The candlestick chart patterns visually represent all the critical data a trader needs to forecast price movement. The opening, high, low, and closing prices are shown and easily recognized during a certain time period.
They are frequently chosen over regular bar charts because they are easier to interpret visually. Especially when combining multiple candlesticks to form candlestick chart patterns.
Candlesticks chart patterns gauge market sentiment in terms of bullish and bearish strength. These patterns tell us something different about the price chart’s potential.
The examination of a candlestick chart gives information that is accessible. You can tell right away when the close is higher than the open since the body is green. You can conclude a short-term uptrend if this happens numerous days.
This information is more difficult to spot when looking at a bar chart. Understanding how continuation and reversal patterns function can help you learn more about the various candlestick chart patterns.
Candlestick Chart Patterns Interpretation
The design of typical candlestick chart patterns depicts in the image below. In the pricing candle formation, three precise points are used. The opening and closing prices are the first things to consider.
These points will form the body of a candle by identifying where the price of an asset begins and ends for a given time. When you look at the candlestick chart, each candle represents the price movement for your chosen period.
Looking at the chart regularly, each candle will show the day’s open, closing, upper, and lower wicks.
- The first price represents the Open price traded during the development of a new candle.
- The highest price transacted throughout the period is indicated by the top of the upper wick/shadow.
- The lowest price transacted is either the price at the bottom of the lower wick/shadow or the price at the bottom of the lower wick/shadow.
- The closing price is the current price exchanged during the candle formation phase.
- The wick, often known as a shadow, is the next key candlestick component.
- The color of the candlestick indicates the direction of the price.
- The range of a candle is the difference between its highest and lowest price.
How to Read Candlestick Charts?
A candlestick chart can be used and read in a variety of ways. Candlestick chart analysis is dependent on the trading technique and time period you pick. Some tactics spot price patterns, while others take advantage of candle formations.
Single Candle Formation
Individual candlesticks can provide a wealth of information about market emotion. Candlestick chart patterns such as the Hammer, Shooting Star, and Hanging Man provide insight into changing momentum and the possible direction of market prices.
The image shows that the Hammer candlestick chart patterns formation can sometimes signal a trend reversal. The hammer candle has a short body with a long lower wick. As a result, the closing price is more than the opening price.
The hammer formation’s logic is simple: the price tried to fall, but buyers entered the market, driving the price up. Entering the market, tightening stop-losses, or closing out a short position is a positive indicator.
Multiple Candles Formation
Candlestick charts aid traders in identifying price patterns in the charts. If you recognize them, you can profit from these price patterns by using them as entry or exit signals into or out of the market, such as the bullish engulfing pattern or triangular patterns.
After the blue candle closes, a trader would take advantage of this by placing a long position. Remember that the price pattern only emerges after the second candle has closed.
To ensure a tight stop loss, a trader would position a stop loss underneath the bullish engulfing pattern, similar to the hammer formation. The trader would next decide on a profit target.
Types of Candlestick Chart Patterns
Candlestick chart patterns come in various shapes and sizes, which you can utilize to trade the markets. This post will look at various candlestick patterns, including bullish, bearish, and continuation candlestick patterns.
When you learn about bullish patterns, you’ll gain access to a wealth of trading data that can assist you in determining the direction the market heads. Here are some frequent bullish patterns:
- Hammer Pattern
- Inverse Hammer Pattern
- Bullish engulfing pattern
- Piercing line pattern
- Bullish harami and harami cross pattern
- Morning star pattern
- Rising three pattern
- Three white soldiers pattern
Now that you know the basics of bullish patterns, it’s time to learn about bearish patterns that may shown on candle charts. Here are some common bearish patterns:
- Hanging man pattern
- Dark cloud cover pattern
- Shooting star pattern
- Falling three methods pattern
- Evening star pattern
- Bearish engulfing pattern
- Three black crows pattern
Candlestick chart patterns integrate the open, high, low, and close prices into one graph. They provide more information than other forms of charts. The number of chart patterns that can be analyzed on candlestick chart patterns is vast, and learning them is beneficial.
Suppose forex traders, or any other type of trader, take the time to learn the various candlestick chart patterns and technical indicators available on these charts. In that case, their forecasts of future price movements will be extremely helpful in their trading careers with PrimeFin.
Q1. Which Candlestick chart patterns are good for Traders:
Five main patterns that are good for traders are, as given below:
- Doji Patterns
- Evening Star Patterns
- Morning Star Patterns
- Bullish Engulfing Patterns
- Bearish Engulfing Patterns
Q2. What do you mean by Bullish Pattern?
A bullish candle pattern indicates that the market will commence an uptrend following a price reduction.