The most prevalent reversal candlestick patterns and their associated interpretations are outlined and shown here.
Bullish patterns
Whenever a downtrend is about to end, a bullish reversal pattern will form to signal the beginning of a new uptrend.
Hammer
- One candle arrangement. It may mark the conclusion of a downward trend, a support level, or all three. Ideally, the candle’s lower shadow length would be double that of the candle itself. It doesn’t matter what color the hammer is, but a bullish one sends a stronger signal.
- A hammer is a common and easily identifiable phenomenon. They demonstrate that bears, although dragging the price to a new low, could not maintain that position and ultimately lost ground to buyers after the trading session. So if a hammer appears after a prolonged price drop, that’s a potent indicator.
If the next candlestick after a hammer closes higher than the starting price of the candlestick to its left, it strengthens the buy signal. Look at this actual chart to see how a hammer is categorized:
Morning star
With three candles. A bearish gap down follows a long bearish candle. The bears have the upper hand but go only a little. Despite its insignificance, the second candle’s preference for a bullish hue is preferable. An upward gap at the start of the third bullish candle closes the gap left by the preceding bearish candle. In many cases, this candle will outlast the first.
Although the gaps are not required for this pattern to occur, their presence does strengthen the reversal signal.
Morning Doji star
With three candles. Identical to the one before, except for a Doji candlestick in the middle.
Compared to a more basic “morning star” pattern, this one is said to have a more robust signal.
Inverted hammer
One candle arrangement. The full shadow of the candle is at least twice as long as the actual candle, giving the illusion of a much larger candle.
It doesn’t matter what color the hammer is, but a bullish one sends a stronger signal. Further bullish confirmation is usually necessary after an inverted hammer.
Piercing line
It’s arranged like a pair of candles. Bearish in nature, the first candlestick is lengthy. The opening price of the second candlestick is much lower than the price at which the first candlestick closed. The sizeable bullish candlestick closes above the first candle’s body by more than half. Both bodies ought to be adequate in length.
Although trading opened with a negative impulse, purchasers could turn the tide and secure profits, as seen by the pattern. Generally speaking, the strength of the signal is average.
Bullish harami
It’s arranged like a pair of candles. The second candle, which is the polar opposite in hue, fits entirely inside the first candle’s body.
Remember that the next candlestick after a harami pattern must be large and bullish for the pattern to be considered valid.
Bullish harami cross
The Harami may be thought of as a two-candle design. What sets this apart is that the last day is a Doji.
This design is very similar to the “morning doji star” pattern. Similarly, identical reasoning and repercussions follow.
Bullish engulfing pattern
At the bottom of the trend, a 2-candle formation forms. It’s a bearish first candlestick. The second candle should have an opening below the low of the first candlestick and closing above the high.
The full engulfment of the adverse price action by the bullish price action in this pattern is a reliable reversal indication. The strength of the purchase signal increases as the gap between the two candlesticks widens
Three white soldiers
With three candles. There is a string of three long-bodied bullish candles. The wick of each next candle should be inserted into the preceding candle’s body, preferably somewhere above its center. Every candle’s cycle ends at a new peak or close to its highest point.
Although this pattern has a high degree of predictability, it is best confirmed by a white candlestick with a higher close or a gap up
Bearish reversal patterns
When a bearish reversal pattern forms near the top of an uptrend, it usually indicates that the price will begin to drop
Shooting star
one candle arrangement. There isn’t much light there. When cast downward, the top shadow is at least twice as long as the body.
The lengthy upper shadow indicates buyers were met with resistance and sellers with supply, with the bulls being rebuffed. The signal strength increases if the candle is bearish, but it works with any hue.
Evening star
with three candles. A gap follows a long bullish candlestick in the same direction. Even though they’re in charge, bulls go only a little far. Aside from its size, the second candlestick’s hue is mostly irrelevant. There is a gap down at the start of the third bearish candle, which completely closes the gap formed at the beginning of the previous bullish candle. In many cases, this candle will outlast the first.
Although the presence of gaps in this design is optional for its superiority, it is still preferable.
Evening Doji star
A configuration of three candles. The design resembles the “evening star,” but the Doji in the center is seen as a more reliable indicator.
This pattern provides a stronger signal than a standard evening star pattern.
Hanging man
A single, lone candlestick. It may represent a peak, a point of resistance, or the end of a bullish trend. Ideally, the length of the candle’s lower shadow would be at least double that of the candle itself. The signal strength increases if the candle is bearish, but it works with any hue.
Additional bearish confirmation of the pattern is needed. When a bearish candlestick confirms this pattern by closing below the opening of the candlestick on the left, it is seen as a sell signal.
Dark cloud cover
It’s arranged like a pair of candles. This first candle has a long, bullish body, indicating strength. A bullish engulfing pattern occurs when the second candlestick opens much above the previous candlestick’s closing level and then declines to a close below the first candlestick’s body by more than 50%. Currently, the sell signal has moderate strength.
Here’s an example of this pattern on a chart:
Bearish engulfing pattern
It’s arranged like a pair of candles. First, an initial bullish candlestick is shown. Then, to be bearish, the second candlestick must mirror the first by opening above the high and closing below the low.
Because the adverse price action engulfs the bullish one, this pattern generates a powerful reversal signal. The more significant the gap between the two candlesticks, the greater the sell signal.
Bearish harami
It’s arranged like a pair of candles. The second candle, which is the polar opposite in hue, fits entirely inside the first candle’s body.
Always look for a large, bearish-following candlestick to confirm hamachi patterns.
Bearish harami cross
harami’sThe harami’s design resembles a pair of candlesticks. However, the second candlestick is a Doji, which is different.
Three black crows
A configuration of three candles. Three long-bodied bearish candles have formed in a row. Each new candle is lit from inside the preceding one’s wick, ideally just below the candle’s median point. In this pattern, each candle reaches a new low before it expires.
Although this pattern has a high degree of predictability, it is nevertheless advised to wait for confirmation before acting.
Comments (No)