Basic Candlestick patterns | Share Market Learning Series | Technical Analysis | Price Action | Bullish and Bearish Patterns

Basic Candlestick Patterns

In this post we will see some of basic candlestick patterns used in analysis.

Candlestick Patterns:

• Japanese candlesticks are most widely used & powerful tool for technical analysis.
• Candles are used to get information about the market structure, trend, strength of trend.
• Candlestick analysis at key areas can reveal a lot about future price movement.
• Candlestick by its nature can be categorised into Bullish & Bearish candlestick patterns.
• Candlestick patterns can be formed with any number of candlesticks. (from two to 3or4 candle)
• As such instead of candlestick pattern or its name, the context where it forms is more important.

Bullish Patterns:

• Bullish patterns reveals either the continuation of ongoing uptrend or a possibility of reversal from downtrend.
• Using these patterns at key support levels can give good result.
• Bullish reversal patterns at support area indicate potential shift from downtrend to uptrend.

Bullish Marubozu:

• Single candlestick pattern: Bullish candle with Open is equal to Low of the candle & Close is equal to High of the candle.
• Indication of buyers are much stronger than sellers in that candle.
• This pattern forming at support or above resistance level indicates bullish action in future.

Bullish Engulfing:

• Two candlestick pattern: First candle being engulfed (higher high & lower low) by second bullish candle.
• Indication of buyers are now in control.
• This pattern forming at bottom of chart, i.e., during downtrend at key support level has more weightage.

Morning Star:

• Three candlestick pattern: Solid bearish candle, followed by small bullish or bearish candle, then third bullish candle which closes above 50% of First candle.
• Second candle indicate sellers are not so strong to extend the fall, then buyers entered to reverse the trend.
• This pattern indicates bullish trend reversal and works at key support level.
  

Bearish Patterns:

• Bearish patterns reveals either the continuation of ongoing downtrend or a possibility of reversal from uptrend.
• Bearish reversl patterns at key resistance zone indicate sellers are starting to dominate the market.

Bearish Marubozu:

• Single candlestick pattern: Bearish candle with Open is equal to High of the candle & Close is equal to Low of the candle.
• Indication of sellers are much stronger than buyers in that candle.
• This pattern forming at resistance or below support level indicates bearish action in future.

Bearish Engulfing:

• Two candlestick pattern: First candle being engulfed (higher high & lower low) by second bearish candle.
• Indication of sellers are taking control.
• This pattern forming near top of chart, i.e., during uptrend at key resistance level has more significance.
  

Evening Star:

• Three candlestick pattern: Solid bullish candle, followed by small bullish or bearish candle, then third bearish candle which closes below 50% of First candle.
• Second candle indicate buyers are not so strong to extend the upmove, then sellers entered to reverse the trend to downside.
• This pattern indicates bearish trend reversal and works at key resistance level.
  

Note:

• All the candlesticks should be validated with context.
• Volume assosiated with candlestick pattern gives more significance to the pattern.
• Significance of candlestick pattern reduces from higher timeframe to lower timeframe.

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