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Candlestick Chart Patterns: Bearish and Bullish

Candlestick Chart Patterns: Bullish and Bearish charts

Introduction

Have you ever tried to observe the ups and downs in the stock market? Candlestick patterns can be useful. You can easily read the daily price fluctuations on these charts. Whether the market is rising or dropping, each candlestick provides insight into its current state. 

You may improve your prediction of what might happen next by reading these patterns proficiently. Are you prepared to understand the market’s signals? Let’s investigate the world of candlestick charts and transform uncertainty into clarity!

What is a Candlestick Chart Pattern?

Candlestick patterns are a way to see how the price of stocks or currencies changes daily. Imagine each candlestick on a chart as a story of one day’s price movement. These patterns help people guess what might happen next based on what has happened before. 

There are 42 types of candlestick patterns that can include a single or a combination of the exact formations. The reader can easily discover all the fluctuations of the market if he is attentive by looking at about 20 candlesticks. These charts help people understand and predict the ups and downs of the market.

How to read a candlestick Pattern?

The body of a candlestick represents the open and closing prices over the designated period. This data allows traders to quickly see a stock’s price range. The body colour (green or red) indicates a rise or fall in the stock price. 

When red candles line up in a row on a monthly candlestick chart: one candle symbolises a day, the red candle shows the decline of the stock price.

Shadows are vertical lines that display the highest and lowest prices transacted. They are located above and below the body.

Consider these situations:

  • A red candle with a short upper wick indicates that the stock opened close to its day’s peak price.
  • A green candle with a short upper wick indicates that the stock closed close to its day’s peak price.

Formation of Candlestick Pattern

For the market, candlesticks are equivalent to X-ray vision. All of them expose true factors that affect the prices; they show the trend and volume of the market and how emotions influence the charts.

One candlestick may carry out information on changes in price for one day for a daily chart, one hour for a chart with an hour interval. The candlesticks will differ if the time frame that is used for the chart is changed. Now it is time to consider the structure of candlesticks and the information that they may convey. 

Candlestick components 

There are four components to candlestick chart patterns: trading volume and open, close, high, and low. The following is a brief explanation of each part of this pattern.

Candlestick chart patterns
  • An open price is the price at which an asset first trades in one specified day.
  • The close price is the last price at which the asset trades in one specific day.
  • The high price is the highest price the asset reaches during the day.
  • The low price is the lowest price reached during the day

The candlestick chart pattern body

The space between an open and a close price is called the body of a candlestick chart. The colour of the body indicates if prices went up or down. Green body shows that price increased in value, whereas the red body depicts a decrease in value. 

The size of the body shows how much an asset’s price has changed. Large green candles indicate increased prices while large red ones signal that they depreciated heavily. Traders check them up for insights into investor behaviour during buying (optimism) or selling (fear) moments.

Lower Shadow and Upper Shadow

Candlestick has two kinds of shadows which are below and above the line. 

The top shadow refers to the period’s maximum price, while the bottom shadow indicates the period’s lowest price.

We can learn crucial information about market behaviour from these shadows. A long top shadow indicates a price peak followed by a decline, which could indicate resistance levels or a negative mindset. A short top shadow indicates a sustained period of heavy buying, indicating a bullish sentiment.

Learning about candlestick patterns requires understanding how they are formed and what information they show. Once you understand the elements and formation of candlestick chart patterns, here you can see the most common candlestick patterns pdf which you can also download from the link given below:

  1. Bearish Patterns pdf download.
  2. Bullish Patterns pdf download

Bullish and Bearish Candlestick Chart Patterns

Candlestick patterns with a bullish pattern indicate the movement of the greater prices. Usually, it indicates that consumers are in control, which increases costs even further. Other common features of these formations include longer lower shadows and shorter upper shadows, while the green bodies tend to be large. 

These are, thus, patterns that indicate the establishment of a level of support, the continuation of an already established uptrend, or even a possible reversal in trend.

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Bullish candlestick chart Patterns 

There are various bullish patterns, thus enabling the consumers to be able to make it easy to understand trading.

Here are the following patterns:

Hammer and Inverted Hammer

A hammer is one of the bullish indicators found when the prices are recovering from a downward trend. It shows that the buyer is in a better position to dictate the terms and conditions of the seller and hence the price will go up. 

As traders see this pattern, they understand that the price will start going up soon, a buy signal.

Bullish hammer and inverted hammer pattern

The body of the hammer candlestick is little, its bottom shadow is long, and its upper shadow is absent. The lower shadow needs to be longer than the body for the pattern to be genuine. Red or green can be the body’s colour.

An inverted hammer is simply a standard hammer reversed. Though it is called “inverted,” it still forms a bullish indication. It represents the end of a declining phase and the beginning of a possible rising phase.

Pin Bar 

Bullish Pin bar pattern

The pin bar candlestick pattern is popular among traders for most often showing when a trend might change or continue. This is of the highest importance when it forms near significant levels like supports, resistances or moving averages.

