Top 10 Candlestick Patterns For Technical Analysis

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INTRODUCTION:-

  • There are lots of candlestick patterns like 103 listed in Thomas Bulkowski’s Encyclopedia of Candlestick Charts, but here we can not use all that candlestick patterns but only see that patterns which can be identified easily and used by most of the traders.
  • So we come with top 10 candlestick patterns for technical analysis and try to understand its use.

WHAT ARE CANDLESTICK PATTERNS?

  • In simple word, candlestick is one kind of bar which makes from open, high, low and close lines and by that candlestick or mixture of different candlesticks there can be different patterns create which call candlestick patterns.in short, it is formed by grouping two or more candles in a certain sequence.
  • In other terms, it is a movement in price that shows graphically on charts by that we can predict that it shows positive or negative movement in future. this prediction can be made on predefined rules to match this pattern.
  • Mainly we can distinguish this pattern in two different types that are:
  1. Single candlestick pattern
  2. Multiple candlesticks pattern
  • Here we cannot differentiate them but we mention top 10 candlestick pattern for technical analysis that mostly used, easily understand and you can make some money.
  • Most importantly, candlestick pattern is very popular among traders and in every few minutes, there is some candlestick pattern are created but we have to use this patterns very carefully because sometimes it does not give results according to predefined rules. We have to use this candlestick patterns with other indicators and for that read my blog.

read the blog:-

http://absolutefinplanner.com/2018/07/top-10-best-indicators-overlays-for-technical-analysis/

TOP 10 CANDLESTICK PATTERNS FOR TECHNICAL ANALYSIS:-

1) Doji:-

  • A Doji can identify by some of its characteristics that it is small in length. this length is small because of its opening and closing price are virtually equal in range. that creates a “cross” formation.
  • A Doji is quite often found at the bottom and top of the trends. if Doji found at the bottom then it possibly gives positive movement and if Doji found at the top then it possibly gives negative movement.
  • Four type of Doji candlestick that is star, long-legged, dragonfly and gravestone.
  1. Star:- appears when the candle has opened and closed at the same level and has moved in a very small range in between.
  2. long-legged:- Long-legged has long upper and lower shadow.
  3. Dragonfly Doji has a long lower shadow.
  4. Gravestone has a long upper shadow.

dOJI

2) Marubozu:-

 

  • Marubozu have two criteria, either do not have upper or lower shadow or lacking both upper and lower shadows.
  • There are mainly two type of Marubozu:-
  1. Bullish Marubozu:- Buyer controlled the price of the stock from the opening bell to the close.in bullish  Marubozu, opening price is equal to close price and continue to go up all day. also, it is a signal of buying
  2. Bearish Marubozu:- Seller controlled the price of the stock. price moved down all day long.in bearish Marubozu the closing price is equal to the low price of the day. also, it is a signal of selling.

MARUBOZU

3) Harami:-

  • Harami pattern is Japanese name and it called as “pregnant women”. This pattern consists of two candlesticks with the first being a large candlestick and the second being small.
  • so in simple meaning, the first candlestick with large real body and second will be small and may appear to be a spinning top and Doji and if the second body will be Doji then it would be called as the harami cross.
  • There are two types of patterns- the bullish harami and bearish harami
  1. The Bullish Harami:- The market is in a downtrend, the first candle is a red candle with a new low. second candle open with a higher price. second candle close on positive but below the first candle open price. this is signal of buying.
  2. The Bearish Harami:- an exact reversal of the bullish harami. in which, this found in an uptrend, the first candle is larger blue or say positive and second will smaller red or negative. this is the signal of selling.

harami

4) Hammer/ Hanging Man:-

  • This is a single candlestick pattern and appears after a downtrend.
  • Hammer pattern and hanging man are similar, both have small real bodies means open, high and close are same, with long lower shadows and short or no upper shadows mean low is more than twice the real body and high is equal to open.
  • The hammer is a bullish reversal pattern that forms after a decline. The hanging man is a bearish reversal pattern.
  • There are other candlestick patterns look similar to hammer and hanging man and that is inverted hammer and shooting star. in this pattern, an upper shadow is long and small or non-existence of lower shadow. Inverted hammer forms at downtrend whereas shooting star forms at uptrend.

