or near the same value. This means that the market has come back to the same point twice or more and bounced back up again. Appears in the dip of a bullish trend.Comeback King:
Consists of 3 or more candles. The first candle is decisively bearish. The middle candle(s) are indecisive. The third and last candle in the formation is decisively bullish. This means that the market has come down to a low point, stayed there for a little bit and has then decided to surge upwards. Bullish Engulfing:
Consists of two candles. First candle in the formation is bearish. The second candle is decisively bullish and engulfs the first candle. By “engulf”, I mean the second (bullish) candle’s open is at the same level or lower than the first (bearish) candle’s close, and the second (bullish) candle’s close is higher than the first (bearish) candle’s open.
Bearish Candlestick Patterns
*A bearish candlestick pattern is only true if it appears at the crest of a bear trend.*Inverted Mallet:
Has a long wick which is at least 2/3 the length of the body of the candle. The long wick is above the short body. This means that the price has gone up, reached its highest point, and gone back down during the hour. Double tops:
Consists of two or more candles where the ‘high’ wicks are at or near the same value. This means that the market has gone up to the same point twice or more and come back down again. Downfall Dramaqueen:
Consists of 3 or more candles. The first candle is decisively bullish. The middle candle(s) is indecisive. The third and last candle in the formation is decisively bearish. This means that the market has gone up to a high point, stayed there for a little bit and has then decided to come back down again. Bearish engulfing:
Consists of two candles. First candle in the formation is bullish. The second candle is decisively bearish and engulfs the first candle. By “engulf”, I mean the second (bearish) candle’s open is at the same level or higher than the first (bullish) candle’s close, and the second (bearish) candle’s close is lower than the first (bullish) candle’s open.I understand that the above may sound extremely confusing. But once you get the “hang” of it, the above patterns are really very easy to identify. The journey of leaning never ends! You can learn more by reading books or taking an online course.
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