A bullish pin is characterised by a long lower shadow, a short upper shadow that ends above the open price, and a very small body. The lower shadow should be double the size of the real body.

Engulfing

Bullish Engulfing pattern

The Engulfing pattern is widely used to predict whether a market trend will reverse or continue. In the pattern, there will be two candlesticks: one red and one green. The red candlestick comprises 52% of the Engulfing pattern, while the green candlestick makes up 48% of the Engulfing pattern. 

The green candlestick has a greater volume than the red candlestick, indicating strong buying or selling pressure. It has multiple shadows that overlap, indicating indecision in the market. It must be above the red chart and close below the bigger candle. This pattern indicates that buyers are gaining power, and an increase in price is possible.

The Morning Star

Bulish Morning Star pattern

The pattern of the morning stars is like the first light before dawn, indicating a brilliant beginning. It’s most beneficial when it follows a downward trend.

This is how it operates:

  • Some selling pressure is visible in the first candlestick, which is little and red.
  • Even smaller, the second one opens and closes close to the closure of the first.
  • The third candlestick, which is large and green, indicates strong purchasing activity and a potential trend change.
  • Traders frequently think about buying when they spot a morning star since it implies that the price may rise.

Bullish Harami

Bullish Harami pattern

In Japanese, the word “Harami” means “pregnant.” The phrase refers to how the pattern looks, like a pregnant lady’s body with a little candlestick “inside it.

The harami pattern is defined as a formation of two candles in a row in succession. 

The shadows of the first candlestick are very small but the body of it is very large, in this pattern, the larger candle completely covers a small white candle. If the market becomes high, the first candle is green (up),  and the second is red (down). 

The inference is that this trend has actually been changing, and it is possible to detect the shift. Similarly, during a downturn, it would be prudent to search for buying opportunities when the first candlestick is red and the second is green.

Source: Tradingview.com

Three White Soldiers 

Bullish Three White Soldiers pattern

Three green candlesticks with faint shadows form the bullish reversal pattern known as the “Three White Soldiers.” This pattern is more reliable when it forms within a more established downtrend.

Candlesticks must be aligned to the same price as the last one for the pattern to be valid.

It is normally used as an indicator of a bullish trend; when it turns green, analysts and traders can open long positions or increase the size of their long positions to indicate that the price of the underlying asset or instrument will increase further.

Tweezer Bottom

Bullish tweezer bottom pattern

When the highs or lows of two candlestick bodies coincide (in an uptrend), it creates a short-term reversal pattern known as the tweezer pattern (in a downtrend). This pattern can indicate a possible trend reversal and shows a fight between buyers and sellers.

The pattern known as a tweezer bottom occurs during a decline and is characterised by the need for two consecutive bodies of either colour candlesticks to hit the same low point. The fact that purchasers could drive the price back up from the first candlestick’s bottom suggests that new buyers are entering the market.

Bullish Marubozu

Bullish Marubozu pattern

Japanese: “marubozu” means “shaved head” or “bald”.  The Marubozu candle is somewhat like an upside-down hammer without wicks. The whole price range is within the candle body. It may, therefore, be bullish or bearish depending on the colour. 

It is the most reliable when used for pullbacks to buy signals for trend continuation.

This is a lengthy, green, bullish marubozu candlestick without an upper or lower shadow. It shows buyers were in control of the market price from opening to closing, indicating a very bullish attitude.

Bearish Candlestick chart Patterns  

The Evening Star

Bearish Evening Star pattern

The evening star pattern, which marks the conclusion of a brilliant phase, is similar to viewing the last light before sunset. Usually, it follows an upward trend.

This is how it works: 

  • First candlestick is bullish, and it has small shadows compared to the candlestick itself.
  • The second candlestick has small bodies for a green or red body and short shadows. 
  • Bullish trend and third candlestick is bearish and has a larger body than even the first one.
  • Traders would be more inclined to sell when an evening star is formed since this could mean a trend reversal leading to a drop in prices.

Bearish Pin Bar

Bearish Pin Bar Pattern

Conversely, a bearish pin bar has a long upper shadow, a small body, and a short lower shadow, which usually indicates that the market may weaken, with a downtrend possibly ensuing. A trader might get a sell bias if they see a bearish pin bar.

Bearish Engulfing 

bearish engulfing pattern

The opposite of this bearish engulfing pattern is when a larger red candlestick follows a green candlestick. The preceding candlestick has to be completely engulfed by the green candlestick. This pattern suggests the bears have taken over the market and points to a possible price drop in the near future, so traders look for shorting opportunities.

Bearish Harami

Bearish Harami pattern

The harami pattern is a two candlestick reversal technique. The first candlestick has small wicks and long real bodies. In the second one the first body is completely inside of the second one. This means that it is a little or a small candle.

In the case of an uptrend the harami will show how the first candlestick is entirely green whereas the second is entirely red. This is always an indication that the trend may possibly be reversing downwards.

The monthly chart illustrates that the first candle in a downtrend is red and it is immediately followed by a second green one; this is the right time to look for bargains to buy.

