Do you know why candlestick patterns are so important to learn?
Because you can use them literally in any type of trading and in any time frame.
Think of them as a universal Olympic champion who can play and win every game🥇🥇
Once you are fully familiarized with these candlestick patterns you can win in all types of trading like forex✔️, options✔️, futures✔️, cryptocurrency✔️, commodities ✔️
Table of Contents
- 1.The Harami Candlestick Patterns Explained With Examples
- 2. Inverted Hammer Candlestick Patterns Explained With Examples
- 3. Hanging Man Candlestick Patterns Explained With Examples
- 4. Marubozu Candlestick Patterns Explained With Examples
- 5. Tweezers Candlestick Patterns
- 6. Dark Cloud Cover Candlestick Patterns
- Conclusion
Candlestick patterns explained in this blog with examples are most important ones you need to know. I will be showing you step by step procedure of how to use them in trading.
It will be more of practical approach so make your charts 📈📉ready while reading this blog.
1.The Harami Candlestick Patterns Explained With Examples
A two-candlestick pattern, known as the Harami, is a reversal pattern.
In Japanese, the name “Harami” means “conception” or “pregnancy.” 🤰
As the name implies, it is composed of a large candle followed by a smaller candle of a different color.
☑️How to Recognize the Harami Candlestick Pattern
A dominant trend (uptrend or downtrend) should exist.
The first candle should follow the dominant trend and have a long body.
The body of the second candle must be inside the first. It will be small in size. A Doji or spinning top might represent this candle.
The wicks of the second candle are unimportant; only the body must be within the first candle.
A gap-up or gap-down can be seen on the second candlestick.
The Harami Candlestick Pattern comes in the below forms:
(i) Bullish Harami
(ii) Bearish Harami
(iii) Harami Cross
(i) Bullish Harami Pattern:
A bullish harami candlestick pattern occurs when a large bearish candle is followed by a small bullish candle.
✔️How to identify:
The first candlestick is a bearish candle, indicating a downtrend.
The second candlestick is a small candle with a gap-up price that is contained inside the body of the first bearish candle.
The second candle’s color is not very significant.
✔️Interpretation
If a bullish harami pattern forms during a bearish trend, the price is expected to reverse the current trend.
(ii) Bearish Harami Pattern
The bearish harami candlestick pattern is the opposite of the bullish harami candlestick pattern. This pattern is formed when a long bullish candle is followed by a short bearish candle.
✔️How to identify
The first candlestick is a “bullish” candle, which indicates an up-trending market.
The second candlestick is a small gap-down candle that lies inside the body of the preceding bullish candle.
A second candle’s color is not very significant, though a bearish candle indicates a favorable reversal indication.
✔️Interpretation
At the peak of an uptrend, the formation of a bearish harami pattern signals a significant market reversal.
In addition to the Bullish and Bearish Harami Patterns, another popular Harami Pattern among traders is the Harami Cross candlestick pattern.
This Pattern also indicates the end of a current trend and the beginning of a new trend.
(iii) Harami Cross
The Harami Cross is a dual candlestick pattern, in which the second candlestick is a Doji.
This pattern suggests the reversal of an existing trend and the beginning of a new trend since there is no real body following a dominant trend.
2. Inverted Hammer Candlestick Patterns Explained With Examples
Known as a bullish reversal pattern, the Inverted Hammer is a single candlestick pattern that appears at the bottom of the downtrend.
☑️How to recognize the Inverted Hammer Candlestick Pattern
The open, low, and close prices are almost the same, making a small real body.
The length of the top shadow should be two or three times that of the real body.
The lower shadow is either tiny or non-existent.
It doesn’t matter what color the body is.
☑️Inverted Hammer Candlestick Pattern Meaning
The inverted hammer candlestick pattern indicates a bullish reversal after a downtrend.
It indicates that the bulls are willing to reverse the trend and push the price even higher.
☑️Inverted hammer in an uptrend
When this candlestick appears at the peak of an uptrend, it is referred to as a “shooting star,” which is a bearish reveal pattern. Don’t be misled by their formation.
Inverted Hammer – Bullish Reversal Candlestick Pattern
Shooting Star – Bearish Reversal Candlestick Pattern
☑️Difference between Hammer and Inverted Hammer
An Inverted Hammer Candlestick Pattern is one in which the framework of a Hammer Candlestick is upside down. At the bottom of a downtrend, both of them are crucial because they help spot bullish Reversal.
3. Hanging Man Candlestick Patterns Explained With Examples
The Hanging Man pattern is a single candlestick pattern that appears at the peak of an uptrend. It is a bearish reversal pattern that indicates the weakness of the bullish trend.
☑️How to Identify Hanging Man Candlestick Pattern
A Hanging Man candlestick pattern should appear at the top of an uptrend.
A small body forms at the upper wick.
The lower wick should be at least twice as long as the body. Upper wick should be minimal to non-existent.
It is unimportant what color the body is.
