IMPORTANCE OF CANDLE STICKS
WHAT IS CANDLE STICK?
| Candlesticks is basically a simple box with a wick. which is red, green, white, and black. the meaning is very simple where a big green is visible, the market has gone up it represents is open, and then represents is closed and where a big reduction is visible the market has gone down. |
The candlestick chart gets its name from its resemblance to a series of candles with wicks on top and bottom. Each candlestick represents the price action over a defined time frame, which can range from minutes to months, depending on the trader’s preference and the nature of the analysis being carried out.
*BULLISH –
A Bullish Candle Pattern is a white candlestick that closes higher than the previous day’s opening after opening lower than the previous day’s close A little black candlestick, indicating a bearish trend, is followed the next day by a massive white candlestick, indicating a bullish trend, the latter of which has a body that totally overlaps or engulfs the former.
*BEARISH –
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| Bearish Candle |
A Bearish Candle Pattern is noticed near the conclusion of certain price movements upward. A larger second candle signaling a move toward lower prices overtakes or engulfs the first candle showing rising momentum to signify it. The pattern is more reliable when the engulfing candle’s open price is significantly higher than the first candle’s close and when its close is significantly lower than its open. A down candle being noticeably bigger than an up candle has more weight than the opposite.
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| Morning Star |
At the bottom of a downtrend, a bullish reversal pattern known as the morning star forms. As with other candlestick patterns, it just suggests a prospective reversal, which is best supported by additional indicators.
Four factors to take into account for a morning star formation
Since a morning star is a bullish reversal pattern, a downtrend must be present.
Ideally longer, the initial candle should be bearish.
Given that the session’s bulls and bears have begun to balance each other out, the second candle should be volatile.
Strong bullish candlesticks should form on the third candle, which would essentially confirm a reversal.
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| Evening Star |
Evening star candlestick patterns are used by technical analysis to predict future price reversals to the negative. Despite its rarity, traders see the evening star pattern as a reliable technical indicator. The evening star’s pattern is the opposite of the morning star’s. On the other side, the evening star has a similar structure and it is a reversal pattern. The evening star, in contrast to the morning star, appears at the peak of an uptrend and indicates a probable change in price direction.
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| Shooting Star
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A shooting star is a candlestick pattern in technical analysis that suggests a potential reversal in price. It is similar to the inverted hammer but is found in an uptrend instead of a downtrend. The pattern consists of a candle with a small lower body, little or no lower wick, and a long upper wick that is at least twice the size of the lower body.
The long upper wick indicates that buyers pushed prices up during the period but faced selling pressure, causing prices to close near their opening level. Since this occurs in an uptrend, the selling pressure is seen as a possible sign of a reversal. Traders often look for a lower open in the next period to confirm the sell signal.
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| Hammer Candle |
A hammer is a bullish reversal candlestick pattern that appears as a single candle on price charts. It resembles a hammer, with a long lower wick and a short body at the top, usually with no or very little upper wick. To be considered a valid hammer, the lower wick should be at least twice the size of the body, and the body should be positioned towards the upper end of the trading range. This pattern is commonly observed in bearish trends.
When a hammer forms in a downtrend, it indicates a potential reversal in the market. The long lower wick signifies a period where sellers initially had control, but buyers were able to regain control and drive prices back up to close near the high of the day, resulting in the short body at the top of the candle.
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| Dogi Candle |
The doji is a common candlestick pattern that can be found in a chart of financial assets in technical analysis. It is characterized by a small trading range, with the opening and closing prices almost equal. The effectiveness of technical analysis is debated by the efficient-market hypothesis, which argues that stock market prices cannot be reliably predicted.
The doji indicates indecision in the market. Its significance depends on the trend of the market. In a non-trending market, the Doji is not as meaningful as indecision is already implied. However, if the doji forms in an uptrend or downtrend, it is considered significant. An uptrend, suggests that buyers are losing confidence, while a downtrend, indicates that sellers are losing conviction.
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| Three White Solider Pattern |
The three-white soliders pattern is a bullish reversal pattern that usually occurs at the end of a downtrend or during a period of consolidation. It consists of three consecutive bullish candles, each closing higher than the previous one. A change from bearish to bullish momentum is indicated by this pattern.
The three-white soldier’s pattern is widely regarded as a reliable indicator of a bullish reversal, with a success rate of approximately 80% to 90%. However, it is important to remember that no single pattern can guarantee successful trades. It is always recommended to use additional technical indicators and fundamental analysis to confirm the signal.
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| Bullish Engulfing Pattern
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The bullish engulfing pattern is a candlestick pattern that occurs when a small black candlestick is followed by a larger white candlestick, with the white candlestick completely engulfing the body of the previous day’s candlestick. This pattern indicates a shift in market sentiment, with the bulls now in control and pushing prices higher.
Benefits of using the engulfing candlestick pattern include its simplicity in identification, its reliability as a signal for potential reversals, and its usefulness in identifying entry points for trades.
However, there are also some drawbacks to consider when using this pattern. These may include false signals, where the pattern appears but a reversal does not occur, as well as the need for additional confirmation from other technical indicators or fundamental analysis. It is important to use the engulfing pattern in conjunction with other tools and strategies to make more informed trading decisions.
| *THE BEARISH ENGULFING: |
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| Bearish Engulfing Pattern |
The bearish engulfing pattern is a candlestick pattern that signals a reversal in the trend. It denotes a transition from an upward trend to a downward trend. This pattern consists of two candles, with the first being an up candle and the second being a down candle. The down candle completely engulfs the body of the up candle.
For increased reliability, the bearish engulfing pattern is more significant when it appears at a key support level, as this is where buyers are expected to step in and prevent further price declines. Additionally, confirmation from other technical indicators, such as volume or momentum, can strengthen the validity of the pattern.
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