candlestick patterns and how to apply them
The candlestick patterns were first introduced by Mr. Steve Nisson to the financial markets, originally belonging to Japanese stocks. Candlesticks take different forms based on supply and demand. They have named these shapes. These patterns, as they have been pricing in the past, are expected to trigger a market response in the future, and there is nothing definite about it. Only then, traders will see these forms of change of supply and demand, and this will change the price of different assets.
Advantages of analyzing and trading with candlestick patterns
- The candlestick is a charting language. Personally, I will be completely blind in the market without candles.
- It’s a lot of traders who have been attracted to the fact that they are ascending or descending, and their flexibility…
- Bar charts and line charts are very difficult to comprehend and analyze hence it’ll make trading very hard.
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Forex traders around the world are very accustomed to green and red candlestick colors, so we are going to explain them with these standard colors.
If the closing price is higher than the price of the candle’s opening, we will call it a bullish candlestick. That is, at the time of the formation of the candlestick, buyers have overcome the sellers. The bullish candle is set to green.
Candlestick patterns are very fragile! Scam brokers can manipulate them, so try to trade with the best forex brokers in the world.
If the candle closing price is lower than its opening price, we call it a bearish candle. That is, at the time of the formation of the candle, the vendors have overcome the buyers. We identify the bearish candlestick in red.
Important candlestick patterns
Mr. Nisson has gathered a vast number of candlestick patterns for traders over the years. but not all of them are important or applicable in the financial markets. So let’s get acquainted with the most important candlestick patterns.
Doji reversal pattern
If a candlestick closes in it’s opening price we are having ourselves a doji candle. Doji is a reversal pattern. When the market is moving on a trend and experiences a doji candle, it’s going to rest a little and probably change it’s course of action. Let’s take a look at the examples below.
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You have to keep in mind that the doji’s preceding candle is very important. If you are looking for a reversal, the preceding candle should have a nice body.
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Engulfing patterns are mainly reversal patterns but they can be continuous patterns at the end of corrections. Engulfing pattern is formed with two candles, which the second one covers all prices of the first candle. Let’s take a look at the examples in the picture below.
Engulfing pattern is a sign of powerful change of taste in traders. Now let’s switch over to two profitable candlestick patterns in the forex market.
Dark Cloud Cover and piercing pattern
dark cloud cover patterns take place at the tops or highs in the chart. It’s a two candle pattern, which the second one must close lower than the middle point of the first candle. In other words it should cover at least half of the first candle. Look at the examples below.
If this pattern happens in a bottom or a low, it’s named piercing pattern and the rules are the same.
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It’s probably the most profitable candlestick pattern in the world, because over 80% of the times, the price returns to these candles! In other words the attract prices back from wherever they are.
Not so important candlestick pattern
There are thousand of other patterns that you could learn and lose but they might becoming a little old and over-used in the markets.
- Shooting star
- Evening Star
- Morning Star
- Three bar reversal