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.

Chartstick Patterns

Chart patterns are visual representation of price movements over a period of time. Traders use these patterns to predict market direction, sothat they can make rational, sound decision. and these patterns can give traders clues about what might happen next with stock price.

Before understanding these following chart patterns it’s important to make you understand about ” SUPPORT AND RESISTANCE LEVELS”

In general a support level representations a price point where a stock tends to find buying interest, and preventing it falling more. in other words it is the level where investors believe the stock is undervalued and start buying. Creating demand and causing the price bounce back.

On the other hand, in resistance level price of stock tends to go its higher and stop rising more, as there are many sellers, making it difficult for the price to go higher.

Eventually we can say it is completely “DEMAND AND SUPPLY’ concept.

Here are some commonly seeing chart patterns

 
    • Head and Shoulder

    • Inverse head and shoulder patterns

    • Cup and Handle

    • Rounding Bottom

    • Rounding Top

    • Double Bottom

    • Double Top

    • Morning star and Evening star

    • Ascending Triangle

    • Descending Triangle

    • Symmetrical Triangle
 Head and Shoulder   This pattern mainly consists of three peaks with the middle peak (head) being higher than other two (the shoulder).


Inverse head and shoulder 



Cup and Handle    This pattern resembles a tea cup with its handle. it is the bullish continuation pattern, where the price forms a rounded bottom (the cup), followed by a small consolidation (the handle) before breaking out to the upside.


Rounding Bottom      Also known as a saucer bottom, this pattern forms a long- term reversal signal, it consists of a gradual downward trend followed by rounded bottom, and a subsquent upward trend. it suggests a shift from a downtrend to an uptrend as buying pressure gradually overcomes selling pressure.


Round Top      It is a reversal pattern designed to identify the end of an uptrend and the beginning of a potential downtrend.