Bearish Marubozu

Bearish Marubozu pattern

A bearish Marubozu is the opposite of the bullish Marubozu. Here, the long red-coloured body of the candlestick, with no upper or lower shadow, shows that the price has opened at its high and closed at its low. 

This means selling pressure remained in place throughout the session, and the bears had complete control over the markets.

Hanging man

Bearish Hanging man pattern

The formation of the hanging man pattern provides the bearish market signal. The Hanging Man candlestick visual pattern is shaped similarly to a man hanging head down and that’s why it is named like that. 

It generally follows behind an increasing trend and determines whether the bulls are losing or might turn the trend around. When it comes to candlestick, a speculator finds a small body located at the top and a longer body at the bottom, known as hanging man candlestick. 

The candle’s body has to be below the lower shadow, and the upper shadow has to be similar to 0 or close to 0.

Tweezer Top

Bearish Tweezer Top Pattern

It is called a “tweezer top” during bullish market conditions, two candles having equal highs have to be formed on the following day for confirmation. This indicates bears are beginning to dominate the market suggesting a shift in market momentum and a potential trend reversal.

Dark Cloud Cover

Bearish Dark Cloud Cover pattern

The phenomenon of black cloud cover indicates that an upward trend may be coming to an end. It has a pattern of two candles consisting of a long, green candlestick for the first candlestick closing below the close of its predecessor and a long, red candlestick. As prices drop sharply throughout its trading session, it closes below half-way above the first candlestick.

With this pattern in mind, the bright days of the present uptrend could be over. Bears are taking the lead while the bulls lose ground.

Three Black Crows 

Bearish Three Black Crows pattern

At the close of an upward trend, a three black crows pattern is considered a more valid bearish reversal pattern. Imagine a three-soldier-white pattern, just on its head.

This formation consists of three consecutive bearish candlesticks. The opening prices of all these candles are equal to the closing prices of their previous ones while the closing prices are below their respective openings. 

This three in line black crow’s formation that may signal a price crash becomes especially important when it emerges from higher levels or after an older rise has taken place.

Conclusion

Anyone who trades stocks will have to learn about candlestick patterns. Based on historical data, these patterns help predict future trends by graphically showing the change in daily prices. 

The candlestick patterns that signal bearishness, like evening star and hanging man, anticipate a possible downward movement. In contrast, candlestick bullish patterns, including hammer and morning star, could indicate a future uptick in prices. 

By studying the bodies and shadows of candles, traders can understand market sentiment which can help them make more informed decisions. Enhancing trading methodologies by mastering these models can transform a state of market confusion into accurate predictions for the market. Check out candlestick charts to see how to take advantage of market movements.

FAQs 

What do candlestick patterns refer to?

Candlestick patterns are graphical illustrations of price fluctuations in financial markets, such as stocks or currencies. Every candlestick displayed on a chart signifies a specific timeframe, indicating the start, end, peak, and low prices during that timeframe.

What makes candlestick patterns significant for traders?

Candlestick patterns assist traders in evaluating market sentiment and forecasting upcoming price changes. Traders can make better decisions about purchasing or selling assets by comprehending these patterns.

What is the process of interpreting a candlestick formation?

The candlestick body illustrates the range of prices from opening to closing, with color showing if price increased (green) or decreased (red). The shadows, also known as wicks, indicate the peak and bottom prices achieved throughout the timeframe.

What do bullish candlestick patterns indicate?

Bullish candlestick formations indicate possible increases in price. Illustrations consist of the hammer, which suggests a chance for a change in direction following a downward trend, and the morning star, indicating a potential shift in trend post a decrease.

What do bearish candlestick patterns refer to?

Bearish candlestick formations suggest possible price decreases. Instances such as the evening star, which hints at a potential change in direction from an upward trend, and the bearish engulfing pattern, signaling a move towards decreased prices, serve as examples.

What is the method of utilizing candlestick patterns in trading?

Traders utilize candlestick formations to pinpoint the best times to enter and exit trades. For instance, if they notice a bullish pattern emerging following a period of decrease, it could indicate a good opportunity to purchase. On the other hand, a bearish formation following an uptrend could indicate it’s time to sell.

Do candlestick patterns consistently show accurate results?

Although candlestick patterns offer important information, they are not completely reliable signals. It is crucial to incorporate candlestick patterns with other technical and fundamental analysis tools for more informed decision-making when market conditions are impacted by different factors.

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Karla brings over 16+ years of experience in the online brokerage industry. She is a finance graduate from Birmingham University, UK, and a forex market enthusiast. Being a true writing fanatic, she pens research-backed reviews for traders to analyse trading strategies and indicators. She has also authored a wide range of educational articles covering the forex industry. Karla is quite interested in checking brokerage companies and studying their performance and growth. Her aim is to describe complex investment mechanisms in an accessible way for traders of any level. Apart from finance, her interests mainly include reading books, fitness, and writing in her journal. Karla believes in the power of writing and wants to write for every layman who knows nothing about finance.
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