HAMMERHANGING MAN

5) Morning Star/ Evening Star:-

  • The morning star and Evening star is somehow similar, it consists of three candlesticks with different uses. in evening star, the first candle is a large bullish candle, the second candle is small bullish and the third candle is a large bearish candle.
  • In morning star, refer as bullish reversal pattern in which the first candle is a large bearish candle, the second candle is small bullish or bearish candle, and third is a large bullish candle.

morning starEvening star

 

6) Dark Cloud Cover/Piercing Line:-

  • Dark cloud cover and piercing line patterns are somehow similar to each other.
  • Dark cloud cover pattern consists of two candle in which the first candle is positive or say a green candle with a large real body and a second candle in negative or say a red candle.
  • Dark Cloud Cover is a bearish trend reversal pattern which appears in an uptrend and makes signals of weakness in uptrend means after dark cloud cover found in an uptrend then price will be going down. so because of that, this pattern has such a name because it looks like a dark cloud over brightly going uptrend.
  • Piercing line is nothing different than a dark cloud cover, it is exact opposite pattern of dark cloud cover. it also consists of two candlesticks, in which the first candle is negative or say a red candle and the second candle is positive or say a green candle. this pattern appears in downtrend and signal of buying.
  • But remember one point that in both dark cloud cover and piercing line second candle close should be in midpoint or say 50 percent of the first candle.

Dark cloud coverPiercing line

7) Engulfing:-

  • Engulfing pattern consists of two candles and looks similar to dark cloud cover and piercing line. Engulf means surround or cover completely. similarly at here in the candlestick pattern, one candle engulf other candle means second candle cover first or the previous candle.
  • There are two types of Engulfing pattern:-
  1. Bullish Engulfing
  2. Bearish Engulfing
  • Bullish Engulfing candlestick pattern is a bullish reversal pattern which appears at the bottom of a downtrend. in this pattern, the first candle is a smaller bearish candle and the second candle is a larger bullish candle so second candle high and low is more than the first candle and cover that first candle.
  • Bearish Engulfing candlestick pattern is an opposite of bullish pattern, which appears at the top and consists of two candles in which the first candle is a smaller bullish candle and second is a larger bearish candle.

8) Three White Soldiers/ Three Black Crows:-

  • Three White Soldiers and three black crows are opposite counterparts of each other.
  • Three White Soldiers consists of three bullish candlesticks. all three candlesticks making high of each previous candle high and each candle making steady advance in price. this appears mostly in a downtrend and gives signals of positive reversal.
  • Similar to Three white soldiers, three black crows consists of three candles but these three candles are a bearish candlestick. this pattern appears in an uptrend and gives signals of negative reversal and beginning of a downtrend.

9) Spinning Top:-

  • The spinning top is a candlestick pattern where it consists of one candle. the candle has a short real body with long upper and lowers shadow.
  • This Pattern found anywhere on the chart, it can be found on top or bottom but it is a potential reversal candlestick pattern. The spinning top is like Doji, here also buyers and sellers are almost equal at the start of candle and end of candle that’s why open and close are somehow near.
  • Bullish spinning top candle from anywhere in the chart then it should be considered as a potential bearish signal.
  • If a bearish spinning top candle means red candle appear in a chart then it considered as a bullish signal.

10) Tweezer:-

  • Tweezer in dictionary refers as an equipment used to pull out something. Tweezer has two types:
  1. Tweezer Top,
  2. Tweezer Bottoms.
  • The tweezer top if consists of two candlesticks and seen at the top of the uptrends and gives a signal of a bearish reversal pattern. in this pattern, the first candle is bullish and closes near the highs and the second candle is a bearish candle means seller’s control.
  • The tweezer bottom pattern has seen at the bottom of a downtrend. the exact opposite of tweezer top and gives a signal of a bullish reversal pattern. in this pattern, the first candle is bearish and gives closes near the low. the second candle goes upwards and eliminates all the loses of the first candle.

AUTHOR:-

  • Mr. Keyur J Ghadiyali
  • Financial planner
  • From, Absolute Fin Planner (absolutefinplanner.com)
  • Mail ID:- keyur.ghadiyali@gmail.com
  • Contact NO:- 8238418279

REFERENCES :-

https://en.wikipedia.org/wiki/Candlestick_pattern

http://www.onlinetradingconcepts.com/TechnicalAnalysis/Candlesticks/Doji.html

http://www.candlestickforextrading.com/candlestick-marubozu-pattern-complete-information.html

https://zerodha.com/varsity/chapter/multiple-candlestick-patterns-part-2/

http://www.chart-formations.com/candlestick-patterns/harami.aspx

https://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:introduction_to_candlesticks#hammer_and_hanging_man

https://www.tradingsetupsreview.com/10-price-action-candlestick-patterns-must-know/

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