Reblog: Candlestick patterns – 21 easy patterns (and what they mean) Part 1 of 3
Here’s the deal, learning just a few key candlestick patterns WILL improve your ability to recognize trading opportunities and enter better trades! The Japanese have been using these patterns for centuries, to trade rice of all things! So, there is a rich history to the art of candlestick trading. Candlestick patterns are an integral part of technical analysis, candlestick patterns emerge because human actions and reactions are patterned and constantly replicate and are captured in the formation of the candles. So, by recognising these patterns and applying the lessons that the patterns teach, can and does yield results in your trading!
And isn’t that the aim of trading?
Now I know what your thinking!
Don’t think of this as a list to memorize.
Think of this as a guide that you jump in and out of, whenever you need to jog your memory!
For the most part Candlestick patterns are about spotting market turns, If you can spot a turn, then you can profit from it. The value of candlestick patterns to spot trading opportunities is a thorny topic among the trading community, but there have been statistical studies on the accuracy of technical analysis and the results are pretty convincing.
I have broken down the patterns into 3 categories:
- Equal open and close candles. ( known as doji candles )
- Short body candles.
- Long body candles.
Within these categories are both bullish reversal and bearish reversal patterns.
When you think you see a familiar candlestick pattern in your charts, You can double check the pattern in this guide and make an informed choice on what to do next.
Here we go!
Equal open and close, Doji patterns.
The basic doji candlestick pattern is when a candle’s open and close are almost equal.
The shadows can vary in length.
So the candlestick looks like an inverted cross, a simple cross, or plus sign. The doji conveys an even struggle between the forces of the market, both side pushing with no net gain is achieved. The doji can be both a reversal pattern and a continuation pattern.
Abandoned Baby: Reversal pattern.
This candlestick pattern looks like it sounds, the parents have walked off and left the baby behind!
This is a reversal pattern which can occur at the end of a run in prices.
It is pretty rare to find, but it is pretty reliable when it does happen.
It happens over three candles, the middle candle is a doji which has gapped away from the previous candle. The final candle gaps back the opposite direction.
The gaps leave a clear distance between the shadow of the doji candle and both shadows of the first and third candle, leaving it abandoned.
This is another turning point candlestick pattern which most accurate on a daily chart.
Occurring at both a bullish and bearish reversals, it consists of two candles the first candle brings the market to the high or low.
The next candle is a doji which lies inside the range of the real body of the previous candle.
The dragonfly normally appears at reversals.
The open and close of the candle are at or near the high of the day. The shadow can vary in length, but is usually quite long.
The Dragonfly doji is quite a powerful reversal indicator and does point to large moves ahead.
Morning Star Doji:
This is another three candlestick pattern . It is normally associated with a bullish reversal.
The first candle is a clear downtrend with a long body. The next day opens lower but trades in a very narrow price range.
The last day reverses prices higher and should close at or above the midpoint of the first.
Evening Star Doji:
This candlestick pattern is the opposite of the morning star.
Again, a three day pattern and is associated with a bearish reversal.
The first candle is an uptrend with a long body. The next day opens higher but trades in a very narrow price range.
And the last day reverses lower and should close at or below the midpoint of the first candle.
Also known as the reverse dragonfly, simply because it is flipped over!
The candlestick pattern shadow can be any length but the open and close are at or near the low of the day.
It can be a bearish reversal pattern, but is more often found within the downtrend, signalling that the downtrend is set to continue.
This is the first of a 3 part series. The second part will be published next time.
The original post is by Enda Glynn, appears on humbletraders.com and is available here.