☑️Meaning of Hanging Man Candlestick Pattern
The Hanging Man Candlestick Pattern signals the exhaustion of buyers during an uptrend, indicating the upcoming dominance of the bearish reversal.
☑️Relationship between Hanging Man and Hammer
Both candlestick formations have the same structure and signal a strong trend reversal. The only difference is whether you’re in a downtrend or an uptrend.
The Hanging Man pattern is a bearish reversal pattern that can potentially indicate a top or a strong resistance level. It denotes a bearish turnaround.
The Hammer is a bullish reversal pattern that forms at the end of a downtrend. It denotes a bullish turnaround.
4. Marubozu Candlestick Patterns Explained With Examples
The Marubozu Candlestick Pattern is a single candlestick pattern. It has a long body and little to no upper and lower shadow.
Because of its long body, it is simple to identify.
☑️How to Recognize Marubozu Candlestick Patterns
It has a long body and a single candle.
This candle can occur anywhere on the chart but indicates a powerful trend reversal if it appears close to the end of an uptrend or downtrend.
There is either little or no shadow present.
The longer the candle is, the stronger the price movement.
There are two types of Marubozu Candlestick Patterns.
(i) Bullish Marubozu
(ii) Bearish Marubozu
(i) Bullish Marubozu Pattern
This candlestick pattern tells us that traders are becoming more interested in buying a particular asset.
✔️How to Identify
A single candle with little or no shadow.
If it forms during an uptrend, the trend is likely to continue.
If it appears during a downtrend, it indicates a reversal.
✔️Meaning of Bullish Marubozu Pattern
In a bullish marubozu candlestick pattern, buyers dominate the price throughout the session, from open to close.
(ii) Bearish Marubozu Pattern
This candlestick shows that traders are becoming more interested in selling a given asset.
✔️How to Identify
A single candlestick pattern with little or no shadow.
If it occurs at the close of a downtrend, the trend is likely to continue.
A reversal is also more likely if it occurs at the end of an uptrend.
✔️Meaning of Bearish Marubozu Pattern
A bearish marubozu candlestick pattern indicates that sellers are in total control of the market. From the start of the session until it ends, sellers are in charge of the market.
5. Tweezers Candlestick Patterns
Tweezers are a pair of candlestick patterns that indicate a trend reversal in the price.
There are two types of tweezers candlestick patterns:
- Tweezer Top
- Tweezer Bottom
(i) Tweezer Top
A Tweezer Top is a bearish reversal pattern that appears at the top of uptrends and consists of two candlesticks.
✔️How to Identify
The presence of an uptrend.
There must be two consecutive candles. The first is bullish, whereas the second is bearish.
The high points of both candles must be the same.
The lower side of the body of the candlestick is not very significant.
✔️Meaning of Tweezer Top
These candlesticks signify a level of resistance and indicate that an uptrend may soon turn downwards.
(ii) Tweezer Bottom
It is a bullish reversal pattern that consists of two candlesticks and appears at the end of a downtrend.
✔️How to Identify
There should be a downward trend.
There must be two consecutive candles. The first is bearish, and the second is bullish.
The lowest point of each candle must be equal.
The body’s upper side of the candlestick is not very significant.
✔️Meaning of Tweezer Bottom
The lower point of the tweezers’ bottom acts as a level of support and indicates that the downtrend is about to reverse into an uptrend.
6. Dark Cloud Cover Candlestick Patterns
It is a dual candlestick-bearish reversal pattern that often appears at the end of an uptrend and alerts traders to the possibility of a trend reversal.
☑️How to Recognize a Dark Cloud Cover Candlestick Pattern
The market should be on an upward trend.
A large bullish candle is followed by a bearish candle that closes beyond the midpoint of the previous bullish candle.
The second candlestick would either have a gap up or not. A gap-up on the second candle is common in stocks.
☑️Meaning of Dark Cloud Cover Pattern
To depict the dark cloud pattern, imagine a black cloud dominating the clear sky. Furthermore, if bears maintain their grip on the market, a reversal is likely.
I hope you can now start trading with the help of candlestick patterns explained with illustrations and chart examples. Another thing I’d like to mention is to always try to relate the price action. What this means is that it is not as important to remember the names of candlestick patterns as it is to notice how these patterns occur and what the price action tells you.
All patterns emerge as a result of what the majority of traders believe about price; their psychology is reflected in price action.
Next time you look at these patterns, try to imagine what others are thinking and concentrate on how these patterns can predict future price movements.
Conclusion
- Candlestick patterns are a technical analysis tool used to track changes in the market.
- They are used to forecast the future course of price movement.
- Candlestick patterns are created by either a single candle or by combining two or more candlesticks in a certain manner.
- Aligning candlestick patterns with other technical tools, such as key levels or technical indicators, assists a trader in identifying suitable entry and exit points.
- A market gap occurs when the price opens higher (gap up) or lower (gap down) than the preceding candle as a result of fundamental or technical factors.
Author is Senior Technical Analyst
At Bulls Arena Trading
info@bullsarenatrading
New Delhi
India
Author
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