Candlestick pattern
Candlestick patterns are used in trading which help us (investor , trader) to understand the direction of the market. With the help of candlestick pattern , it is easy to identify potential market reversal or continuation pattern based on the shape and formation of candlestick on a price chart. Each candlestick represents a specific time period and displays (open, high, low and close) prices for that period.
Before understanding candlestick pattern it is necessary to know about following these three basic features
The body it represents the difference between the opening and the closing prices during the time period being analyzed.
Wick (Shadow) it represents the price extreme reached during the top or bottom of the body to the highest or lowest price reached during that period.
Colour Generally, candles (body) are made up of two colours. Green reveals a price increase and Red reveals a price decrease
Now we learn about Bullish candlestick pattern and Bearish candlestick pattern
Bullish candlestick patterns suggest a potential upward movement in the price of an asset. these patterns typically indicates a shift in market sentiments from bearish (negative) to bullish (positive), signaling opportunities for traders to buy.
Following are some bullish candlestick pattern
- Hammer this pattern has a small body near the top of the candle with a longer lower wick (shadow), resembling a hammer. It often occurs when price goes down and suggests now the buyers are steping in, and pushing the price goes up from its low. it indicates potential bullish reversal.
- Inverse hammer
Bullish Engulfing it forms when a large bullish (green) candle entirely engulfs the previous bearish (red) candle. it suggests that buyers have overtaken sellers and indicating a shift from bearish market to bullish market.
Morning star it is a three candle bullish reversal pattern, it begins with a long bearish candle followed by a small – bodied candle (can be red or green) that indicates indecision ,and a finally large bullish candle that confirms the reversal. it has a potential change from a downtrend to an uptrend.
Piercing Line it consists of two candles, the first candle is bearish (red) followed by a bullish (green) that opens lower than the previous day’s close, but closes more than halfway up the body of the first candle . it has potential bullish reversal after a downtrend.
Bearish candlestick pattern
A bearish candlestick pattern shows a potential decline in an asset’s price. it is made up of two candles (red ,green). it shows that sellers have taken control of the market, leading to a downward movement in price.
Traders use these following pattern to make informed decision about selling.
